The pandemic has revised interest in a topic that has surfaced repeatedly in Tomorrow’s Transactions events over the years, and that is the issue of local and complementary currencies. The Bristol Pound, the Brixton Pound, the Lewes Pound and many other experiments have sprung up around the country (indeed, around the world) to try to stimulate and regenerate local and regional trade and prosperity in response the changing economic circumstances. We tend to think of currencies as being instruments of the nation state but that’s actually a recent invention in the great scheme of things. There’s no reason to see optimal currency areas as inviolable laws of nature rather than transitional borders under prevailing monetary and financial arrangements.
To be honest, I’ve always been puzzled by the Amish, the strange religious sect in America made popular by the noted screen actor Harrison Ford in his 1985 film “Witness“. The Amish reject “modern” technology, but they seem to me to have a rather arbitrary definition of what constitutes “modern”. Why, for example, do they use wheels? Or nails? Or chemical fertilisers? What’s the cut-off point? 1750? Why not the invention of the transistor in 1948? Or the synthesis of urea in 1828?
The Amish, particular the Old Order Amish — the stereotypical Amish depicted on calendars – really are slow to adopt new things. In contemporary society our default is set to say “yes” to new things, and in Old Order Amish societies the default is set to “no.”[From The Technium: Amish Hackers]
Speaking of reactionary sects that eschew the modern world to remain in the comforting cocoon of a romanticised rural past, I read in the Daily Mail that
Plans to scrap the use of cheques from 2018 were dropped today after the UK Payments Council admitted there was no better paper alternative.[From Cheques will not be scrapped in 2018 but because there are no better alternatives | Mail Online]
Well, the wrinklies have triumphed again. Another minor skirmish in the intergenerational war for resources has been won by Joan Bakewell’s generation and our children are going to be made to subsidise a paper cheque system that should have been a distant memory for them. The Payments Council has been forced to cancel the end of cheque clearing (originally scheduled for 2018) and promise to keep cheques
for as long as customers need them[From Payments Council – Payments Council to keep cheques and cancels 2018 target]
Note that I am specific in the wording, as were the Payments Council. No-one was banning cheques: they were ending cheque clearing. If someone else — the Post Office, Age Concern or the CBI — wanted to run a cheque system, they were free to do so. And, to be honest, that would be a good solution, because then their members could pay for it and those of us who couldn’t care less if they never saw another cheque could have ignored them.
I suspect that in the coming age riots of 2025, the cheque book will used as a rallying symbol of revolt by our impoverished offspring because the banks (ie, bank customers) are going to have to pay to support paper cheques into the foreseeable future. This is ridiculous. If some people (eg, my mum) want to carry on using cheques, it should be on the basis of full cost recovery: if you want a cheque book, you should pay for it, and if you want to cash cheques, you should pay £2 (or whatever) to do so.
The Government is aware that, although there are declining numbers, 54% of adults still write cheques, and on average every adult write 13 cheques and receives 4 cheques each year.[From Frequently asked questions on the closure of the cheque system – HM Treasury]
Yes, but that misses the point. When I last wrote a cheque to my son’s school, I didn’t want to. I would much rather have used PayPal, internet banking, my debit card or M-PESA. I don’t want to receive cheques either, from HMRC or anyone else.
When someone sends you a cheque, it’s like being set homework.[From Digital Money: I could imagine using this]
So what happened? In recent weeks I’ve had some conversations with people countries such as the Netherlands, Belgium and Denmark where no-one has seen a cheque for a generation asking me why the UK is different. It’s the British disease: faced with the end of cheque clearing in a generation, the British response is not embrace electronic alternatives, for charities to look at inventive and efficient online and telephone giving, for small businesses to exploit the Faster Payment Service (FPS) or for the Post Office to create its own paper-based alternative but to moan and complain and demand that everything be kept the same as it is. What happened was that reactionary press comment, entrenched interests, publicity-seeking MPs and a fragmented industry have combined to conspire against the forces of rationality and modernity. And they won.
But why stop there? Cheques are quite modern invention and I don’t understand why the Commons Treasury Committee and the Daily Telegraph want to turn the clock back only to the 17th century. They are not true conservatives, whereas I am. I have therefore decided that my only course of action is to appeal to the European Court of Human Rights to force the Payments Council to reinstate the tally stick system that was prematurely ended in 1834. My great-great-great-great-great grandfather was perfectly happy using tally sticks and was, I’m sure, most distressed by the end of the scheme and the burning of the sticks in the Houses of Parliament furnaces which, as you may recall, resulted in the fire that destroyed the medieval palace and a splendid painting by Turner. It is most unfortunate that Associated Newspapers and Saga did not exist at that time, since I feel they might have been able to spearhead a successful campaign against the introduction of foreign methods (such as double-entry bookkeeping).
Tally sticks had numerous advantages over paper cheques. They were much harder to forge, for example, and were understandable by a largely illiterate population (a situation soon to be restored in this United Kingdom). The sticks were far more durable than cheques are, cheques being made out of flimsy paper instead of fine English wood. Why was this sound and practical system swept away for the convenience of bankers! It is my right to continue to use the tally sticks developed under William I for as long as I need them and quite reasonable of me to demand that the rest of society bears the costs. I hope The Telegraph will support my campaign with vigour. And while we’re at it, why haven’t farthings been legal tender since 31st December 1960? I tried to use some when out shopping the other day and they were refused: outrageous.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
Off to the Barclaycard Wireless Festival for the day. I don’t really understand why its still called that. In the old days, when it was sponsored by O2, then calling it the wireless festival sort of made sense. But now it’s sponsored by Barclaycard, they should probably call it the Contactless Festival instead. Anyhow it featured a great many very popular bands, as evidenced by the enormous crowd trying to get in.
