Red lights for cash

Down at the PayExpo Middle East and North Africa (MENA) in Dubai this year, I saw an excellent presentation from Uber India. One of the most interesting things I learned was that because most Indian Uber rides are paid for in cash, the Modi government’s racial experiment in currency reform hit them hard. As cash vanished from circulation, so there was a downturn in business.

Uber India

That was bad news for the Uber drivers who need to drive to survive, but I’m still of the general opinion that the Indian push for a “less cash” (as opposed to cashless) economy makes sense, even for people who are poor, as many in India are. A couple of years ago, I wrote about the misguided view that cash is good for the less well-off. It is not.

People who live on the margin get screwed by cash.

From Cash hits the excluded | Consult Hyperion

This was a comment on a story about counterfeiting, and I concluded it by noting an interesting problem that I had not previously heard about, which was about sex workers being swindled through counterfeit cash:

In a country where counterfeits are widespread, it is obviously the marginalised groups trapped in the cash economy who are the big losers.

From Cash hits the excluded | Consult Hyperion

India’s experiment with demonetisation has accelerated the evolution of the retail payments environment not only for Uber but also for those marginalised people in the less-regulated parts of the Indian economy. As you will recall, with high-value banknotes, more than four-fifths the cash in circulation, vanishing many different  parts of the Indian economy have been affected and, clearly, groups dependent on cash will have been hit hardest.

From the time the notes of the denominations of Rs 500 and Rs 1000 ceased to be legal tenders, the number of customers visiting the red-light area have dwindled to negligible numbers.

From Commercial Sex Workers of Nagpur’s Ganga Jamuna Redlight area offer services for payments made through Paytms – Nagpur Today : Nagpur News

The response of at least one group of such marginalised people will have gladdened the heart of Mr. Modi and other advocates of cash-free commerce (e.g., me). They moved quickly to adopt new technology.

Commercial Sex Workers offering services at Nagpur’s Redlight area Ganga Jamuna have started offering [sex] in exchange of payments made through Paytm.

From Commercial Sex Workers of Nagpur’s Ganga Jamuna Redlight area offer services for payments made through Paytms – Nagpur Today : Nagpur News

Yes, mobile payments. There is no reason why mobile payments cannot step in to the breach and take over from cash and, as I constantly opine, deliver something better to the poor, since it is the poor whose money is lost and stolen, it is the poor who cannot pay remotely for better deals and it is the poor who cannot be paid efficiently.

[sex workers said] we have also adapted to the changing times and have adopted the newer mode of payments for the services. They opined that this will also prevent the customers from getting their cash looted by unscrupulous elements who dwell in this disrepute lanes (Badnaam Gali) of Ganga Jamuna area.

From Commercial Sex Workers of Nagpur’s Ganga Jamuna Redlight area offer services for payments made through Paytms – Nagpur Today : Nagpur News

Note that last sentence. Getting rid of cash will make people safer. So not only will these marginalised people no longer have to worry about counterfeiting or the value of foreign currency, but their money will be stored more safely. 

I was in Dubai to take part in a fun end-of-event discussion about the coming year for fintech, so I took the first three predictions from the Consult Hyperion “Live Five” for 2017 and shared these with the audience. Then I took the first three cakes, and shared them with me.

 Yes, you can have your cake and eat it

 I hope I’ll back asked back next year and called to account!

Fish without cash

 We all still processing the data coming in from India’s radical experiment with money, and I still think that is way too soon to pass any judgement at all on whether the experiment has been worthwhile or successful, but it is interesting to see some of the immediate effects of the government’s policy of de-monetisation. For example, fish.

Modi’s surprise announcement wiped out 86% of the nation’s currency overnight, leaving the vendors at Panjim’s fish market to suffer heavy losses. “Nobody has cash, so they’re not buying fish.”

From ‘Who buys fish with a credit card here?’ Traders scoff at Goa’s bid to ditch cash | World news | The Guardian

 The headline, of course, sets up a slightly false dichotomy because the choice facing the Goan fish market traders is not cash or credit card but cash or an electronic substitute for cash. And it gives me an excuse to post a picture of me in Goa, because I just read an article that said that blog posts with pictures have more of an impact than text-only.


A completely irrelevant picture of me in Goa.

