Lording it up

The House of Lords (for foreign readers, this is the unelected second chamber of government, stuffed full of government placemen – so many, in fact, that the Lords are begging the government to stop sending more of them) has been getting into a bit of a tizzy about cheques.

Lord Sassoon: the criteria which the Payments Council itself put forward and which the previous Government welcomed back in December 2009—I echo that welcome—was that the new system had to be generally available, generally acceptable to its users and widely adopted. There also has to be, in the view of the Government, a paper-based system

[From Hansard – Lords | Houses of Parliament]

For foreign readers, Lord Sassoon is James Meyer Sassoon, Baron Sassoon, the Commercial Secretary to the Treasury, a minister in the UK’s finance ministry. Note his words: the British government wants to replace the current paper-based system with a new, dynamic, forward-looking, white heat of new technology 21st century paper-based system. Hhhmmm….

Surely we can do something more interesting than that. Cheque replacement was a subject of much conversation in my vicinity last week. Consult Hyperion were one of the sponsors of this Intellect / Payments Council conference on Driving Change in Payments, and an excellent event it was too. Here I am with the Conference Chair Michael Alexander (an Independent Director of the Payments Council), telling him just that.


Mobile was one of the recurrent themes. Alastair Lukies, the CEO of Monitise, was one of the speakers (see below) and one of the subjects he touched on in passing was the potential for mobile to provide the replacement for cheques in the UK. This is a hot topic, since the Payments Council has announced its plan to end cheque clearing in 2018. This, in turn, caused a predictable response from the reactionary press and various interest groups, all of whom want to retain the current system of expensive cheques subsidised by people like me who hate them.


Just to give you a snapshot of the views of the British public — which are of no interest to me, naturally, but may serve to frame the debate here — I cut a few comments from a recent article about this on the Daily Telegraph website,

If cheques are expensive to process then increase the price, I think I already pay 35p per cheque

[From Plans to phase out cheques should be scrapped, say MPs – Telegraph]

Businesses do, but personal customers have grown used to what they perceive to be free banking. I’m all for transparent pricing. If the Payments Council decides to retain cheque clearing but charge full cost recovery to users, that would be a reasonable outcome. However, this would mean that cheques would cost probably even more than 35p each, and once again the pleading for special interests will become the substitute for the real debate.

If cheques go then genuine charities should be given free transfer by card or someone should think of another method of paying small amounts at no cost

[From Plans to phase out cheques should be scrapped, say MPs – Telegraph]

It is plausible, although I don’t think it is likely, that the government might impose a social obligation on banks and payment institutions to execute low-value transactions (those, say, of a value less than the largest banknote in circulation, €500) for free as a social obligation in return for their licenses. The root problem is that people think not only that payments should be free but that someone payments are free. This is wrong, but you can imagine the newspaper headlines about the charity for sick children being forced to pay outrageous processing fees by the evil financial sector. (The impact on charities came up a few times in casual discussion around the topic at the recent event.) Some people are worried that this will even put an end to some charities.

the Institute of Fundraising has warned that the plans could be disastrous for charities, some of which receive up to 80% of their income through cheques.

[From Finextra: Dumping cheques could “spell disaster” for UK charities]

I don’t understand what they are thinking. Getting rid of cheques will save them a fortune. Charities in countries without cheques — eg, Finland — seem to be able to raise money without too much trouble. I’ve already made a perfectly sensible and reasonable suggestion as to how to set up unique financial sector identifiers that can serve as payments addresses for mobile and online payments and for the 0.1% of the population who don’t want to use these (eg, my mother) they can just call an 800 number and effect the transfer with voice authentication (or something similar). Why on Earth should we be targeting paper-based replacement? Doesn’t this discriminate against people who can’t read or write? Let’s set the bar higher.

It must be further noted that in the Telegraph, as well as a couple of other papers, the particular issue of paying the gardener was also seen as being an important payments use case in the UK. I thought at first that this might be something to do with the English class system, but it turns out that paying gardeners is an issue around the world!

I live in Belgium at the moment and have not used a cheque in years. All the transfers are immediate, not 3 days later which is just a scam by the UK banks to use your money for free for three days. If I pay the gardener its cash or a virement (transfer) easy.

[From Plans to phase out cheques should be scrapped, say MPs – Telegraph]

Look, I’m sure there will be a small number of people who will find it hard to use mobile payments, or web payments, or whatever, just as there are a small number of people who find it hard to use cheques right now, but that’s no reason for the Payments Council to get fainthearted. The end of cheques in 2018 should be a stimulus to innovation in UK payments. Except, as I said before, it isn’t the end of cheques.

Cheques aren’t being outlawed in 2018, but cheque clearing is going to stop. If Associated Newspapers wants to apply for a Payment Institution (PI) licence and operate its own cheque system, then good luck to them

[From Digital Money: Cached]

Surely the noble Lords can contribute some seed capital to assist the Daily Mail, Saga, Oxfam and the House of Parliament Tennis Club in creating the new paper-based system that they want.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Yet more about NFC and business models


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. 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. Working out how to do this 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 Galaxy S2 handset, not on the SIM).

So, for example, 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. 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.” Banks and operators have smart people 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 (come on guys – you have to eat your own dogfood, as our transatlantic cousins are wont to say) but they don’t sell (for example) 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 to a gig you and your mates are running… well, hard luck.

My employer, Consult Hyperion, has provided paid professional services to organisations named here in connection with products and services mentioned 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


At the end of March, we learned that there is no business case for moving to NFC at POS in the USA.

Representatives of three of the country’s largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group… to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry.

“You know what they (banks) told us? There’s just not a business case right now,” Dodd Roberts, head of the merchant group, said last week

[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]

That’s a shame, because it’s a fun technology that consumers like. Never mind. Of course, not everyone thinks that banks can’t make a go of it, and going back a couple of years we can find some positive projections.

Celent estimates that a 30% cash displacement ratio, or an incremental US$151 per card account, per year is reasonable, with an average revenue increase of US$1.83 per debit card account per year.