I know it looks chaotic but in the end it only took about 25 minutes to get in. Contactless was much in evidence. Barclaycard had kitted all of the bars out with contactless terminals and were kind enough to give me one of the promotional lanyards containing a contactless card (a Visa gift card preloaded with £20) to go and try out. Which, naturally, I did. And, I have to say, it worked perfectly. As testimony, allow me to present the first beer I bought with it!
Being me, I couldn’t leave it at that though, and I started to try out some other contactless paraphernalia about my person. An obvious experiment was to try my Barclaycard phone, and that worked too, but oddly it went online, which rather slowed the transaction down. I don’t understand why it did this, so I’ll ask the chaps when I’m next in the office.
More interestingly, I asked a couple of the bar staff what they thought about contactless and they had both positive and negative observations that I promised myself to report in a spirit of openness and balance…
Positive. It’s quick, and you don’t have to hand the terminal to the customer for them to enter a PIN. And they thought my phone was really cool. They also said that some customers had been paying with their own contactless cards and not just the promotional lanyards.
Negative. There were two big issues that came up in both conversations with bar staff. One was the spending limit, which the bar staff said was too low at £12 (the limit was actually £15, but the all of the drinks cost £4, so you could buy three drinks at £12 but not the advertised four beers in a drinks carrier, because that costs £16). Surely it would have made sense to have subbed the bars so that four beers plus carrier was a £15 special.
Enough of these scientific experiments (most of which I drank), and off to see some of the popular beat combos on show. Here’s 47 second taster so that you can get the idea if you’ve never been to one of these events before.
I was reflecting on the security issue later on, because it really seemed a block. I took the time to explain to one of the women at the bar that there was no risk to her as a customer, because the UK banks’ were unequivocal about unauthorised use: if someone uses your card without your permission, they will refund the transaction. Yet she was unconvinced and was clearly uncomfortable about the idea of “no CVM” purchase. This has been true since the earliest days. As I highlighted four years ago:
Among those that are not yet ready to use contactless, security appear to be the dominant consideration. Which means, of course, that whatever we might think about actual security situation we must get better at communicating it.[From Digital Money: Contactless update]
As I don’t know anything about customer communications and public information, I genuinely don’t know how to cross this chasm, but I wonder if it’s yet more evidence that we should be moving more quickly to contactless phones. The simple PIN code that I need to open up the mobile wallet on my Barclaycard MasterCard phone (the Samsung Tocco that I wrote about before) might well provide the reassurance that people want, even though it doesn’t really make much difference to the overall risk (phones are inherently safer than cards because people notice when they go missing anyway).
Overall, the weekend’s experiences did leave me with three firm conclusions:
1. Both the public and the merchants liked contactless. In this kind of environment – crowded, quick service – the technology performs very well. These were similar to the results seen elsewhere: the punters like contactless payments.
Festival-goers quizzed on the experience, said they were quicker (96%) and easier to use (98%) than credit or debit cards, while a resounding 100% said they’d want to use the PayPass prepaid wristbands again to pay at other festivals, concerts and sporting events.[From Finextra: Contactless wristbands join wellies and camping gear as festival essentials]
2. We should accelerate the development of contactless phones, because they help with the security issue.
3. The Horrors are a good band, but not my cup of tea.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
Act I, Scene I.
A Dashing Brit (DB) traveller in the Big Apple notices that the iconic New York yellow cab whisking him through the concrete canyons to his lodgings is fitted with a touch screen and a contactless card reader.
DB: “Can I pay by card?”
Taxi Driver: “You don’t have any cash, man?”
DB: “No, I just got here. You do take cards, right?”
Taxi Driver: “Yeah, but you know, they charge us like $5 to take your card…”
DB enters $5 tip on the touch screen, then, with a flourish, taps his iPhone fitted with a splendid MasterCard PayPass sticker against the reader. Nothing happens, until the transaction times out.
DB: “Can you do it again, thanks.”
Having asked the clearly exasperated driver to re-enter the transaction and trys both contactless Visa and contactless Amex cards. None of them work. In the DB sheepishly uses the magnetic stripe on his British Airways Amex cards and swipes his way to success. A receipt is printed, and DB goes on his way.
Act I, Scene II.
Broadway. It’s late, but the heat from the day’s sun is still leaking from the asphalt, bathing the pedestrians in an unwelcome June warmth. The street is a cacophony of voices, languages, dialects, creoles. In a few seconds, the sounds of conversation in German, Mandarin and Spanish drift by. A Dishevelled Bearded (DB) grey-haired sage is walking in the road because the sidewalk is full. He glances down a sidestreet and sees a garish sign, the gist of which is that Dunkin Donuts is open round the clock.
“What a country” he thinks to himself as he is drawn towards the light int he clutches of a tractor beam forged in primal fires from sugar and fat, “but I really do heart NY”.