Now, as it happens, the local government in Goa have already decided that the future lies beyond cash and very shortly those fish traders (as well as absolutely everybody else) will have a substitute.

From January, Goa’s government has announced that the city will go “cashless”, meaning every street vendor, rickshaw driver and shopkeeper must offer their customers the option to pay using a debit card or mobile phone.

From ‘Who buys fish with a credit card here?’ Traders scoff at Goa’s bid to ditch cash | World news | The Guardian

Is it possible to imagine Goans buying fish without cash? Well, yes. Look at Kenya, where there are now more than 33 million mobile money users and 174,000 mobile agent locations. The most recent figures from the Central Bank of Kenya (CBA) show an astonishing trend. From February 2013 until September 2016, the number of monthly M-PESA transactions almost tripled, going from 53 million to 131 million, while the number of card transactions fell from 34 million down to 18 million. Yes, you heard that correctly. While mobile money using was tripling, card use was halving. I am told by reliable sources that one of the key reasons for this, apart from M-PESA being accepted  at some 150,000 retail outlets now in a country with only around 10,000 cards terminals, is that when it came time to re-issue EMV cards for Kenyan bank customers, the customers had to go their local branch, with identification, and stand in line to get their new card. Many of them just didn’t bother, especially since they had already started to use mobile money instead of cards.

Central Bank of Kenya statistics show a decline in the use of credit and debit cards, despite the number of Kenyans holding them rising.

From Which payment system is best for when you are drunk? M-PESA! | Consult Hyperion

Anyway, the point is that an astonishing 96% of Kenya household now have at least one M-PESA user. That means, to all intents and purposes, that mobile money is an alternative to cash. That’s not to say that the cards guys are taking it laying down. They can read the papers just as well as I can, and so they have begun to look at alternatives to the dip, tap or swipe at point of sale and are investigating more mobile-centric alternatives.

Visa, has entered into partnership with Ecobank,  to roll out “mVisa,” an innovative mobile payment service in 33 African markets by year-end. Mvisa enables consumers to pay for goods and services for their everyday expenses from  groceries to  taxi services by simply scanning a QR code on a smart phone or entering a merchant identification number into their feature phones

From Mobile Money Africa

The Kenyan banks are also preparing to launch an instant payments switch so that Kenyans with bank accounts can send money to one another instantly using their mobile phones so at some point in 2017 there will be bank-account, payment-account and card-account competition in the marketplace, which should be great for users.

The Kenya Bankers Association (KBA) yesterday unveiled Integrated Payments Service Limited (IPSL) — the company that will facilitate direct transfer of money between banks without going through M-Pesa.

From Banks launch firm to take on M-Pesa’s mobile cash dominance – Money Markets

The M-PESA figures are fascinating and they show just how effective a mobile solution can be. So how come India didn’t have this kind of mobile infrastructure in place before the government decided to de-monetise. It’s not because Indians don’t have phones, don’t have entrepreneurs, don’t have programmers and don’t have users who would prefer mobile solutions. They have all of these. What they didn’t have, until recently, was a regulatory platform to build on. This began to change last year when the RBI licensed 11 “payment banks” to provide competition and the National Payment Corporation of India launched their Universal Payment Interface (UPI). I said at the time that I thought these moves would grow the sector.

I am sure that the competition and innovation that these non-banks will bring to the Indian market will lead to a pretty rapid increase in the use of mobile financial services there

From An Indian summer for mobile payments | Consult Hyperion

Mobile is the future of fish purchases as far as I can see. The most commonly used mobile wallet in India, Paytm, saw its volumes pretty much double (to around 7m transactions per day) following the withdrawal of the bank notes and I’m sure new services from the payment banks will help such mobile plays to continue to grow. However, the first of those payment banks only went in to operation about a week before the de-monetisation so they didn’t really have much of chance to make an impact. Hence my thinking that it may have been better for India to have waiting until the more flexible regulatory regime had begun bear fruit before. I’m going to blog in more detail about the Indian experiment as more data comes in, but I just wanted to put down a marker here to make the point that given the appropriate regulatory infrastructure I think that the evidence is clear that mobile phones do indeed provide a viable alternative to cash.

