Developing services that change people’s lives

One of the most exciting things about working here at Consult Hyperion is that you are involved in the design and delivery of services which have a huge impact on people’s lives. My family moaned when I asked the taxi driver that took us from the airport into Nairobi whether he used M-PESA. However they were soon having similar conversations as they realised how important the service is to every Kenyan they met. More recently they have accused me of being responsible for “card clash” on the London Underground and have resorted to buying shielded wallets to ensure that TfL only take money from the Oyster Cards that I fund!

Sat here as I am at the AidEx conference in Brussels, surrounded by the great and good of the Humanitarian Aid community, I feel that Consult Hyperion is on the verge of delivering yet another life changing service.

The refugee issue is a regular topic of discussion across all media. Most stories focus on the plight of the individuals walking across Eastern Europe. However there is a growing awareness of the impact of so many refugees on the local economy. For example Alex Forsyth, reporting for the BBC’s From Our Own Correspondent, highlighted that the holiday season in Lesbos has been extended, as people descend on the island to help the refugees arriving by sea.

The conversations in Brussels have focused on the need to provide aid to the refugees in the form of cash-based payments, rather than physical goods, such as rice or tents. The argument goes that if the refugees have the funds to buy the goods, then the entrepreneurs in the host country will invest in the distribution channels to ensure that the goods that the refugees need are where they want to buy them.

The trouble with cash is that it has a tendency to evaporate, i.e. not all the intended funds reach the recipient, even if it is transported into the region in 40 foot steel shipping containers on the back of a truck.  As we discovered in Nigeria the principal alternative, paper vouchers, have some major disadvantages. They are difficult to manage in large numbers; they must be printed by specialist printers; they have to be ordered significantly in advance; they have to be the right value to allow the refugee to spend all the funds in one visit to the merchant, even when the local currency is devaluing; the merchant and the agency running the scheme have to reconcile the vouchers before the funds can be provided to the merchant; and the used vouchers have to be stored in case of dispute.

Recognising this, there is growing support within the Humanitarian Aid community for the use of Cash Based Transfers (CBTs), essentially smartcard based e-money schemes, which can be rapidly established in times of crisis and in which the reconciliation process can be done automatically in the Cloud. The trials to date have focused on prepaid card schemes. But these also have significant disadvantages, since they require access to expensive payment terminals designed to operate in clean retail environments typically found in urban areas, whilst creating a huge problem with cash liquidity in the local community.

Groups of representatives from the Humanitarian Aid community under the auspices of Electronic Cash Transfer Learning Action Network (ELAN), the Cash Learning Partnership (CALP) and the High Level Panel on Humanitarian Cash Transfers, sponsored by DFID, have analysed these trials and documented their requirements for CBT solutions.

Reviewing these with the retail payment experts within Consult Hyperion it became apparent we had already developed many of the building blocks required to deliver the Humanitarian Aid community’s ideal CBT solution:-

•  A proven, robust and scalable beneficiary registration and voucher distribution service, The TAP Platform, which was used to register in excess of 500,000 subsistence farmers in Nigeria’s northern states to the Ministry of Agriculture and Rural Development’s GES voucher scheme. The transparent nature of the information stored within the system allowed us to remotely identify incorrect or fraudulent activity within the system and initiate remedial action accordingly.

•  Mobile applications which can be used to complete transactions initiated by tapping a smartcard to the merchant’s mobile phone, replacing the payment terminals and removing the need for physical cash.

•  AML/KYC compliance solutions developed for use in regions where regulatory supervision is limited, such as Somalia.

•  A group of ethical hackers who could validate the security of the end to end service.

The result is TeMS (the TAP e-Money Service), which we are launching at the AidEx conference. Our market research tells us that TeMS will make it easier for the Humanitarian Organisations to rapidly and securely deliver cash payments in areas with limited or no communications or electricity.

But there is a lot more behind that simple statement. The local community will be more inclined to welcome the recipients as they will bring income into the region. The teams delivering the aid will be able to focus on the financial awareness of the merchants and recipients, helping them to learn how to plan and save, rather than spending time reconciling paper vouchers or ensuring that there is sufficient cash in the region. Donors will have access to detailed information about who is receiving what aid and where, allowing them to respond to the growing demand for value for money information from their local media.

My hope is that my daughter, who is planning to spend time within the Humanitarian Aid Community when she graduates from medical school, will again be able to ask the people she is working with how a product Consult Hyperion developed has changed their lives.

Near and far

What is the leading edge in mobile payments? And where is that leading edge? I’m always scanning for new ideas to bring back to our clients and I’m always looking out for ways to exploit new technology in the transaction space.

Doug Busk, mobile brand strategy and global connections at The Coca-Cola Co.,was one of the participants in the “What’s on the Horizon with Mobile Payments: How All the Pieces Come Together” session. He pointed to a vending machine that uses mobile SMS to enable payment

[From Coca-Cola SMS-enabled vending machine changing future of mobile payments « Near Field Communications / Smart mCommerce]

You’ve got to at least raise an eyebrow at a talk about the mobile payment horizon that uses SMS payment for Coca Cola as an example of the brave new world just around the corner since, to the best of my knowledge, the very first mobile payment ever made (in Helsinki, in 1997) used SMS payment for Coca Cola! But not a million miles away from this birthplace of a new economy,

Meanwhile, Denmark’s banks are also working together on a different sort of mobile payments system, using text messaging. BankSMS is slated to launch later this year, enabling users to initiate purchases of things like train tickets by sending a text message with a product code.