He moves slowly, precisely to the racks of deep-fried delight on display. But he is momentarily distracted by what he thought was an advertising display but has now realised is an ATM. His chemically-dependent slavish devotion to the evil geniuses behind the brand goes to 11: they have their own-brand ATMs. The own-brand money cannot be far behind.
DB muttering: “What a country…”
He shakes his head and turns back to the massed ranks of super-dense calorie containers.
DB still muttering: “…what a country!”
Act I: Scene III.
It’s late June in New York. The heat is oppressive, the air pregnant with rain, a thunderstorm must come soon. A Distressed Businessperson (DB) on his way to an appointment, staggers into a west-side neighbourhood coffee shop. He stands in line, feeling the uncomfortable sensation of sweat running from his receding hairline to his eyebrows. Even with his advanced years, he can hardly not notice the scantily-clad, petite twentysomething blone woman in front of him. She addresses the Indian coffee cup server in a charming local manner.
Petite Blonde: “Just a cawfee, plenty of room for milk”
Indian Server: “$2.50”
The petite blonde proffers a debit card that prominently display the brand of a well-known internationally-famous banking house.
Indian Server: “Sorry, cash only”
Petite Blonde: “Are you serious? You’re kidding right?”
Indian Server: “No cards. You can use the ATM”
He waves toward and ATM that sits, with big red lettering in a strangely old-fashioned typeface, next to the cream and sugar station.
Petite Blonde: “Fugget it…”
She turns to leave, then hesitates and turns back, starting to open her wallet (for our English readers: purse).
Petite Blonde: “No, wait… maybe I got it”
She rummages in the wallet and eventually uncovers a dollar bill and some change. She hands to the Indian server and takes her coffee, while DB begins to rummage in his backpack, certain that he remembers seeing a $5 in his Moleskine yesterday.
Act I, Scene IV.
A Dog-Tired Backpacker (DB) is slumped at his breakfast table in a downtown Manhattan hotel. Unable to sleep, he has been awake since the early hours. Unable to concentrate on his tasks at hand, he has been composing nonsensical observations about financial services of niche interest, intending to foist them on an uncaring universe via a web log. All around him are the men and women who are the beating hearts of commerce and trade. Not all of them are international: one on a nearby table is American and he is yelling into his iPad, having a Facetime video conference with a colleague. At breakfast. In a public place. DB is driven from his Raisin Bran by this performance and stomps across to the coffee station to grab some Joe to go. In his haste to get away from the blockhead banging on about business prospects for the next quarter, he fails to attach the lid to the coffee cup securely, with the natural consequence that it falls off, and he slops coffee on his chinos.
On his way back to the room to attempt an emergency clean-up on Aisle 1, he remembers that he saw a men’s clothing store a block away. He heads overt here and finds a pair of Dockers in the right colour (ie, any) and the right size (REDACTED). He pays with his Amex card, because his John Lewis MasterCard was cancelled following a suspicious transaction and the replacement hasn’t arrived.
Menswear Assistant: “Cash or card?”
DB takes his Amex and swipes it through the terminal in front of him. He is then invited to sign the large, clear screen using a plastic stylus. He does so (signing it, as always, “Snoopy Dogg” as a fraud prevention mechanism — if a fraudster steals the card, then they would sign it DB, because that’s the name on the card, thus any forensic investigation would immediately flag the transaction as bogus).
Menswear Assistant: “Thank you sir, please call again.”
DB wanders into Starbucks next door and orders a medium coffee with an extra shot and an oatmeal raison cookie.
Cheery Barrista: “$4.85 please”
DB hands over pre-paid US dollar Travelex MasterCard, which the Cheery Barrista swipes in an instant and returns.
Cheery Barrista: “Do you want a receipt?”
DB: “No thanks.”
Cheery Barrista: “Have a great day.”
DB turns toward to counter where patrons queue to pick up their completed beverage orders. He stops, puzzled, lost in thought. He thinks to himself “Hhhmmm… there’s no way that contactless technology is going to make that transaction any faster, and customers don’t care about security, because it’s not their problem, so how is it going to catch on in the US?”
As the dark clouds of thunderstorms stack above the skyscrapers of Wall Street, DB ambles toward the Museum of American Finance, only to find that it doesn’t open on Mondays. Lost in tortured thought about the mobile wallet and the competitive strategies of his clients, he reaches for his iPod, turning the corner of Broad Street to the sounds of “Brainbox Pollution” by the world’s greatest ever popular beat combo, the mighty Hawkwind.
Exit, pursued by bronze bull.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
At the Intellect / Payments Council conference on Driving Change in Payments, one of the delegates (I think it was one of the chaps from Accenture), raised the topic of surcharging, asking whether the surcharging of non-cash payments might slow the spread of e-payments in general and low-value contactless cash replacement payments in particular. He also mentioned the example of surcharging by low-cost airlines.
Perhaps the most obvious example of tender steering in Europe is in eCommerce – where Ryanair (and other low-cost carriers) surcharges considerably for all but a single method of payment (currently MasterCard Prepaid cards)[From Will Retailers Use “Tender Steering” to Control Interchange Fees? |… | LinkedIn]
While the point about surcharging in relation to the spread of new payment mechanisms is interesting, what’s going on with the airlines isn’t really surcharging (Ryan Air said specifically that “these are not surcharges”, and they are correct). What these charges are are a transaction tax that everyone has to pay (I’d be curious to find out how many people actually pay with Ryan Air MasterCard prepaid cards). Unsurprisingly, a great many people were unhappy about this practice (ie, advertising an air fare as £10 then charging £18 because the customer pays with a credit/debit card) as it smacks of unfairness.