Don’t judge mobile payments by the way they work now

A few people tweeted and e-mailed to point out how app-centric commerce can be perversely annoying, citing the example of car parking given in this recent British newspaper piece.

The competitive marketplace for cashless parking has resulted in a fragmented and rather irritating experience for motorists

From Cashless parking was meant to make life easier for drivers but our phones are awash with competing apps | Features | Lifestyle | The Independent

Well, I don’t know if I’d go so far as to say “awash”, but I take the point. I’ve got RingGo and PayByPhone on my iPhone right now. I use RingGo the most. It’s super easy and convenient, except for the hello-2013 bit about paying. Although it’s on an iPhone, it doesn’t use Apple Pay. So I had to sod about typing in my credit card details when my new card arrived and every time I use RingGo I have to remember the three digit code from the back of the card (which I do, to be fair, a good four times out of five). If you want to know how an app should work, check out the new Trainline app.

Trainline Pay

Select Apple Pay, thumbprint, done. Why isn’t all in-app purchasing like this. Come to that, why isn’t all purchasing like this. Actually, it soon will be…

Apple Pay is already available to use in stores and on your phone in apps where it’s supported. Now it looks like the service could be expanding to Apple’s Safari browser, making it possible for pretty much any website to add the mobile payment service as a checkout option.

From Apple Pay said to hit the Web soon

I share the writer’s frustration that when you load a new app to do something straightforward like buy a bus ticket or park a car you have to mess about typing in all of your details, getting out your credit card and typing your financial information back into the phone for the 100th time, searching for the app when you need it and all the rest of it. But that’s because all of this stuff is currently built on yonks old web crap. Look at this screen, for example. Why is the Arriva app asking me for this? Why doesn’t it ask my Barclays app? Or use Apple Pay? Or just remember what I typed in last time?


As the example of the Trainline shows, when you build an app properly using the infrastructure that is growing up in the mobile world then it’s a different story. What should happen when you walk up to the car parking machine is that the app should be fired up automatically either because of Bluetooth beacons in a car park or some other kind of geolocation service, and if you don’t have the app you should be given the option of downloading it quickly and conveniently there and then. When you run the app for the first time it should just look and see if you have Apple Pay or Android pay or Barclay Pay or Chase Pay or Walmart Pay or Lego Pay or PayPal or whatever else pay and ask you which one you want to use. End of. And when you want to use the app you should never have to put up with the sort of nonsense I do buying a bus ticket, standing in bus queue trying to type a PAN into a small screen using a tiny keyboard.

“But if you are an online service provider of any kind – whether you are Waitrose or Airbnb – you want to provide the best experience for the customer. “The bit that’s currently the pain is the customer having to fish out their card and look for the number on the back to complete a payment, and these services avoid the need for that.”

From Google to expand Android Pay digital wallet to UK – BBC News

My point, as I said in that BBC news report, is that that apps deliver a better and more personalised service to the customer and allow the service provider to deliver a better customer experience around their purchase. What’s more, some of those customers won’t even download apps for casual purchases, they’ll just use bots sitting behind WhatsApp or Facebook Messenger whatever else it is that the kids of today are using. Imagine going to the car park at Woking station and instead of running RingGo just using Messenger are to send a message to RingGo instead. The grammar of a car park is pretty limited so is not that hard to construct a bot to manage the interaction. You don’t need Alpha Go to recognise an end time or “day” or “week” or whatever.

Mobile payments are going to be huge. Don’t visualise the commerce of the future as the half-baked agglomeration of cut-down web interfaces that you have on your phone right now, but the constellation of interacting apps on the infrastructure of the future.

Operators and mobile payments, the one millionth blog post

There was an interesting article in the August edition of E-Finance & Payments Law & Policy from Carlo de Meijer and Jonathan Bye at RBS. It looked at the possibilities for different players in the mobile wallet world, exploring the potential for retailers, banks and handset manufacturers. I couldn’t help but notice that it doesn’t mention mobile operators. Mobile operators, by and large, are finding mobile payments tough.

Norwegian mobile payments service Valyou has been shut down, with owners Telenor, DNB and SpareBank 1 blaming a lack of NFC-enabled payment terminals and support from their fellow banks and telcos for their project’s failure.