[From The View from the Mobile NFC Finish Line: Bank Economics in a Mature Mobile NFC Payments World]

Anyway, a month after the US banks told the Merchant Advisory Group that there was no business case, we learned that…

France-based POS device manufacturer Ingenico has confirmed that it is working with Google on the development of NFC-based services for retailers

[From Confirmed: Google developing NFC solutions for retailers • NFC World]

Was this an “Inception“-style paradox? A fault line between two sets of dreams that don’t quite connect? A glitch in the matrix that could be eliminated if we all take the bank’s blue pill? Because now someone is offering red pills…

The first NFC service launched by Google for its Nexus S phone is an enhancement to its Google Places service. Customers tap the phone against NFC tags embedded in stickers or decals that merchants affix to their storefronts to access information about the local business, including phone numbers, hours of operation, payment types, reviews and recommendations.

[From Checking in with NFC–Some Social-Networking Start-ups to Use NFC | NFC Times – Near Field Communication and all contactless technology.]

Aha! So now we can see how to resolve the paradox. There’s no business case if you only think about transaction revenues (the bank model) but there is a business case if you “ignore” payments and focus on value-added services that retailers will pay for (the Google model). This has got the mobile operators interested enough to start upping the orders.

Such Android handset makers as Samsung, HTC and likely LG and Motorola are preparing for NFC, based on keen interest or orders from mobile operators, including South Korean telcos, SK Telecom and KT; China Mobile; as well as American and European carriers, NFC Times has learned.

[From ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]

But is Google’s interest enough to create the contactless rails for these mobile devices to run on, as we keep talking about? Chris Skinner made a very accurate post about this recently.

And here’s the rub: we need more terminals. Maybe they could learn something from Zapa in Ireland, where AIB Merchant Services has worked closely with them to rollout terminals that can use the tags. Half of all AIB’s merchant terminals are now Zapa ready: that’s 40,000 of their 90,000 terminals, with over 1.5 million contactless transactions in the year to September 2010. Compare that with Barclaycard, which has rolled out just 42,500 merchant terminals to date and is processing just over a million transactions by November 2010, and you can see the challenging dimensions they face.

[From BAI | Banking Strategies | Distribution Channels | Mobile | Why Mobile is Critical to Banking]

A characteristically well-informed comment from Steve Mott delves further into resolving the paradox. Perhaps payments are losing their strategic appeal for banks because they are becoming commoditised, utility businesses that just won’t generate the cash that they did in the past.

Consultant Steve Mott, CEO of BetterBuyDesign, who also attended the Merchant Advisory Group meeting, told me the U.S. banks do see the advantages of mobile to increase transactions. But mobile confronts them with an unfamiliar payments landscape at the same time they are being squeezed by regulators with the Durbin amendment,

[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]

Banks aren’t stupid. They know that NFC is coming, that consumers and merchants like it, that it means disruption. But it is very difficult to change core businesses, especially at a time of great regulatory uncertainty. In the meantime, the non-payment use of NFC will lead it into the mass market. But will the new technology pull in the customers? Sam Shrauger, VP Global Product and Experience at PayPal, puts it succinctly:

People couldn’t care less which technology a hardware or software manufacturer would like to sell them. They couldn’t care less which technology merchants may or may not put in their stores. Ultimately, they just want something that makes their life better when it comes to buying and paying.

[From Why the Mobile Payment Debate Is Headed in the Wrong Direction [OPINION]]

Now, as it happens, I was chatting with Sam last month and I agree with him about many things, but I think that in this particular case he may be underestimating the impact of “tap and go” technology. The point is that tapping is so much simpler, so much quicker, so much more convenient for consumers that it will make a difference to them. People will start looking for the phones that you can tap together to become Facebook friends, or whatever, because that experience blows away bumping, or texting or QR codes or whatever.

This, I think, means risky time for bank payments. Once people are using their non-bank wallets on mobile phones to execute retail transactions, initially using bank-provided payment schemes, it will be a small step to get them to move to non-bank payment schemes inside those wallets. Banks need more active responses to the changing environment and I hope I won’t be offending anyone to say that I know from personal experience with recent projects that banks are losing opportunities right now because they are not able to deliver products in the timescales demanded by other industries.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Bringing home the bacon

There’s a lot going on in the world of payments in Denmark, sparked in part by SEPA, but with other factors as well. Many people think only of Denmark in terms of its principal exports — such as bacon, Lego and sperm — but it means only one thing to me: Danmont, the first of the European smartcard-based e-purses to try and take on cash half a generation ago.

In a statement, PBS says Danmont has not been adopted by the Danes as a preferred way of making small payments… the debit card Dankort has taken over from Danmønt in areas where the e-purse was formerly used as a form of payment. The scheme will continue to operate until 31 December 2005.

[From Finextra: Danish e-purse Danmont to close]

Now everything is changing again, because the domestic debit scheme can no longer discriminate against “foreign” cards and there needs to be a new national payment strategy. This is why its such an interesting time there and why I was so delighted to be invited by the Copenhagen Finance IT Region, a “cluster organisation” with 13 partners including the Danish Bankers Association, to come and talk at their event looking at the future of money. I was invited along with Alberto Jiminez, the Mobile Payments Global Leader at IBM, and Roslyn Layton from KLEAN, a Danish consultancy. Alberto was talking about mobile, Roslyn was talking about the internet, and I was talking about mercantilism, Kublai Khan and Facebook Credits. Here we are in the Tivoli!


Alberto divided the world into developed (North America, Western Europe, South Korea, Japan, Australia and New Zealand) and developing payment markets, a simpler model than the “quadrants” that we use at Consult Hyperion. Anyway, he pointed out that in the developing countries where there are real opportunities only a handful (Kenya, Philippines, South Africa, Pakistan, Uganda) have reached scale, which he defined as being more than a million users. He explored the benefits of opening up mobile payment markets which, in the IBM model, fall into three categories: the revenue opportunities, cost savings and the “indirect” benefits. This last category — which includes social inclusion, government agendas, brand benefits and so on — I find really interesting, probably because it’s the least understood. He also mentioned government agendas, something that has come up in a few recent discussions that I’ve been involved in.

In her talk, Roslyn touched on one of my very favourite topics, which is the online games business and the growth of what she called “funny money”. But she was also taking about the permeable boundary between loyalty schemes and pseudo-currency. In particular, she drew attention to a Lufthansa “Miles & More’ scheme that lets you trade in your frequent flier miles for a cash management account (CMA) that can contain both securities and deposits. She also drew attention to the relative size of some markets: online games are a $15 billion business at the moment, sure, but premium SMS (as Tomi never tires of reminding me!) is a $23 billion business and online gambling is a $35 billion business. Great stuff. She finished up, though, by saying that we won’t go to an entirely virtual economy, because people ultimately want to keep their money in banks.