A super-complaint is to be launched about the “murky practice” of surcharges levied on customers who pay by debit or credit card[From BBC News – Credit and debit card surcharges ‘are excessive’]
Bear in mind that if you are booking tickets for a family, these transaction fees can easily become significant: if they were folded into the price of the ticket, it would give a more accurate guide to the public.
I recently used Ryanair and cost me £30 in booking fees and another £48 in online checkin fees to use my printer and my paper and my Ink. Can anybody explain how that works ?[From Which Launches Super-Complaint Into Credit And Debit Card Surcharges With Office Of Fair Trading | Business | Sky News]
Well, the solution to that seems pretty straightforward: don’t book Ryanair. It’s not just them, by the way. I understand that EasyJet charges £8 (EIGHT QUID) for a debit card transaction that costs it, what, 15p? Personally, I won’t use any of the “low cost” carriers, so I don’t know what the exact figures are. Anyway, today the OFT ruled on the super-complaint (and I can’t wait to Ryan Air’s response because they will undoubtedly go bonkers):
Travel companies have been ordered to end the use of hidden surcharges for passengers paying by card. Airline, ferry and rail passengers typically have to click through four to six pages of an online booking before the charge is added to the price. Now the Office of Fair Trading (OFT) has ordered them to make all debit or credit card charges clear immediately.[From BBC News – Hidden card charges for travel tickets to be banned]
But that, to me, isn’t the interesting part of the ruling. This is:
It also wants the law changed to abolish altogether charges for using debit cards.[From BBC News – Hidden card charges for travel tickets to be banned]
Much as I dislike government intervention in the pricing of anything, unless the costs of cash are to be distributed properly (which they won’t be) this is the only sensible course of action. Making debit cards the “zero” and allowing retailers to surcharge other payment mechanisms (including cash) is fair, with one proviso: that pre-paid cards are counted as debit cards. This is necessary to deliver financial inclusion.
Perhaps the European Commission could be persuaded to adopt this as part of its SEPA initiative and make it common throughout Europe so that pre-paid and debit cards become the “normal” way to pay?
Eric Schmidt’s very bullish comments about near-field communication (NFC) technology in the US retail market have got people talking about business models again.
Eric Schmidt, Google’s executive chairman, believes that a third of check-out terminals in retail stores and restaurants will be upgraded to allow wireless “tap and pay” from mobile phones within the next year.[From Google’s Schmidt predicts widespread “tap and pay” within a year | FT Tech Hub | FTtechhub – Industry analysis – FT.com]
These follow a series of statements by Google executives that, whether they are true or not, seem to have legitimised the technology in the eyes of a broad range of businesses.
She added that there is a ton of activity around NFC in international markets, giving the example of a successful trial of the technology that Starbucks ran in London.[From Google Commerce Chief: We’re Making A Huge Bet On NFC As A Company]
I’ve never heard of this Starbucks NFC trial, so if anyone can point me in the right direction I’d really like to read up on it. But that’s beside the point. The point is that lots of people are now taking NFC seriously in the retail space and the mobile operators are developing NFC strategies. But what business model will there be for them? And what options do they have?
The question will then be how operators manage to regain relevance for their role in NFC transactions (which will come later, if at all), when the first trillion NFC interactions will have bypassed them.[From Dean Bubley’s Disruptive Wireless: What will be the business model for free NFC-based interactions?]
You can see the problem that he is alluding to, but it may not be immediately obvious why it is such a problem specifically for operators. Look at the issue from a slightly different perspective, one that stems from security. I would argue that there are two different classes of application for NFC in mobile phones. These are, broadly speaking, “open” applications and “closed” applications. They are, broadly speaking, about interaction in the case of open applications and transaction in the case of closed applications. Creating such applications is, broadly speaking, easy to create in the case of open applications and difficult in the case of closed applications.
Why? Well, it’s because the closed applications need security and the open applications don’t. Open applications are things like games and business cards and “friending”, where consumers touch phones to something (which may be another phone) in order to get or exchange some information. These are what Dean means by “interactions”. Closed applications are things like payments and tickets, where real money is involved (other than the service providers own) and the applications must be what security professionals refer to as “tamper resistant”. They must also work, all the time and every time. These are what Dean means by “transactions”.
Working out how to do implement secure electronic transactions is (I’m happy to say, since it’s a big part of Consult Hyperion‘s business) difficult, complicated and interesting. It’s easy to picture how life might be with your credit card inside your mobile phone, but think what has to happen to realise that picture! How will the security keys necessary for the card application be transported across potentially insecure networks into the tamper-resistant chips (the “secure elements”, SEs) in handsets? How does the bank know that your credit card is going in to your phone and not a fraudsters? When you get a new phone, how does your card make its way from your old phone to the new one? How does the wallet application in the phone communicate with the card application in the secure element?