[From Finextra: Finextra news: Norwegian mobile payments service Valyou shuts down]

Then I read John Stewart’s article “Dropped Call” in the October Digital Transactions magazine. He writes that many people think that the balance of power in mobile payments has already shifted away from the operators. They still have some power (he uses the example of Verizon Wireless holding out on Samsung Pay) but it is really just negotiating power. He also quotes Juniper Research saying that it is “rather sad if the operator role is to be defined as an inhibiting factor on service providers rather than an enabler”. Incidentally, they also note that “the minute the banks got the opportunity to pursue a model cut out the operators, which was what host card emulation offered, they took that chance”.

So that’s it for mobile operators then? Well, no. At least, not necessarily. As that Digital Transactions piece goes on to say, the operators might not be done in payments after all. There may be a role for them in critical businesses such as transaction security and user authentication (my emphasis). And some observers argue they could expand their stake in carrier billing as well, so they still have opportunities to do something in the mobile transactions world.

Of these there opportunities, I would say that if you can authenticate the device and authenticate consumer then you can help everyone else in the value chain to deliver a more secure transaction infrastructure, and that has some value. Now, I rather agree with this line of thinking, and I’ve made similar points before.

The key question is: will the banks and the mobile operators and the handset manufacturers and the platform providers the government be able to work together to deliver a mobile ID infrastructure just as they did not work together to deliver a mobile payments infrastructure?

[From Mobile payment is fun, but mobile ID might be indispensable | Consult Hyperion]

Maybe I was being a little unkind to the banks and the operators. It could be that in the case of identity, the dynamics will be different and the banks and the operators will find more common ground, where the operators provide the identity infrastructure (i.e., the digital identities and at least one of the virtual identities bound to them, namely the operator identity) and the banks provide the identities (i.e., the binding between the digital identities and mundane identities). Back in 2012, commenting on the GSMA Operator Connect proposal, I said that:

I don’t understand why MNOs don’t provide this service already

[From Mobile identity on the move | Consult Hyperion]

The reason I said that was because in the preceding couple of years, Consult Hyperion had been commissioned, more than once, to look at the potential for mobile operators in the identification and authentication space and we had been involved in a number of discussions on the topic, so I’d already formed the opinion that mobile ID would make sense. In fact, back in 2006, commenting on the Norwegian BankID scheme, I observed that mobile identity was more of an long term play than mobile payments (because I thought there would be more competitors in the mobile payment space), and went on to note “I said a long time ago that ‘SimID’ might be more profitable than Simpay (*)”.

Well, I don’t want to sound like a broken record but nine years on this is what I’ll be talking about again at the GSMA’s informal workshop on Financial Services in London on Thursday 26th November. Look forward to seeing you there!

(* Note to younger readers: Simpay was an attempt by mobile operators to build their own pan-European low-value retail payment scheme.)

Contactless limits

So the “contactless limit” (i.e., the maximum amount that a contactless no-PIN transaction can be for) went up to £30 today. This is a reflection of the popularity of contactless in the UK. The latest month for which figures are available (June 2015) shows continued strong growth in such transactions.

  • 81.2m contactless transactions were made this month. This is an increase of 9.6% on the previous month and 240.9% over the year. The volume is split between debit (£70.7m) and credit / charge cards (£10.5m).
  • 259,074 bank-owned terminals are available in the UK where contactless cardholders can make a contactless transaction. This is an increase of 5.6% on the previous month and 35.9% over the year.
  • On average, each contactless transaction is for £6.98. This is split £7.02 on a debit card and £6.73 on a credit / charge card.
[From Contactless statistics]

More was spent on contactless in the first half of this year than the whole of 2014 and that comes after a 300%+ growth in contactless numbers through 2014 itself. The growth is strongest in food and quick-service retail (QSR) as you would expect.

Other sectors leading to the growth in contactless includes supermarkets and food retailers, which accounts for 46% of all contactless transactions, the hospitality sector is close behind with 38% taking place in bars, coffee shops and takeaways. However, the rest of the retail sector has a long way to go, however, accounting for just 13% of contactless transactions across the UK.

[From Contactless payment transactions pass the magical 1bn mark – Retail Gazette]

One of the reasons for the rise to £30 is that use in supermarkets, where the average basket size is (as I understand it) over the existing £20 limit. Just for comparison, in Australia where the contactless limit is $100 (about £50), more than two-thirds of all supermarket transactions are now contactless, so we still have plenty of room for growth.