Well, up to a point. There’s a big difference between keeping money in the bank and keeping bank money, one of the points I tried to bring out it my discussion about the “ages of money” and the shifting implementation of the functions of money. I’ve included the slides below for anyone interested.

I think the main point that I was trying to get over was that while new technology means real change in payments, it also means real change in money itself. All in all, a really enjoyable event, where I learned a lot and had fun too. Many thanks to everyone involved.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Bar none

When I was interviewing Christian Lunden from Nordic Choice Hotels for a podcast about their NFC pilot (using mobile phones as room keys) he mentioned in passing that some bars in Sweden have reacted against the introduction of chip and PIN by refusing to accept cards and going back to cash. This is because with chip and PIN the bar staff have to hand a the POS device to the customer, the customer has to insert the card and then enter the PIN, and this all takes far too long. Under the old (ie, US) scheme, the customer would hand over their card to be swiped at POS and then the bar staff would hand back the card with the a receipt for signature. I don’t understand why this was quicker, except I suppose that the bar staff could start working on the next order while waiting for the signature.

The bar owners have now started installing ATM machines (the ATM operators pay rent to the bar owners) so that drinkers can get cash. In a way, you can see that this makes sense for the bar owners. Unfortunately it doesn’t make sense for society, but since the bar owners are allowed to externalise the costs of their payment preference, why would they do any different?

Sweden has far more cash-in-transit robberies than its neighbours and suggests an alignment of the private and social costs: the cost of armed robberies, [the deputy governor of the Bank of Sweden] said, should be accounted in the cost of cash. This means that far from being free at ATMs, cash in Sweden should be expensive. He is, of course, completely correct.

[From Digital Money: The Swedish experiment]

A clear case for contactless, you might think. And this reminded me of an experiment I conducted a few weeks ago in a bar! I was trying to show that paying by contactless and paying by cash take comparable time, so off I went…

Damn that Joe DiVanna!!

Anyway, I think that my point was just about made: using EMV contactless for low value transactions works for the tough case of the bar. The problem is that the POS hasn’t been configured to take advantage of contactless: I don’t think it would be that difficult to put a couple of contactless readers on the bar itself but leave the POS back behind the bar, so that customers could tap their cards on the reader without having the POS brought over to them.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Who’s square? Jesse is

Some people don’t really understand the big picture around innovation, and how it takes inventions and turns them into sustainable new value-adding processes. Here’s one example.

Last Friday, Congressman Jesse Jackson Jr. (D-IL) took to the floor of the House of Representatives to decry the iPad as a job killer, as people are using the device to read books rather than buy them from bookstores.

[From Lesson to Congress: iPad Doesn’t Kill Jobs, Government Does – Gary Shapiro – The Comeback: Innovation Economy – Forbes]

But wait a minute: surely books were destroying jobs in the scribe industry. Jesse’s job creation scheme ought to be banning books, not praising them. Anyway, many popular books are written by non-Americans — why should American’s hard earned dollars flow to J. K. Rowling’s UK bank account? Hold on though — scribes were destroying jobs in the storytelling industry. Jesse needs to attack the problem at source: we need to stop people from reading and writing. Unless we’re going to do that, we should instead welcome and encourage innovation because we need an economy that adds more value. I’m not smart enough to know what that means for individual companies, although I am lucky enough to have a job that means I can experience many different organisations approaches and learn from them.

In 1994, the dominant global provider of mobile handsets was Motorola: its shares were trading at an all-time high and it was seen as an outstanding innovator and even described by a senior consultant at A. T. Kearney as “the best-managed company in the world”

[From Why Nokia’s Collapse Should Scare Apple – Patrick Barwise and Seán Meehan – The Conversation – Harvard Business Review]

That’s the thing about technology-based innovation: it doesn’t follow the smooth distribution of best practice that is the realm of management consultants. It didn’t matter if you were the best urine trampler in the land, when a German chemist synthesised urea you were on the scrapheap. It doesn’t matter how good your printing company is when e-book sales exceed printed book sales.

Motorola missed most of these market trends, was slow to invest in digital (it was a classic victim of the innovator’s dilemma),

[From Why Nokia’s Collapse Should Scare Apple – Patrick Barwise and Seán Meehan – The Conversation – Harvard Business Review]

This “innovator’s dilemma” analysis, which says that it’s just too hard for companies to invest in their own disruptors, suggests that it may be difficult for the incumbents in the payments world to innovate in the right direction. The case study that everyone is focused on right now is mobile.

Bill Gajda, Visa’s head of mobile innovation, is confident that Visa and the other card networks, in conjunction with banks, will be at the center of mobile payments in the future.

[From Leading Mobile Payments | Visa’s Blog – Visa Viewpoints]

I understand where Bill is coming from, but have to admit that I can see other scenarios as well, where Visa interconnects non-bank, sector-specific, mobile-centric payment accounts rather than only bank accounts. It must be said though that Visa have made a number of substantial investments in the mobile payments space and have been actively developing products and services. Not all observers think that this strategy is optimal.

Visa for you to execute in this space, spin out Bill Gajda and team to build a new network. You certainly have the capital and intellectual horsepower to do it.. Don’t think of mobile as a service on VisaN

[From FinVentures]

In the medium term, the existing players (by which I mean banks, the international schemes and processors) will find it more and more difficult to compete with IP-based alternatives because their cost base is just too high. Therefore, it might make sense for a company like Visa to start building one of these, but use their experience to build a better one. Alternatively, they could look for someone else who is building one, and then invest in it. This is what they have done recently with Square (Visa invested an unspecified amount in Square in April 2011). Square is much in the news at the moment, but what is actually interesting about it? As I wrote before, it is not the stripe reader, it’s the niche…

So where is Square seeing the most traction? Without a doubt, small businesses, independent workers and merchants comprise most of Square’s rapidly growing user base.

[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]

In a way, this real-world PSP is a small but interesting niche play in a large acquiring market, and as we’ve advised our clients for many years that the mobile-phone-as-POS meme will be more revolutionary than the mobile-phone-as-card meme, it’s an existence proof of new opportunity.

While merchants have to qualify for the app, Square’s qualification rules are more relaxed than those of standard credit card processors.

[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]

Never in a million years would I consider signing up as a merchant with my bank. Yet I went into an Apple Store in the US last time I was there and bought a Square (actually, we bought eight of them to play with). It took a couple of minutes to sign up on the web and I accepted my first payment (in Stuart Fiske’s iPad) a minute later!


