Wireless Sunday

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.

IMG_0406

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!

Dave at Wireless 2011

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]

Yet more about NFC and business models

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

Give cash the heave ho, me hearties

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.

[From BBC News – Somali pirates receive record ransom for ships’ release]

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.

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

The Tesco way

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.

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

Future tension

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.

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

Viva El Presidente!

[Dave Birch] I just saw an American in a bit of a pickle at Holborn Tube. He was trying to buy a ticket, but the machines won’t take non-chip cards, so he was stuck. His US American Express card was useless. Fortunately he was my brother-in-law, so I bought his ticket with my splendid Barclaycard OnePulse card. This is happening to Americans all the time, and since it happens to the banks’ best customers, they are beginning to respond.

I was pleased to see in the news recently that Chase and Wells Fargo announced the issuance of EMV chip-enabled cards for several of their credit card portfolios.

[From Portals and Rails]

I notice that at many of the US international airports I’ve been to recently (on a sample of three) you can buy prepaid Sterling and Euro pre-paid chip and PIN cards from the Travelex booths as well. Chase and Wells aren’t the first US EMV issuers.

State Employees’ Credit Union (Secu) is set to be one of the first financial institutions in the US to roll out chip and PIN debit cards to its customers. The non-profit cooperative has enlisted French vendor Oberthur Technologies to help migrate its 1.6 million debit card holders to EMV between March and the end of the year.

[From Finextra: State Employees’ Credit Union makes EMV move]

The pressure for US migration is growing. As Jamie Henry of Walmart mentioned in his recent Tomorrow’s Transactions podcast, many retailers are asking the banks to go ahead with migration because they think it will reduce their costs dealing with fraud and PCI-DSS. Perhaps the pressure is reaching a critical point of some kind.

Don Rhodes, senior director of risk management policy for the American Bankers Association, says a number of emerging technologies, such as the EMV chip standard, mobile payments and peer-to-peer or person-to-person payments, will soon change the way U.S. financial institutions and merchants connect and transact. And it could all happen in 2011, much sooner than most industry experts expect.

[From EMV, Mobile and the Payments Landscape]

The kind of things that have been going on with Google and Square and Isis would serve, I think, to reinforce that the trend is accelerating. The fact that some of the trailblazers (eg, Bling Nation) have found it heavy going doesn’t mean anything about the overall trend (the weather isn’t the climate, as they say). I saw in a Mercator Advisory Group press release that they are saying that

Merchants are advised to “spend the $10” for EMV capable terminals now in anticipation of an eventual EMV roll-out.

[From EMV in the USA: Waiting on Debit, a Mandate, or Just the Opportune Moment]

They were anticipating an early 2011 start for the EMV roll-out, which is exactly what appears to have happened, albeit still on a limited scale. Elsewhere, the chip and PIN bandwagon rolls on inexorably.

Due to an increasing number of transaction fraud worldwide, more and more countries are shifting from the stripe card standard to the EMV standard, which substantially enhances transaction security and operation efficiency. Now some major Chinese commercial banks are to join the trend, planning to issue their chip band cards by the middle of the year.

[From Banks in China to Launch Chip Cards]

Perhaps in the Americas it will take political leadership to enable to the final push towards EMV, a President with real vision and a commitment to the well-being of his nation.

President Chavez has mandated that the country move to EMV chip cards later this year which should stop this type of fraud

[From Chavez figures out how to stop cross border fraud]

Well, if only President Obama shared the wisdom, vision and economic genius of the noted revolutionary leader Hugo Chavez! So Viva El Presidente and down with the reactionary and counter-revolutionary Yankee magnetic stripe hegemony imposed by the running dog lackeys of imperialist aggression.

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

kjhjhgh

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

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!

IMG_0312

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]

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]


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