Note also that London alone accounts for more than a third of all contactless transactions in the UK and this is largely because of TfL’s decision to accept contactless credit and debit cards at the gate. That’s also had a knock-on effect for wider usage. I think the dynamic was that lots of people has contactless cards that they hadn’t used but once they’d used them to get on the bus then they began to use them for cups of coffee and then sandwiches and then the supermarket and such like.

According to Barclaycard data, 30% of card payments in London in 2014 were contactless,

[From Contactless payments taking off in the UK in 2015 | Mobile Transaction]

I use my contactless card (well, the contactless sticker on the back of my phone actually) all the time and so I’m very happy to see the limit rise as I find it super convenient to pay in Marks & Spencer with the phone that is already in my hand.

Stickers are the future

It’s fascinating to me that over the last decade that it has taken contactless to get to the mainstream (the first contactless product that Consult Hyperion worked on was in the US more than ten years ago) the relationship between contactless and mobile has always been strong but convoluted. I think we’re now seeing it stabilise though and the path from tap-and-pay to app-and-pay is becoming clearer. With Apple Pay strengthening, Android Pay and Samsung Pay launching and the boom in in-app solutions, the limit to contactless growth is no longer inherent conservatism, press scare stories or the continued use of chip and PIN but its replacement by mobile solutions (for whom the £30 limit doesn’t apply anyway).

The user experience will make, or break, mobile payments

Being a keen consumer of baked pastry goods, and having a firm desire to see the pieces of plastic & cardboard in my wallet transferred to my phone, you can understand my excitement when the award-winning Greggs Rewards app was released early in 2014. The app combines the processes of payment, loyalty, and rewards into a single interaction at the point of sale, with a prepaid payment account which can be automatically topped up via credit card or PayPal. In eager anticipation of a tasty lunchtime treat, I therefore ventured out of the office and off to the town centre.

My first expedition ended in disappointment. In order to perform a transaction the customer opens the app, presses the ‘spend now’ button, and receives a dynamically generated token (an eight digit number) which is to be presented to the POS in the form of a QR code. But… in order to receive the token, I had to have a network connection. Now, whilst there is a very good network connection all the way up to the front door of the store, once through the doors my phone decided to connect to “The Cloud”.  For some reason, my phone has an on-off relationship with “The Cloud” and, it appears, its relationship with this particular hotspot appears to be more ‘off’ than ‘on’.  No matter, I can turn WiFi off. But what’s this? It appears that my mobile network didn’t share my longing for a sausage roll and decided to only let the GPRS signal through the door. It turns out that GPRS, whilst a revelation 15 years ago, does not appear to offer a particularly suitable channel for today’s mobile apps. Unable to obtain a token, I resorted to my plastic card.

Armed with this knowledge, I anticipated a successful second visit. This time, not only did I press the button to obtain the token before I got anywhere near the store, but I also took a screenshot of the QR code just in case. Ready to pay, and having got past the inevitable learning curve for the checkout operator who hadn’t been shown what to do with this new scheme, I was ready to finally scan my code – except that this store didn’t have any scanners at that time. So instead, I had to enter the 8 digit number on the keypad of the card reader. Happily, once the POS had my token, everything else went smoothly. I had redeemed an offer for a free item, paid for the outstanding items, and had a coffee loyalty purchase recorded all in a single interaction.

“But hang on,” I remember thinking, “they already accept contactless cards.  And I have an NFC phone which can talk to their readers. Wouldn’t it be great if the app could do NFC?”

Well, sixteen months later, and Greggs Rewards has now quietly added support for contactless in its Android app. Full of even more excitement than last February (well, I have been waiting for two years to pay for something by NFC) I headed out.

Having informed the operator that I would be paying with my phone, I was interested to note that she enabled the terminal for ‘card’ payment and not ‘rewards’ payment. Having seen that the app requires at least Android 4.4, and so concluding that it must be using Host Card Emulation (HCE), I was hopeful that this meant that it was seamlessly integrated into the ‘normal’ payment process.