In the architecture developed by the transaction incumbents (by which I mean banks and telcos), the management of the closed applications is undertaken by something called a “trusted services manager”, or “TSM”, an entity that stis between the providers of closed services, such as banks and transit operators, and the mobile operators who connect to the SEs that they, in effect, own and rent out space on. This model may be disrupted, because it was founded on the assumption that the SE would be under the control of the MNO and that the TSM would have to cut a deal with the MNO to rent the SE space (what you’ll often here telco people refer to as the “apartment model”).
In the Google play, the TSM is operated by First Data and the SE is operated by Google (it’s in the Nexus handset, not on the SIM). The operator has no control over the SE and can extract no “rent” for its use. I notice that in the Nilson report (#972, page 7) it says that the Nexus S is the only smartphone in the US market with an SE not controlled by the mobile operators: it might have said that it’s the only smartphone in the US with an SE, full stop. The operators (in the form of Isis) are not yet in the marketplace. Why are Google being so active then? Well, on the Catalyst Code I read a while back.
Google has obviously made a decision that NFC is an opening into something more interesting and lucrative than transforming a phone into a payment card– advertising and marketing opportunities at the point of sale – the physical point of sale. And, it has done a deal with VeriFone that takes the economic sting away from the merchants who need to buy into their vision to make it work – and who have by and large turned their noses up at NFC up to this point. Layer on top of that their Google Checkout asset and their newly launched One-Pass wallet application and you have the makings of an interesting new payments player.[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]
Karen is, as usual, spot on about this. But I’m not so sure about this…
What’s amazing is that Google was the first to connect all of these dots[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]
This doesn’t seem amazing to me, because I’ve been involved in numerous attempts to develop mobile proximity propositions involving banks and operators and from these experiences have developed (I think) a reasonably accurate map. A month before the Google announcement, I wrote on Quora that “I’m sure [loyalty and rewards] will be Google’s strategy too. Payments are not an interesting enough application to persuade people to go out an get an NFC phone.”
So how come banks and operators didn’t connect the dots, then? Banks and operators have smart people in them, and some of them have smart consultants too. But it is very difficult to make institutional strategies for non-core businesses and have them translated into a practical tactics with appropriate priorities. If you were in a European mobile operator back in 2009 and you had an idea for using NFC to create a new business, where did you go with the idea? I went in to an Orange retail outlet: they are the first operator in the UK to sell a commercial NFC handset with an onboard payment application: not only did the shop not accept NFC payments but they didn’t sell any NFC tchotchkes, such as blank NFC tags. If you’re a smart kid and you get one of these phones, and you have an idea for using tags as tickets for a gig you and your mates are running… well, hard luck. This is problematic, because we need lots of people to be experimenting, developing and playing with the new interface to create the new, open applications.
In April, Nokia’s vice president for industry collaborations, Mark Selby, speaking at the WIMA NFC conference in Monaco, contended that NFC applications not securely stored on SIM cards, embedded chips or other secure elements will account for two-thirds of the revenue that NFC technology will generate through 2013.[From Nokia Introduces Its Second NFC-enabled Smartphone | NFC Times New – Near Field Communication and all contactless technology.]
I hope Mark won’t mind me mentioning that we discussed this over dinner a couple of weeks ago and, while I agreed with him about the market, I bored him at length with my moaning about the slow development of the ecosystem. Where are the Nokia NFC tags for kids to buy? Where are the NFC USB sticks to connect laptops and phones?
But, looking forward, there’s another issue here. This classification of open/interactive vs. closed/transactional NFC uses is too simplistic, because as the technology spreads in the mainstream, interactions will need to be secure too. When I tap my phone against an advert at the bus stop, I want to find out more about “Kung-Fu Panda 2” and not get directed to a porn site, a reverse-charge premium rate phone call to Honduras or send a text message to someone who wants to sell my mobile number to commercial organisations. I want my phone to check the digital signature on the tag and make sure that it is valid, and that it is signed by an organisation recognised by UK phone operators, or banks, or the government, or whoever. But signing the tags (which is part of the NFC standards, but no-one uses at the moment) means that someone has to distribute keys, and certificates and all that stuff. None of this exists right now, but in the future it will have to.
So… Not only is there no ecosystem for transactions, there’s no ecosystem for interactions either. Now you can see why the mobile operators are going to have to work so hard to stay in the NFC loop. A couple of years ago they could have started to roll out the handsets for open, interactive purposes and started many communities off on experimenting with the new technology while they developed the necessary infrastructure for both secure transactions and secure interactions, but they didn’t because they couldn’t see a business case. What’s the business case for selling public key certificates so that advertisers can digitally sign tags using their internally-generated private keys?
It’s hard to work out a conventional business case around a business that simply doesn’t exist yet, and I understand that. But I think that even three or four years ago, the consumer response to the early pilots and trials was so positive that it was clear that the technology would make the mainstream. Now that Google’s activities have served, in an odd way, to legitimise both NFC technology and the business models around it, maybe the operators should adopt a more Google-like approach to business model: start building way more cool stuff, monetise what works and then be ruthless in killing off what doesn’t.
My employer, Consult Hyperion, has provided paid professional services to some of the organisations named here in connection with products and services discussed here, but the opinions in this post are my own (I think) and presented solely in my capacity as an interested member of the general public
There’s an interesting choice of words in the O’Reilly Radar publication on “ePayments 2010“. The report’s subtitle is “Emerging Platforms, Embracing Mobile and Confronting Identity”. I thought that this is expressive: the payments industry is “confronting” identity.