Pretty cool, although naturally I was outraged when I got off the plane in the UK and discovered that my lovely Square only works in the US. Anyway, Square were making me think about innovation again yesterday. They just announced their wallet product, Card Case. Once you’ve paid with your card at a retailer once, Square’s server stores the card details, so from then on the merchant has only to identify you. They can even do this without you having a card or phone, because they can look up your picture (although I have good reasons for thinking that this won’t scale).

The obvious idea is to make payments “frictionless” — easier and faster for the user and merchant. (Assuming that the app is fast enough that it is actually more convenient to pay this way than just to have your card swiped. Wireless data networks aren’t always reliable, etc.)

[From Jack Dorsey’s Square Starts Its Bid To Kill The Credit Card]

Indeed, they’re not. But imagine what this will look like with NFC in place: you have an iPhone, the merchant has an iPad, you place your iPhone on the iPad, they beep, done. And it’s a card present transaction. Now, we all know that Square Card Case isn’t the only wallet game in town, because anyone with any sense is already developing a wallet proposition since that’s what the merchants want. Right now we are helping clients in the financial sector and the telecommunications sector with ideas in this space. Visa, being smart, are of course already in the game.

Fourteen US and Canadian banks have signed up for the launch later this year of a multi-platform digital wallet that can be used for e-commerce, m-commerce and mobile contactless transactions and includes mobile payment, NFC and coupon capabilities.

[From Visa unveils mobile wallet plans • NFC World]

But now continue the Square-related thought experiment. Suppose that Square are successful at signing up lots of people, so that people don’t want an AT&T wallet or a Citi wallet or a Visa wallet? If all of the transactions are now between the secure element in a mobile phone, via Card Case, to the secure element in another phone, via the Square app, then aren’t Square at some point going to get rid of intermediaries and just move the money from one bank account to another, in a retailer-centric decoupled debit proposition (which won’t be called debit, because of Durbin) that is proactively marketed by the retailers? That really would be disruptive.

just as the iTunes store completely upended the sale and distribution of digital media, Square just might upend the entire real-world payments industry–whether it meant to or not.

[From How Jack Dorsey’s Square Is Accidentally Disrupting The Entire Payments Industry | Fast Company]

So, in response to the e-mails I’ve had over the last couple of days, let me say that the Square trajectory confirms the strategic advice that we gave our clients some years ago (which is great!) and that is it not a “rival” to NFC but an exploiter of it. Square might be a niche in the payments business, but it shows a really interesting innovation path that sees payment cards going the way of books, and probably without Jesse Jackson Jr. to plead their case. That doesn’t mean that Square will succeed, but if they don’t, them someone else following that same path will.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Day zero

Today is rather an interesting day in our tiny corner of the digital money universe. Today, the first NFC mobile phone with a contactless EMV application on the SIM goes on sale in the UK. It’s the Samsung Tocco Quick Tap, a version of the best-selling Samsung Tacco Lite with NFC, a product developed by Orange and Barclaycard.

Before I go any further let me make an explicit declaration of interest. Consult Hyperion has provided paid professional services to companies mentioned in this post in connection with the development of the products and services discussed in this post. As you may well remember…

…the public launch of a product that Consult Hyperion has been working on for some time for Barclays: Mobile operator Orange UK and credit card company Barclaycard have announced a long-term strategic partnership to develop m-payments technology including mobile wallet handsets.

[From Digital Money: Some real mobile, nfc and payment stuff in the UK]

Back to the story. Today, (well, yesterday, actually) I used one of these phones to buy a cup of coffee in Eat. And it worked. Perfectly. You might not think that’s amazing, but I do, because I know how much work has gone in to implementing a standard contactless EMV application in a standard mobile handset with a standard SIM for use in a standard terminal on a standard network. And it’s for use by normal people, not geeks like me.

The phone has a J2ME “Orange Wallet” that is connected via JSR177 to a Barclaycard MasterCard pre-paid EMV card application on the SIM. The application uses SWP to access the NFC interface. You can either connect this prepaid card to one of your existing Barclaycards or an Orange Credit Card that you apply for on the spot. There’s no “untethered” version that you could not link to an existing card but simply top-up online or in store. It works as you would imagine: for payments under £15 you just tap and go. The wallet contains the basic services you would expect: you can look at transactions, top up the card (I have my phone linked to my Barclaycard OnePulse with the built-in Oyster card) in a simple one-button plus PIN action

MMP_6301 logoNO EAT_pay_scr

Though I say so myself (as a big fan of stickers!!) the integration is nice. The phone implements the usual NFC tag reading, so you can tap things and have URLs or phone numbers pushed on to the phone (the phone comes with a bunch of tags for you to try it out on) and I’m sure that people will find fun things to do with these. I suppose like a lot of people I’d rather have my Orange Wallet running on my iPhone, but this is a great first step and, most importantly, it actually works, it’s not just some Powerpoint at a conference. It will be spreading to smartphones soon and the knowledge and experience gained by Orange and Barclaycard ought to stand them in good stead.

Last week Google confirmed that Android 2.3 will support Near Field Communication, as will Nokia and RIM smartphones, starting next year. And judging from Apple’s recent hiring of an NFC expert , and patent filings for a probably-NFC-powered iTravel app, the iPhone 5 will boast NFC too.

[From I Have Seen The Future, And It Looks A Lot Like Bump (Without The Bump)]

When I took the phone home last night and showed it to a statistically-invalid sample group of four teenagers, I was quite surprised as to how much they liked it. They were familiar with the handset and they like prepaid instruments and all wanted to try it out.

According to the recently released results of a survey from MasterCard; it looks like the public, especially the younger generation, are willing to embrace NFC if it ever becomes the standard method of payment in the future… From their findings, 63% of the US population aged 18-34 would be at ease with using mobile phones to make payments, while in the 35 or older age group, only 37% are comfortable with the idea.