Alas, the terminal was actually expecting a payment card and so the transaction failed. The operator told me that, when I had waved my phone at her, she had automatically assumed it was a contactless payment (which, as an aside, is actually good news for this month’s Apple Pay launch.)  It turns out that trying to integrate everything into a more seamless experience means impacting the existing card payment certifications, so for now they’re stuck with having to tell the POS what type of payment it should be expecting in advance.

Using the rewards app, even over contactless, still requires the operator to press the a special “rewards” button on the POS. This she did, and the contactless reader was ready to read my phone, the barcode reader was ready to scan my QR, and the terminal was ready for me to type in the number.

Unfortunately, this was the moment my phone decided it no longer wanted to play. With me having accidentally switched apps, on re-opening the Greggs app it decided it needed to connect back ‘home’ again. Because I hadn’t disabled WiFi, I was at the mercy of my phone’s long-term “It’s Complicated” relationship with The Cloud and so unable to provide the token. After disabling the WiFi, restarting the app (which for some reason was complaining that the 4G connection my phone now had was ‘too slow’), inwardly cringing at the complaints from the lengthening queue behind, and ignoring my colleague’s offer to just hand over some cash to get us out of there, I finally performed my first real world NFC transaction and was the proud owner of a free doughnut.

So what can we take away from all this?  Firstly, the mobile app must not rely on hardware or OS services that are not absolutely critical. Reliance on network connections is understandable for e-commerce, or for refreshing the app content, but for a POS transaction the app must be able to work without one – even if it is using dynamic tokens. The card schemes have already worked this out and catered for it in their HCE specifications.

Secondly, the payment experience must be seamless. It is frustrating to be a customer trying to explain a company’s mobile offering to the checkout operator, especially when the payment terminals are adorned with collateral advertising that very scheme. “Why,” I ask wearing the hat of a less well-informed member of the public, “can the till not work out for itself what payment method is being presented to it?  I don’t know about payment certifications and the resulting workarounds; I only care that the process is more complicated than it seems it should be.”

Only those of us with an unnatural interest in mobile payments (or a hearty appetite for pasties) will put up with a poor user experience more than once.  Normal people will give up and uninstall the app if it doesn’t work flawlessly; the people waiting in the resulting queue – such as the woman behind me who observed that “this is ridiculous” are unlikely to try it even that once.

App and pay is where it’s at

A few weeks ago, I said that Apple Pay isn’t disruptive (for retail payments) and I made the point that its real impact will be “in-app”. I want to explore and emphasis this point in the light of more recent developments. Specifically…

The big news is that it will expand to the UK market next month

[From Apple Pay to be available in UK – Business Insider]

Apple Pay is coming to the UK. Now, when Apple Pay was first announced in the USA, our basic analysis of it for our clients was that it was an incredibly important development in the payment world, but not because of the use of the NFC. The fact that Apple had decided to use tokenisation, we told people, makes tokenisation as big a deal as chip and PIN. It will change the way business gets done, because it brings chip and PIN security to online and mobile transactions. In fact, I bored a number of people on this topic, to the point where it became part of my spoof write-up of Money2020 in Las Vegas last year

“Well, for the big merchants it’s not about tap-and-pay it’s about app-and-pay” he told Osama Bedier from Poynt.

[From Casino Royale-with-Cheese, Part 7]

At the end of the year, we made “in-app” one of our “live five” areas for our clients to explore in 2015 (along with the blockchain, as it happens) and started trying to persuade people to pay attention to it as area of massive opportunity.

Much of the discussion around ApplePay, tokenisation, NFC and retail has naturally focused on the “tap and pay” simplicity of the proposition. However, there are lots of reasons for thinking that this will be a sideshow rather than the main event.

[From Live Five for Fifteen]

The good people of the GSMA invited me to Mobile World Congress in Barcelona earlier in the year to explain this point to a general audience, where I predicted that tokenisation would accelerate a shift away from the check out and the conventional POS terminal as the nexus between the consumer and the merchant drifts away from physical space and into the mobile phone.

while much of the talk at the Congress was about what I’ve previously called the “last millimetre” using NFC, RFID (and now Loop) to link the phone to the point of sale (POS) in the store, the really disruptive impact of the Apple Pay, tokenisation and strong authentication via mobile would be away from the “traditional” POS because bringing chip-and-PIN levels of security and convenience to in-app transactions will change the way that we pay pretty quickly.