…even as consumers come to expect online systems to know more about them in order to facilitate transactions and reduce friction in accomplishing tasks, they are likely to want to maintain control over which online services have access to distinct aspects of their identity.
Very well put. It illustrates a point that I find myself making in more and more discussions these days: that if the players in the payments industry don’t deal with the identity problem, then someone else will.
Identity is critical in many ways: It ensures the right degree of user personalization, enables the reliable billing of services used across a platform, and provides a strong foundation of trust for any transaction occurring on the platform.[From Making Sense of Ever-Changing Payment Technologies: The Year of APIs and the Reshaping of the Payment Ecosystem – pymnts.com]
Patrick is right to highlight the key role of identity in constructing the future payments infrastructure, although I would draw a slightly different diagram to illustrate the relationship. He has drawn identity on top of payment services, whereas as I would draw them side-by-side to show that some commerce applications will use identity and some will not, some commerce applications will use payments and some will not. This isn’t just a payments issue, of course. It’s rapidly becoming a major block on the development of the online economy. There’s a Chernobyl coming, and the recent fuss about Sony and Sega will appear utterly trivial in comparison. I’m not smart enough to know where or when it will happen, but it will happen. If I had to take a wild guess, I might be tempted to predict the epicentre if not the cause or symptoms.
I trust Facebook to give the messages that I type to my ‘friends’. I trust Facebook with the login details to my Yahoo email account… Even in the last week at least four of my friends have been link-jacked in Facebook – whereby their accounts start spewing malicious links onto the walls of their friends.[From Trust co-opetition is the key to avoiding disintermediation « in2payments]
It’s the interlinking via social networking that is precisely the danger, because that means when something goes wrong is goes connectedly wrong and gets out of control in unpredictable ways. Something has got to be done to make identity mischief substantially more difficult. But how?
We need online identities anchored in hardware cryptography. Everybody who does financial cryptography understands that for anything of value, you can’t store the keys in software. You need hardware protected keys, with a cryptoprocessor to operate on them, and very importantly, a trusted UI to the human that doesn’t involve hackable software. EMV is a good basis for this[From The Case for EMV Chip Cards in the US? — Payments Views from Glenbrook Partners]
Hear hear. I’d say that it was the chip with a crypto co-processor that is the basis (EMV is just an application running on such a chip) but the point holds. So where are these chips today? Well, they exist in your chip and PIN card is a sort of autistic form, with limited communication and narrow bandwidth through which we can reach the smart core. And they exist in your mobile phone, in the form of the UICC, where they have high bandwidth, constant connectivity, a UI, huge memory and an ecosystem beyond the device. And they will soon exist in your mobile phone, set-top box and elsewhere in the Secure Element (SE). (As an aside, in some models the SE will be resident in the UICC, so there may only be one physical chip.)
Therefore, there is an opportunity to roll-out an SE-based infrastructure, perhaps in the NSTIC architecture, that sets us down the path to identity security. I’m surprised that, in Europe at least, the mobile operators haven’t already got together to develop their joint response to NSTIC and begun work on the business models that it spawns. The mobile operator is a naturally identity and attribute provider and they already have the tamper-resistant hardware (ie, UICCs) out in the market. They know the customer, they know the network, they know the device. I should be logging on to everything using my handset already, not messing about with passwords and secret phrases and mother’s maiden name.
From the point of view of the UK, where the national identity card scheme has just been scrapped and there is no alternative identity infrastructure in place, there is much to be admired in the US approach.[From Digital Identity: USTIC]
This may be another area where the ease of use afforded by NFC makes for a big difference in the shape of the marketplace and the trajectory of the stakeholders. There were some early experiments in SIM-based secure PKI, but they were very, very clunky because they needed SMS or Bluetooth to connect the handset to the target device, like a PC or a kiosk (or a POS). But in the new world of NFC, what could be simpler: use menu on phone to select identity, tap and go online. And since the SE can handle the proper cryptography, my phone can tell whether it is talking to the real Barclays as well as Barclays working out whether it is talking to my phone. The NSTIC framework, when combined with the security and ease-of-use of NFC in mobile phones, may not be whole solution, but it’s certainly a plausible hypothesis about what that solution may grow from.
There are some people, in some parts of the world, who still prefer cash over any form of electronic alternative. My mum, for example. But her demands on the Treasury are modest. In other countries, cash has a bigger impact, because local distributed entrepreneurs need it for business-to-business transactions.
Somali pirates are reported to have received a total of $12.3m (£7.6m) in ransom money to release two ships. They are believed to have been paid a record $9.5m (£5.8m) for Samho Dream, a South Korean oil tanker, and nearly $2.8m (£1.7m) for the Golden Blessing, a Singaporean flagged ship. “We are now counting our cash,” a pirate who gave his name as Hussein told Reuters news agency.