[From MasterCard says NFC will be embraced by the younger generation in the US | Ubergizmo]

All in all I had rather an exciting day of contactless activity, because I popped into Tesco Express to buy a cold drink and noticed that they had installed contactless terminals. But more importantly, they’ve installed them properly. What I mean by this is that when you buy something, the checkout operators scans it and then contactless terminal lights up automatically. You tap and go. Or you tap and wait for a receipt to print out, and go. I was so shocked to see contactless payments implemented so well that I made a video:

Put these two things together: contactless rails and the mobile carriage and you finally have a genuinely new and attractive customer experience. No-one is mad enough to believe that people are so wild about payments that they will buy these phones just because of the on-board Barclays MasterCard (the mass market needs a portfolio of interactive services), but it’s a super first step. Today was a good day and naturally I’d like to share the excitement. I happen to have on my desk a spare pay-as-you-go Samsung Tocco Quick Tap, so if you’d like to dip your toe into the ocean of future payments, all you have to is be the first person to respond to this post telling me what the acronym SWP — used above — stands for. (Hint: it’s not the Socialist Workers Party).

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 has a new and improved formula. 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.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

I see your 14443 and raise you 18092

A couple of people asked yesterday about the comments from Google concerning “card emulation” in Android phones. The twitterverse had noticed these remarks from Nick Pelly, the Android lead for NFC, concerning the lack of API support for NFC card emulation.

The problem is that the hardware out there today, you know, if you buy an NFC controller, it typically is only going to be able to emulate one of those RF-level technologies. So as an application developer, you don’t know which — when it’s getting deployed to a phone, which one is on the phone. So I guess until we see the industry standardize around maybe one RF-level technology or until we see NFC controllers able to support multiple of those

[From Google raises concerns over the viability of NFC card emulation mode for mobile payments • NFC World]

At first I just thought… wow, that’s smart. If Android phones won’t allow ISO 14443 card emulation (which is part of the NFC standard) then that means that Visa and MasterCard won’t be able to use them for payments, thus locking them out of the POS terminals that Google is developing for retailers. As I thought about it, however, and actually read what Nick had said, I realised that I couldn’t understand his comments, since phones are perfectly capable of dispatching to different applications depending on which card they read, so I thought I’d go and ask a couple of the world’s leading experts on implementing secure NFC applications in mobile phones. Fortunately Stuart Fiske and Neil Livingston both work for Consult Hyperion, so it was easy to find them. They told me…

We know that NXP and Inside Secure NFC controller devices support A, B, B’ and Mifare, all on the same chipset. GP provides mechanisms to manage protocol conflicts, etc., when multiple applets relying on incompatible protocols are trying to be active on the interface at the same time.

I thought this must be true, since I had in my office a Nokia handset with NFC that supports both contactless EMV transactions and contactless Oyster (ie, MiFare) transactions and it worked perfectly. I read a little further, and once again became confused. Due to my lack of experience, I was unable to determine what this means:

Typically, the hardware is set up to do card emulation through the secure element. Right now, we don’t have any APIs to talk to the secure element. And we think that we probably won’t be getting APIs to do that anytime in the near future in the SDK.

There are a bunch of different reasons. Again, the secure element is a very limited resource. It can’t hold a large amount of data in there. And if we open it up to any third-party application, there’s going to be a huge resource contention over the secure element.

Additionally, to talk to the secure elements, even from applications on the phone, you need to authenticate yourself properly.

And if you improperly authenticate yourself a certain number of times, there are secure elements out there that will physically destroy themselves and can never be recovered. So that’s something that we really think would be a bad experience for users

[From Google raises concerns over the viability of NFC card emulation mode for mobile payments • NFC World]

I have absolutely no idea what he’s talking about. I have never heard of a handset secure element (SE) that will physically destroy itself if authentication fails. I’ve checked the SmartMX data sheet this morning and I can’t see any such logic.

Screen shot 2011-05-12 at 11.03.45.png

If I put the wrong PIN into an EMV application in the secure element three times, it will lock and then require an over-the-air PIN unlock from the application issuer, but that’s a good thing. It’s certainly true that there’s a problem with secure applications controlling the screen and keyboard during authentication, but that’s because the Nexus doesn’t have any form of trusted execution mode and this is a well-known and well-understood (at least it’s well-known and well-understood by Consult Hyperion) constraint that feeds into the kind of risk analysis that we do for organisations who are thinking about developing transactional applications. The authentication itself is done within the SE, naturally, but you may have a virus that’s capturing the PIN, for example.

Meanwhile, I was thinking about the SE more. If I buy a Nexus S, how would an application provider request a Security Domain (SD) from Google? How would it be provisioned? Is Google building a Trusted Service Manager (TSM) to sell such a service? I haven’t got a clue. The guys told me (these are edited highlights, by the way)…

In J2ME, it’s typically the SE issuer (ie, Google, in this instance) that decides who can access the SE from apps in the phone, and sets up the access conditions on the SE to manage this (the ACF file). Essentially, what we need the Android stack to do is deliver what J2ME (and it’s JSRs) have been doing for several years now. That is, include APIs that provide the app with a mechanism to access an applet in the SE, and for Android to interact with the SE to manage access condition verification. You can’t block the SE if you can’t access it!…

…These comments from Google make it sound like Google won’t be doing anything with card emulation any time soon. If that’s the case, then what’s with all these stories about Google trialling contactless card payments in SF with MasterCard and Citibank, uing Verifone and Ingenico POS terminals? These POS terminals implement 14443 to read contactless cards, and I doubt that Google are going to develop custom terminals that implement P2P ISO 18000 instead. But who knows – it would be cool if they did…

…Perhaps the Android stack doesn’t need to implement card emulation mode if the underlying hardware implements it, i.e. if the NFC controller and SE together support 14443 and card emulation mode, then they can talk to the reader via the antenna independent of the Android stack. The stack needs to provide an access API to allow phone apps to access applets over the contact interface (if there is one, e.g. SIM), or the wired interface for embedded, or via the SD interface….

…So perhaps there is no need for a card emulation stack in Android after all? But we still need ot be able to switch the PN544 into card emulation mode and an SE access API supporting a decent access control mechanism…

That’s the actual problem, then. Developers can get to the SE interface but they can’t do anything with it (eg, load a payment card into it).

As of the 2.3.3 release of Gingerbread the Secure Element functionality has been enabled (but the API Hidden). You can confirm that there is a Secure Element (SmartMX) in the Nexus S just by looking at the debug log using adb logcat and switching on NFC via settings… That said I’m assuming that the keys etc are controlled by Google so actually doing anything with the embedded SE will be difficult/impossible at the moment.