[From In-app and on-message in Barcelona]

I made exactly this point again a couple of weeks ago, when I was interviewed by the BBC in connection with the UK Apple Pay launch [audio, starts at 30 minutes in]. On the whole, I think. Consult Hyperion got a consistent message out to our clients and then to the wider marketplace. But is it the right message?

It is. I was interested to note some comments by people far more important and influential than I, comments that might be taken to mean that I may have perhaps been too conservative in my proclamations, around the announcement of Apple coming to the UK.

John Collison, one of the cofounders of $3.5 billion (£2.25 billion) payment processing startup Stripe, says this feature, not the contactless mobile payments, is getting businesses most excited… John Lunn, senior global director for the mobile-payment company Braintree, which was bought by Paypal for $800 million (£512.18 million) in 2013, also thinks Apple Pay’s in-app element is the most exciting thing about it.

[From Apple Pay in-app purchase power could be its most important feature, say Stripe, Braintree – Business Insider]

Well when people like John Lunn, who I can personally testify is a very smart guy, go on to say that “everybody’s talking about the in-store stuff, but actually when you look at the presentation when they launched it, the merchants that were sitting behind Tim Cook were online” I think that tell us the direction of travel pretty accurately.

As my colleague Tim Richards pointed out earlier in the week, tokenisation is a really big deal. App-and-pay changes industry dynamics in a way that tap-and-pay does not.

Mobile bypass surgery for banks

There’s something sadly inevitable about Royal Bank of Scotland’s most recent technical breakdown, as thousands of customers are once more denied access to their own money:

Royal Bank of Scotland has suffered another IT fiasco after admitting it could take until the weekend for customers to receive 600,000 payments that failed to enter accounts overnight.

[From RBS could take until weekend to make 600,000 missing payments after glitch]

It’s not a problem specific to RBS though, it’s an industry wide issue, mostly hidden by harassed technologists desperately trying to shore up unstable systems built out of myopic procurement policies and acquisition driven integration. The problem is that the majority of the retail payments infrastructure is built on foundations as stable as a British teenager on a booze cruise – and it’s equally as unlikely to be improved by simply throwing more money at it. After all, back in 2013, after the last major technical outage, RBS committed to spend:

£450m on top of its £2bn annual IT spend to replace the mainframe that failed and on new backup.

[From RBS Mainframe Meltdown: A year on, the fallout is still coming]

Partly the problem has been caused by bank executives with little or no understand of technology; which is not to say that technologists should ever be allowed to run banks, but simply to point out that to all intents and purposes banks today are technology companies. It’s a stunning inditement of regulators that it took the Great Crash of 2007 and 2008 for them to recognize that banking executives ought to possess some knowledge of banking before being allowed to take charge of our cash, but it’s a nagging concern that they don’t require technical expertise among the executive officers of our leading financial institutions.

Unfortunately, while it’s easy to sit on the sidelines and poke sticks into the frenzied ant nests of struggling fintech departments, as politicians and journalists with even less understanding of bits and bytes than the average bank executive are wont to do, it’s entirely another thing to fix the problem. The reality is that retail banking is built on innumerable legacy systems, many of them older than the people who run the banks, integrated together in ways that defy rational understanding or intelligent analysis. The people who know how to run these systems are dying of old age exacerbated, no doubt, by the stress of trying to keep these steam-powered juggernauts going.

However, there may be an answer. Currently we’re seeing an explosion of interest in mobile banking and payments solutions, backed up by tokenization – the replacement of standard card numbers by aliases that can be used only in strictly limited environments. One unintended side-effect of this is to create a parallel retail payments solution, but one that’s built on modern technology, which is designed for adaptation and upgrade, which operates in real-time not in an antiquated batch mode, and which can be maintained by people who are young enough not to know what a mainframe is, let alone have the inclination to go near one.

Of course, this won’t fix the problems overnight – retail banking systems resemble congealed spaghetti, and merely freeing one strand isn’t going to solve everything instantaneously, but it does at least provide a starting point. The problem is that the silo mentality that created these issues in the first place is failing to recognize the possibilities. Yes, mobile payments systems are a great way to drive through new business, but perhaps the real opportunity is for banks to use them to bypass the failing and incredibly expensive legacy system nightmare.