[From Finextra: Danish telcos team on NFC payments; banks put faith in SMS]

Maybe I’ve totally missed the curve on this one, what with getting distracted by these new-fangled proximity interfaces. But further afield, an astonished correspondent writes (28th June 2011) to say

I am in Jakarta right now and am seeing an NFC terminal for payment at a coffee shop

What’s going on? The developed world is going back to the future with the SMS while emerging markets are getting in touch with NFC?

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

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

The long view

I happened to be leafing through my (signed) copy of “Services for UMTS” by Forum friend Tomi Ahonen and his colleague Joe Barrett. In section 7.10, writing a decade ago, they say that “becoming a trusted partner money community should therefore be a strategic priority for the mobile service networks”. This was an obvious strategy then, and many people thought that mobiles would become wallets, and many people thought that transactional opportunities would drive the mobile operators to develop a central role in the future of payments. What’s more, many people (well, me) thought that the role of the mobile in the future of payments would be so disruptive as to have an impact not just on those payments but on the future of money. Having just seen the most recent figures from M-PESA in Kenya — which show 4.33m net additions in the last financial year and 28,000 agents — this prediction seems accurate. But in the developed world, progress has been slow, because of the need to negotiate a path with existing stakeholders and incumbent players. Nevertheless, there have been a couple of key developments in the past week or so.

Orange last week unveiled its Quick Tap service, while rival O2 says it is lining up for a major launch in the autumn. Meanwhile, Google this week launched Google Wallet for Android phones which might soon make the traditional wallet stuffed with cards, notes and coins a thing of the past.

[From Mobile phones bring the cashless society closer | Money | The Guardian]

In the UK, Orange and Barclaycard put the first NFC handset with SWP and SIM-based SE EMV payment application on sale. And to prove it works, here I am using it to pay for my son’s haircut!

IMG_0348

In the US, the news has centred on Google since Isis’ announcement that their wallet would be open to Visa and MasterCard applications as well, and the Google announcement of their wallet running on just one handset has caused intense interest and comment. Setting aside the wallet play, and just looking at the payment application, a very significant aspect of the Google announcement (at least to people like me) was the location of the application.

Moreover, no mobile operator is believed to be directly involved in the project to put a Citi-issued PayPass application on the Nexus S.

[From Citi and MasterCard to Launch NFC Payment on Google’s Nexus S | NFC Times – Near Field Communication and all contactless technology.]

This sharpens the focus of the operators, I think. They’ve been slow to get NFC out into the market and spent a couple of years developing the operator-centric model. If other people are going to put out NFC with secure elements that are not under operator control, then that operator-centric model may not support a business model. In which case, what can the operators do to stay in the payment loop. Well, one way, that I have written about before several times, is (in Europe at least) to find ways to make payments part of the “smart pipe” proposition and stop depending on third-parties (eg, banks) with expensive infrastructure.

French-headquartered IT services group Atos Origin has formed a joint venture with the country’s three MNOs, Orange, SFR and Bouygues Telecom, to develop an internet payment platform to take on PayPal, Google and Apple,

[From French operators, Atos form Buyster e-payment venture – Telecompaper]

As I’ve been pointing out for some time, the natural way to proceed is to use the PSD to obtain a PI licence, and perhaps obtain an ELMI licence as well. This is exactly what the French operators have chosen to do, and I absolutely predict that as soon as they get the licence they will join one of the international schemes so that they can issue “cards”.

The new company will apply with the central bank to become a registered payment service provider and aims to launch commercially before the summer.

[From French operators, Atos form Buyster e-payment venture – Telecompaper]

Now, this would give the operators something to offer RIM, Google and Apple other than the raw bits and a secure element that they don’t want.

Our sources say there is a lot of internal debate at Google about its payment strategy, with some folks wanting to appease the carriers and have them become the payment options. Others disagree and are insistent that Google develop its own payment system – and rightfully so.

[From Et Tu Bedier? Why PayPal Is Suing Google, Execs Tech News and Analysis]

You can see why people think like this. The existing mass market payment schemes were never designed for the online world and the mobile operators (aside from the odd exception that proves the rule, like M-PESA) have been slow to seize the opportunity. Therefore, the argument goes, why wouldn’t Google just do something themselves and stuff everyone else. Well, yes and no: running payment systems isn’t quite as easy as it seems, and I genuinely think that if the operators develop new mobile-centric solutions then they can provide real competition to both the existing systems, the legacy infrastructure and the startups. In the long view, the operators can still succeed.

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!

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]


Subscribe to our newsletter

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

By accepting the Terms, you consent to Consult Hyperion communicating with you regarding our events, reports and services through our regular newsletter. You can unsubscribe anytime through our newsletters or by emailing us.