[From Secure Element – SmartMX – seek-for-android | Google Groups]

What has happened is that Google used an NXP NFC stack when building the Android operating system image for the Nexus S, but switched off the card emulation using compiler switches. (There’s nothing to stop you, by the way, from recompiling the stack with those switches set to allow card emulation.) My interim conclusion is, then, that I have no idea what is going on. I don’t understand what Google mean and I don’t see how they can stop anyone from accessing secure elements. Sure, they can stop you for doing anything with the embedded SE (theirs) by not giving out any keys, but if there’s a UICC SE (from the operator) you can access that and if there’s an external SE (eg, a DeviceFidelity SD card) you can access that. If there’s no Google Android API elements for any of these, someone else can simply add their own.

After all, Google ordered the Nexus S with embedded secure chips, the PN65 from NXP Semiconductors, which can store applications. The NFC controllers in the phones also support applications for card emulation on SIM cards.

[From Card Emulation Expected Soon Despite Doubts from Google Engineers | NFC Times – Near Field Communication and all contactless technology.]

Indeed. So why the fuss? What does it matter whether Google want to provide card emulation APIs or not? The things is that Google’s opinions about NFC have taken on more and more significance recently as it has become clear that whatever mobile operators and banks may think about NFC, Google thinks that it is important and will drive it into the marketplace.

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 with this analysis. 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 payments for banks and operators. 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.” Years ago, I made a presentation (I think at NFC World but I can’t find it!) in which I said that no consumers will go into retail outlets and buy an NFC phone because of payments. They will buy the NFC phone so that they can read tags, swap Facebook profiles or (now, it seems) play proximity Angry Birds. But once they have that handset, then we need to make it easy and attractive for them to use it for payments.

Incidentally, Dean Bubley, who is in my opinion one of the very best analysts out there, called these non-payment applications “valueless” in a twitter exchange. He’s referring to things like “0-click” checkins and similar.

Starting tomorrow, just tap your NFC-enabled phone (most newer Android devices have it) against the poster, it’ll check you in with foursquare

[From Experimenting with NFC check-ins for Google I/O | Foursquare Blog]

I’m convinced that valueless is the wrong word. If Google (or Apple) or whoever track where you are via mobile location and then send you special offers, it’s creepy. But if you reach out tap when you enter the shop, or restaurant, or hotel, or office, that’s what advertising folk label “a call to action” that gives them permission to send you things, to steer you, to deliver added value. That’s what retailers will pay for — they’ll get the payments part for free — and that’s why the ecosystem will deliver real value.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Prepaid could be, should be, great

At the risk of turning into the Victor Meldrew of retail payments, I want to make a point about something. When I wrote about some bad experiences with contactless a couple of weeks ago, I did it because I genuinely care about this stuff, and I genuinely want the contactless experience to get better. I don’t think the blog would be useful, particularly to my colleagues in the industry who read it, if it never contained criticism, so long as that criticism is well-founded and honest. Similarly with prepaid. I really like prepaid, I really want it to succeed and I really get upset when it doesn’t work as well as it should.

Prepaid is growing. In the last five years, the volume of card transactions in Europe has grown about 9% per annum but the value has grown 7% per annum (because the average transaction size has fallen) and most of that growth has actually come from prepaid cards [F. Burelli. “Profitability dynamics of card payments” in Nordic Card Markets, Stockholm (Jan. 2010)]. Looking forward, the outlook appears to be pretty rosy. Yet I can’t help feeling that prepaid isn’t where it should be. My recent experiences with prepaid have been pretty good. I had a Visa prepaid card (which has just expired) that we were using as our “house” card at home: the kids used it when they needed to run to the supermarket or buy stuff for school. It had a simple web interface, I could see what they had been spending the money on and I could easily top it up from my debit card. Best of all, it didn’t have a name on it, so if they lost it then no-one could use it in shops (because it’s a chip and PIN card) or online (because they wouldn’t know the name or address associated with the card). Now that it’s expired, I got my eldest to go and get an Orange Cash card which annoyingly has a name on it (review to be posted shortly), so we’ll see if that can take over as house card.

But I digress. Right now, I am annoyed with prepaid. Just as I was leaving for the airport, I remembered that I had less than $100 on my Travelex US Dollar prepaid card. As I was going to be in the US for a few days, I’d need a bit more to cover meals etc so I decided to load a couple of hundred more dollars. Now, obviously I wasn’t going to bother to do that at the airport given the palaver I went through last time: I had £50 in cash in my pocket and I stopped at a Travelex booth in Heathrow to add it to my card and it took about a quarter of an hour and involved taking photocopies of my passport, the card, the receipt as well as answering security questions. The process was, presumably, designed to drive up the cost of prepaid cards to keep them beyond the reach of the poor.

Naturally, I thought that there would be some way to top up online, so I entered my 16-digit card number, my username and password and logged in to my cash passport account, only to find that there is no option for reloading (only for changing PIN and looking at transaction history). I went back to the home page and found that there’s a separate option for reloading, I clicked that, and was asked to enter the first six digits of my card number. This took me back to the account screen. I went back round again, and somehow found another link (I can’t remember what it was now) that asked my for the first six digits again and then took me to a reload screen. I entered the number of my Visa card, my address, the CVV and the amount, and was met with a screen saying tough luck.

Screen shot 2011-05-02 at 12.24.53

I wondered if it might be something to do with credit vs. debit, so I went round the loop again, this time using my Visa debit card instead. After typing in the amount, card number, address, CVV again, I got the same results. Much against my better judgement I decided to call, so I phoned the (mercifully) free phone number on the back of the card. I stupidly chose the option for speaking to an operator, and the line just went dead. So I dialled back and chose account services and then something else and then talk to an operator. I was shocked when a woman answered. After giving her my (I’m not making this up) card numbers, address, name, date of birth and a couple of other things, she put me through to another chap who said he would top up the card. I asked him if it was possible to do it via home banking and he said that it was and that he would e-mail me the details. After asking some more security questions, I started to give him my debit card number and he stopped me and said that he first had to check whether I was on the electoral roll at that address. I gave up, grabbed my BA Amex card and my John Lewis MasterCard and my Visa OnePulse and jumped in the cab.

All the way to the airport I was wondering why it was all so complicated. Why can’t I load via the ATMs at the airport, or using an app on my iPhone or by PayPal. Prepaid should be a simple, inexpensive alternative to cash, not something that has you jumping through hoops! When I got the US, I decided to get another prepaid US$ card, but this time I would register it in the US so that I could have a US BIN and billing address (some stores, such as Levenger, will let you ship internationally but will only accept payment from cards with a US billing address). Although in the end I didn’t have time, because I got sidetracked playing with my new Square, this does illustrate (once again) that there are lots of good reasons for wanting prepaid cards that are nothing to do with not being able to get a credit or debit card.