I’ll bet they are. And It will take them a while. Once again, these marine miscreants aren’t looking for prepaid mobile phones, gift cards or PayPal accounts: they are after cash, and I’ll lay a pound to a penny that they didn’t want Yuan or Roubles or Kenyan Shillings and an M-PESA account in a false name: they wanted dollars, and in $100 bills. The cash was dropped from a helicopter on to the ship. Wait a minute, you might be tempted to think: how on Earth can people move millions of dollars in cash around when we have stringent KYC/AML/CTF legislation in place! I think I may have found the answer. They are criminals, and therefore don’t care about such restrictions. There’s an amazing story in one of the free newspapers you get on the tube (Metro, 20th June 2011).
Three Britons accused or smuggling more than £2m into Somalia to pay pirate ransoms. They were given sentences of between TEN AND 15 YEARS (my emphasis) and also fined £9,000.
That £9,000 fine must have strung. This is, apparently, the first time that “westerners” have been sentenced for their involvement in ransom payments. Hhhmmm. Interesting. Now what were they smuggling into Somalia again? Was it mobile handsets for illicit m-payments? No. Prepaid cards to be used for nefarious purposes? No. Bitcoin wallets on encrypted USB drives? No. It was cash. Of course it’s quite inconvenient to have to ship huge wads of $100 bills around, so perhaps the pirates had asked for euros instead. It could do with the support at the moment. If the Feds decide to start issuing $500, or $1000, bills anytime soon, the euro would be devastated, since almost half of the euros out there are in the form of €500 notes and if drug dealers, money launderers, kidnappers and corrupt politicians decide to dump them for dollars the demand would collapse (nobody uses them in legitimate transactions).
Malaysian police have arrested a Lebanese man allegedly carrying fake currency with a face value of $66 million after he tipped a hotel staff with a $500 note, an official said Friday. The largest U.S. note currently in wide circulation is a $100 bill. But police found bundles of $1 million, $100,000 and $500 notes in the man’s hotel room in Kuala Lumpur on Sunday, said Izany Abdul Ghany, head of the city’s commercial crime unit.[From $500 Tip Leads Police to $66 Million in Fake Bills – ABC News]
Cash does seem to attract the wrong kind of person. There has to be a better way.
Elizabeth Buse, group president, Visa, responsible for Asia Pacific, Central Europe, Middle East and Africa said that bringing transactions out of cash into electronic forms will allow governments to have better tax compliance and greater monitoring of fraudulent transaction and money laundering.[From Electronic payments can control black money]
There’s an interesting experiment in this line of thinking underway right now, The Central Bank of Nigeria (CBN) is attempting to restrict the role of the cash in the economy there and push for a more efficient less-cash system.
To be precise, the CBN on April 20 sent a circular to all banks, Cash-in-Transit (CIT) operating firms, payments system service providers, limiting daily cash withdrawals to N150,000 for individuals and N1 million for corporate entities effective June 1, 2012.[From From cash to cashless economy: How practicable is CBN’s mop up policy?]
There’s been a storm of complaint about this from various elements in Nigerian society. I assume that some of these complaints come from people who are happy with the corruption and tax evasion that cash delivers, but there are also reasoned complaints that the electronic infrastructure is insufficient.
On May 17, the House of Representatives objected to the proposal by the CBN & requested the CBN to suspend the implementation of the policy. They argue that that the country was not prepared for such a change[From Nigerian Cash Management Reform — Counting On Currency]
I hope the CBN stays the course, and not just because of economic efficiency. Cash discriminates in favour of the tax-evading, corrupt elites at the expense of the powerless and poor: electronic payments should be a cheap, fast and transparent alternative.
The biggest enemy in fighting poverty is physical cash. The fact that people living at the bottom end of the pyramid need to conduct their business with paper notes (and coins) is the main reason why they are often stuck there.[From Mobile Banking: Nigeria and cash]
But how can an emerging market make the transition from cash to cashless? The answer is, of course, to skip past the slow roll-out of conventional banking and payments infrastructure and use mobiles, not cards, to replace cash. Kenya points the way…
Over 13,000 sugarcane cutters in Mumias Sugar zone will start receiving their pay electronically following a deal between Mumias Sugar Company, Family Bank and mobile phone money transfer service providers. Acting harvesting and transport manager Mr Franklin Maguge said the firm was considering the possibility of extending the programme to cover other casual workers in the next one month… The services will be also extended to cover sugarcane cutters National Hospital Insurance Fund (NHIF) medical scheme monthly remittances to make it easy for them to pay without going through hectic process.[From 13,000 Sugarcane workers to get paid via phones. « Mobile Money Africa]
This story gets even more interesting, though.
The sugar milling firm in collaboration with Safaricom and Airtel mobile phone services providers and Family bank is also making arrangements to have the cutters provided with mobile phones at a subsidised loan for efficient running of the programme.[From 13,000 Sugarcane workers to get paid via phones. « Mobile Money Africa]
Providing subsidised loans to the workers who do not have phones presumably saves money compared to paying them in cash. So if some of the workers still insist of getting paid in cash, great ineffeciencies remain for the company. When few enough remain, the company than quite reasonably insist that they are paid by mobile (I can remember my first factory job when I was a teenager, when the company was going through the process of switching the workers from cash to direct deposit – it wasn’t instantaneous, but it was done in the end). Come on mateys, all aboard for lack-of-Treasure Island.
At a recent Financial Services Club event, one of the speakers said that it was unlikely that retailers would make changes to their POS systems to adapt to new payment mechanisms, outside of their normal replacement cycles. With one exception. He said they might make the investment in POS if it was for their own payment system. In other words, Tesco won’t change their POS software because some student comes up with a cool way of paying for things with iPhones, but they will change their POS software to launch their own payments service, wallet, device or whatever that reduces costs and increases benefits.