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 reason for thinking that prepaid will be developing in interesting directions, 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.

I’ll be looking out for trends around value-added at this year’s Prepaid Conference in London on 13th-15th June 2011. In an act of magnificent generosity, the wonderful people at Clarion have given me a delegate pass for the conference — worth an amazing ONE THOUSAND FOUR HUNDRED AND NINETY FIVE POUNDS — to give away on this blog as a competition prize. So if you are going to be in London on those dates and you’d like to come along to meet practitioners, thought leaders and me, then all you have to do is be the first person to respond to this post telling me what the conference sponsors MasterCard were originally called when they started in 1966.

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 has been designed to be carbon neutral. 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.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

They’re not playing games

It was obvious a few years ago that not only were virtual worlds going to be big business, but that they would have an impact on the payments market. I used put things like World of Warcraft into product and service roadmap discussions for our clients in the financial services space, and I’m sure that they thought I was doing it just for fun, just to get some discussion going. But having played around in the space, I could see it would lead to some new thinking. When you’re sending World of Warcraft gold pieces to a friend in Asia via an elven intermediary (quicker and cheaper than banks, by the way) you can’t help but wonder at the “real world” instruments to hand. This from three years ago…

Well it wouldn’t surprise anyone then, that most of our partners report they have a completion rate of 0.5-1% when they present a credit card payment page to their users for virtual goods…Mobile on the other hand… takes 15 seconds, and off goes the user to his virtual good or points that will enhance his game or app experience immediately without ever leaving the environment of the app.

[From Virtual Goods / Currency and Mobile Payments: the business model for Social Apps]

Note that figure: one in a hundred transactions complete. People playing at being virtual farmers want to buy some virtual cows, so they click to buy, but when they see a credit card payment screen, they can’t be bothered. So there was a demand for a new kind of payment instrument that was not being met by the banks. Look how much things have changed since then, with the incredible boom in app store and in-game payments. There’s no doubt that the retail payments roadmap is indeed being affected by the world of games.

Now I’m not implying that it’s only payments will be impacted, because in the longer run it will be many kinds of financial service, including banking.

The publisher of the online science-fiction game “Entropia Universe,” set on the planet Calypso, received a banking license from the Swedish Financial Supervisory Authority last week and plans to open a real bank within a year, albeit one without physical, walk-in branches.

Players of “Entropia” already exchange real money for a virtual currency that is used for their expenses on Calypso. And virtual money they make in the game, through hunting, mining, trading or other activities, can be cashed out into real money. The virtual currency, Project Entropia Dollars, has a fixed 10-to-1 exchange rate to the U.S. dollar.

By setting up a real-world bank, Sweden-based publisher MindArk PE AB gains the protection of the Swedish government’s deposit insurance for these accounts, up to about $60,000 for each customer.

[From The Associated Press: Online game gets real-world banking license]

A healthy development! My younger son spends a lot of time online with his friends at the moment, hanging out not at the mall but at the WoW auction house (this is where he learns about economics, I’m happy to say). That’s where our clients’ next generation of customers are learning about money, payments and financial services. This from two years ago…

Today, Facebook application developers monetize their games and other applications by accepting payment directly using PayPal, Google, Amazon FPS, or SocialGold. Or developers may opt to receive direct payment via mobile phone via Zong, Boku, or another mobile payment provider… game developers in particular, often accept payment via a prepaid card sold in retail establishments, such as the Ultimate Game Card. The social and gaming web is exploding with virtual currency offerings, yet thus far no one model or payment brand dominates.

[From Purchasing Facebook Credits with Zong Mobile Payments — Payments Views from Glenbrook Partners]

Now, forward-looking organisations could see what was going on and began to target R&D appropriately.

Google is developing a micropayment platform that will be “available to both Google and non-Google properties within the next year,”… The system, an extension of Google Checkout, would be a new and unexpected option for the news industry as it considers how to charge for content online.

[From Google developing a micropayment platform and pitching newspapers: “‘Open’ need not mean free” » Nieman Journalism Lab]

The idea was then that micropayments would be a payment vehicle available to both Google and non-Google properties within the year. The idea was to allow viable payments of a penny to several dollars by aggregating purchases across merchants and over time. Google planned to mitigate the risk of non-payment by assigning credit limits based on past purchasing behavior and having credit card instruments on file for those with higher credit limits and using proprietary risk engines to track abuse or fraud. Merchant integration through Checkout would be extremely simple. Google, in fact, subsequently decided to purchase an in-game payments company rather than build it themselves.

Facebook and Google are poised to challenge the banking industry in online payments.

[From Facebook and Google Encroach on Banks Turf – US Banker Article]

Is this really true? I think the answer is yes and no, in the sense that I can’t see any reason why Facebook or Google would want to be a bank, unless it’s to get some sort of government handout, but I can see why they might want to get involved in payments in order to make money (not from the payments, where margins are thin, but from new products and services that have payments integral to them). This is why the news that Facebook had also begun experimenting with a payment system was hardly unexpected, but was notable nonetheless. There was an expectation that the existence of a secure and convenient micropayment scheme for Facebook users (of which there now more than 600 million) would stimulate the development of a new marketplace within Facebook’s “barbed wire”. This seemed plausible to me — if it had been up to me, I would have added a spurious green element to the proposition somehow (getting merchants and other organisations to give out Facebook credits to reward environmentally desirable behaviour) — and I was sure it would do well. I wondered in a number of forums as to who else might enter this more competitive currency market?

In the coming months, facebook users will be able to obtain facebook Credits using MOL points purchased through MOL’s network of more than 500,000 outlets, which are mainly in Malaysia, Singapore, Indonesia, Philippines, Thailand, India, Australia and New Zealand. In addition to outlets such as 7-Eleven stores and cybercafes, customers will be able to purchase Credits through MOL’s network of online banks in these countries.

[From Finextra: Facebook moves virtual currency offline]

I gave a talk last year when I mentioned that I thought that Facebook credits would become the biggest virtual currency in the world fairly quickly. Unusually for my glib and sweeping predictions from the conference platform, this one appears to have come true, and even more quickly than I had imagined.

By the end of the year, Facebook expects that Credits will be used to buy the vast majority of virtual goods sold on Facebook. The fast-growing market is expected to reach $835 million on Facebook this year, according to the Inside Network… Through Credits, Facebook will take a 30 percent cut… To bolster that market, Facebook began selling Credits gift cards at Target stores across the country this month.

[From Facebook Promotes Its Credits as Path to Dollars – NYTimes.com]

Now this will one day become a standard business school case study. Talking of which, a few years ago, as part of a course I was teaching at Visa’s Bank Card Business School, a colleague and I mocked up a future Visa card that drew on a World of Warcraft account rather than a fiat currency account. This was photoshopped up to make a point, and at the time it was supposed to be a totally out-of-the-box crazy picture of the future. About two weeks after we made it up, I read that a US bank was issuing a Visa card with cashback in World of Warcraft gold. Oh well. It did help to make one of the points that I was trying to get across, which is that the future of payments will extend beyond the “traditional” bank, consumer, merchant and acquirer for 4-party model.

Vegetable company Green Giant is offering an unlikely reward for purchasing their products: virtual currency in Zynga’s hit social game FarmVille.

[From Wacky: Zynga Gives Away Free FarmVille Cash With Purchases Of Real Life Vegetables]

That was bad timing, coming just as Zynga (the people behind Farmville) caved in to Facebook and agreed to replace Farmville cash with Facebook credits, but it was an interesting development nonetheless, showing that virtual money is just as valuable as “real” money. Facebook’s tactics show they undoubtedly have a strategy in this field.

First Facebook turned off notifications for applications, taking away the primary mechanism for social games to go viral. Now if a company wants a massive audience for a new game, they almost certainly have to buy it through Facebook advertising.

Now Facebook is rolling out Credits as the preferred method of payment for games on their Platform, and taking a 30 per cent cut of the transactions. That’s a much larger percentage than the social games companies were handing over to the small payment companies that had sprung up to fill this niche, and higher than the fees charged by PayPal and credit card companies.

[From Zynga says it’s not leaving Facebook | Tech Blog | FT.com]

Now there’s something to be said for the creation of a single currency area as a way to encourage trade and therefore prosperity.

Besides leading the creation of a more people-centric web, it could also end up having the dominant virtual currency, according to an early adopter of Facebook Credits. PopCap Games has been using the service, which is still in the beta testing phase, as the sole payment method for Bejeweled Blitz on Facebook.

The game is free to play and attracts 11m monthly players, 3m of them playing it daily. PopCap sells extra power-ups, which boost players’ capabilities, and is moving onto sales of virtual items. It has decided to ignore offering other virtual currency options and only accepts Facebook Credits. Users can buy them with credit cards, Paypal or through their mobile phones in $5, $10 and $20 increments for 50, 100 or 200 Credits.

[From Facebook’s Credits Bank of the Web | Tech Blog | FT.com]

These are all useful case studies, showing how a new currency can develop and evolve.

Facebook has certainly tried to guide the development of its online economy, almost in the way that governments seek to influence economic activity in the real world, through fiscal and monetary policy. Earlier this year the firm said it wanted applications running on its platform to accept its virtual currency, known as Facebook Credits. It argued that this was in the interests of Facebook users, who would no longer have to use different online currencies for different applications.

[From Social networks and statehood | The future is another country | Economist.com]

I think I’ve seen the playbook before.

That means all Facebook game developers will be able to start using Credits as their payment system for virtual goods — in fact, Facebook is requiring them to make the switch by July

[From All Facebook Games Will Have To Use Facebook Credits Starting In July]

This comes from the Great Khan’s playbook for monetary and fiscal policy. Not Genghis Khan. His fiscal policy was confused: when he took control of China in 1215, his pacification plan was to kill everyone in China, no small undertaking since China was then, as now, the world’s most populous country. Fortunately, one of his advisors, a man who ought to be the patron saint of Finance Ministers everywhere, Yeliu Ch’uts’ai, pointed out (presumably via a primitive Treasury model of some sort) that dead peasants paid considerably less tax than live ones, and the plan was halted. In 1260, Genghis’ grandson Kublai Khan became Emporer of China. He decided, much as Mark Zuckerberg has, that it was a burden to commerce and taxation to have all sorts of currencies in use, ranging from copper “cash” to iron bars, to pearls to salt to specie, so he decided to implement a paper currency.

Here’s what Marco Polo had to say about it…

[From Digital Money: Lucky, for me anyway]

His monetary policy was refreshingly straightforward and more robust, even, than Mr. Zukerberg’s: if you didn’t accept his money, he would kill you. Naturally, in a short time, the new single currency was established and paper money began to circulate instead of gold, jewels, copper coins and metal bars. If you think talking about a new currency is crazy, take a look at Facebook Deals. According to Facebook, at launch, you will not be able to buy physical goods with Facebook Credits. Rather you will be able to get things like vouchers that you can redeem at events: now this is, frankly, a paper-thin distinction. I can’t use Facebook Credits to pay for, say, a Coke at a pop concert but I can use them to pay for a voucher for a Coke at a pop concert. I am not an economist, but…

When beloved national retailers start offering goods and lower prices to customers who pay with a new, virtual currency – that’s when said virtual currency becomes a force to reckon with. Somebody call Congress and the Federal Reserve – it’s time to start having some serious conversations.

[From Facebook Deals Launches Tonight & Groupon Doesn’t Stand a Chance (Updated)]

There’s a warning from history here! Unfortunately, the Khan’s paper money ended in disaster because the money supply was not managed: it collapsed in hyperinflation, because in the days after Yeliu Ch’uts’ai, the temptation to print money was just too great for the monetary authorities too resist. Let’s hope that the Emperor of Facebook finds an advisor of the calibre of Yeliu Ch’uts’ai.

One possible future might be that, just as China turned in on itself and stagnated, leaving technological and commercial progress to other people, Facebook will become an inward-looking economy while others take up the torch! Perhaps competition in currency, not only in payment methods, is need to keep an economic space vital.

The new program, announced today at SXSW, is called RewardVille, which will give players zPoints and zCoins in CityVille, FrontierVille, FarmVille, Mafia Wars, Zynga Poker, Café World, Treasure Isle, YoVille, PetVille and Vampire Wars.

[From Zynga Rolls Out New Virtual Currency in Addition to Facebook Credits | Tricia Duryee | eMoney | AllThingsD]

Competition. This is the American way, not going complaining to Senator Durbin.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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