I was pottering around the British Library’s superb exhibition on science fiction and, since it is free, felt it only moral and just to stop off in the gift shop and buy a couple of books. Truth be told, there were a hundred books there I wanted to buy, but I decided to limit myself to two, one of them being a copy of Edwin Abbott’s magnificent Flatland, one of my all-time favourite books, for no.2 son. Browsing on, I was astonished to find a new edition of Edward Bellamy’s “Looking Backward, 2000-1887” from the Oxford University Press. This is dated 2009, so it didn’t exist when I wrote about the book back in 2006.
I’m always curious about the first reference to the credit card in literature. The oldest I’ve found so far is in a long-forgotten text from 1886 called “Looking Backward, 2000-1887” by one Edward Bellamy. I picked up a 1947 edition from the Amazon marketplace, which suggests it must have been reprinted a few times. Indeed, the dust jacket claims it to be one of the best selling utopian fantasies of all time.[From Digital Money: 1886 and all that]
In this new version, according to the web site (I haven’t read it yet – will start tonight):
- The second most successful novel to be published in nineteenth-century America–a book whose thunderous indictment of industrial capitalism and vision of life in a socialist utopia still touches a nerve in the twenty-first century.
- The introduction offers a highly original reassessment of the novel, exploring the political and psychological peculiarities of this celebrated utopian fiction
- Uses the second, revised edition text of the novel which made “Looking Backward” a bestseller, and the notes detail significant variations from the first edition.
- Contains an up-to-date bibliography and chronology of the author’s life
The discovery of this new edition made me think again about just how long it takes to effect change in the conservative world of money. Yet perhaps Bellamy was only a couple of decades out in his predictions of cashlessness, which isn’t bad across a 125-odd span. Public attitudes are changing, even in conservative nations such as our United Kingdom.
Only 31% of people said using notes and coins was their preferred payment method, with 41% saying they would choose to use a card if they could, according to the Payments Council.[From The Press Association: Consumers ‘choose cards over cash’]
Personally, I would never use notes and coins again if I had the choice, and it looks as if more and more people are coming to the same conclusion.
It found that while 83% of people aged over 55 would use cash when buying something for up to £3, 12% of under-35s would use a debit card.[From The Press Association: Consumers ‘choose cards over cash’]
I’m certainly over 35, but I fall in the later category. I would always used a card, given the option, although I never use a debit card of course. Why anyone would use a debit card when they could use a credit card (except in the face of surcharging, about which more in a later post) I don’t know. But this leads me to conclude that Bellamy may well have been a more accurate soothsayer than anyone suspects. This is because the “credit card” that he describes in the book is actually a pre-authorised offline prepaid card, and these surely are they key cash replacement product de nos jours. In the Federal Reserve Payments Study last year, prepaid was identified as the fastest growing segment.
The Study found that prepaid cards represented the fastest growing payments segment from 2006 to 2009, with an annual growth rate of transactions at 21.5%. By way of comparison, the number of debit card transactions grew at 14.8% and the number of credit card transactions declined by .2% annually over the same time period.[From PaymentsJournal – Prepaid Transaction Volume Continues to Grow, Even as the Size of the Transactions Gets Smaller]
I’ve just been exploring some prepaid opportunities with one of our clients, and one of the factors that we were kicking around (not giving any secrets away!) was that prepaid is a way to experiment (provided that not-too-ridiculous KYC/AML/CTF doesn’t derail it) in a way that other products aren’t.
From the consumer side, prepaid allows consumers to test new opportunities and options without risking a lot of money or putting their bank accounts or credit cards on the line.[From PaymentsJournal – When It Comes to New Payments Technology, Prepaid Will Lead the Way]
This is a good point, but I feel there’s another factor, at least in Europe. You don’t need to be a bank to offer prepaid services: the combination of an Electronic Money Institution Licence (ELMI) and a Payment Institution Licence (PI) means that any company can offer a full service: an open-loop prepaid card. I suspect that many of the companies applying for these licences are doing so because they want to use new technology to deliver new services that need payment, if you see what I mean. That is, they don’t expect to earn money from the payments themselves, but from the value-added services that need the payments to take place (what people are starting to call the “Google Model”). Hence Bellamy’s vision may be realised not from within the payments industry, but from, say, retail or mobile or brand or somewhere else entirely.
I’ve been using the prepaid contactless MasterCard on my Orange phone for a couple of weeks now — mainly in Pret and McDonalds — and I have to say it works pretty well. I’ve very comfortable with the idea of switching to prepaid, because prepaid on the phone isn’t a pain, it’s easy. When the prepaid balance falls below a certain level, you’re asked to enter your PIN and top up. Simple. Thus while it may be initially hard to imagine prepaid cards replacing cash in retail transactions, the more I use my prepaid “card” in retail transactions, the easier it becomes.
Naturally, I obtained a spare copy of the new edition of “Looking Backward” and I have it on my desk beside me as I type. I will cheerfully dispatch it post-haste to the first person to respond to this post with the name of the first-person narrator of the story in question. In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and is not connected in any way with the London Olympics 2012. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.