Instead, banks are outsourcing their core business activities to third-parties who are building parallel payments infrastructures – infrastructures that are far more stable and far less likely to break under load. Who would you rather rely on for reliable payment services – Apple or Google or your current bank, resting its withered laurels on an aged and creaking set of systems? Well, we may find out, and soon unless banks seize the opportunity.

I don’t trust public opinion on trust (or anything else)

Down at CHYP End we work on a pretty wide variety of new payment systems and schemes around the world and we understand that consumer trust is seen to be an important factor in determining which of them might succeed or fail. But is it really true? Is trust really a determining factor or are there other ways to sway consumers?

A recent survey has revealed that consumer trust in newer payment methods has declined significantly in 2014. The survey, in which 650 UK residents answered questions about their banking and payments habits, also indicates that, for the third consecutive year, cash was seen as the most secure (73%)

[From UK: consumer trust in newer payment methods drops by the wayside, cash still king | The Paypers]

This is, of course, mad. Cash is the least secure way for consumers to pay for anything, no matter how you look at it. Getting your cash back from a retailer who does not deliver or a holiday company that goes bust or a tradesman who does a shoddy job can be very difficult. And cash is what gets lost and stolen. And if I end up with counterfeit cash it’s my problem and there’s nothing I can do about it. The idea that cash is in any way secure is laughable and I am genuinely baffled as to how anyone who has been through a minimum of 11 years of compulsory education might think otherwise.

Nearly 71% of respondents believed mobile payments to be the least secure payment method. The results show that whilst the number of people making mobile payments has increased, nearly double the amount of people perceive the mobile device to be the least secure when compared to the 2013 survey results (38%).

[From UK: consumer trust in newer payment methods drops by the wayside, cash still king | The Paypers]

Ludicrous, of course. But remember that one in four of those people think dodos still exist, so you should take anything they say on any topic whatsoever with a big pinch of salt. Mobile payments are far more secure than a great many alternatives (including cards – I’ll blog about this again soon). And in any case it may not matter what people say about new payment systems as compared to what they do with new payments systems. The figures seem to show that while three-quarters of Brits think that mobile payments are insecure, more than half of Brits want to use them.

A survey from payments and loyalty specialists Logic Group has found that UK consumers are embracing new technologies such as contactless and mobile payments… Being able to pay through a mobile device is a popular request from survey respondents (54 %), while one in five consumers is also interested in paying for goods through wearable technology.

[From UK consumers embrace contactless and mobile payments – Payments Cards & Mobile]

In fact, Brits are pretty bullish about this apparently insecure technology because not only do half of them think that they would like to use mobile payments themselves, a third of them think that mobile payments will become the preferred method of payment in a relatively short time! So the general public appear to simultaneously believe that mobile payments are insecure and they will become our main way of paying for things.

A new study published by Experian reveals that a third of the UK population (33%) believes credit and debit cards will no longer be the preferred method of payment in 2020, as paying with a smartphone will take over.

[From UK adults believe that smartphone payments will outpace credit and debit cards by 2020 – Payments Cards & Mobile]

I think that the key to understanding peoples’ responses to surveys like this is to remember that they don’t understand the slightest thing about the security of electronic transactions and therefore their opinions are based only on prejudice. Why American consumers, for example, would imagine that paying with a trivially-counterfeitable magnetic stripe is better than paying with a secure mobile alternative is completely beyond me. But they do.

Only one percent of respondents believe using a third party mobile payment provider such as Apple Pay or Google Wallet is a safe way to pay for in-store purchases.

[From Survey: Consumers Dubious of Mobile Payment Security | Tripwire]

So, broadly speaking, people think that mobile payments are not secure, but since they don’t care about security and value convenience more highly, they will use mobile anyway. At least I think that’s what it all means. Look at the early figures coming out of Apple Pay, which apparently now accounts for the substantial majority of all contactless payments in the US. Whatever people might think about the security, they tap and pay with it. This is why mobile payments will succeed: because they are convenient. I always have my phone in my hand when I’m (for example) getting on the Tube so I might as well use it.

iphone at gate
Open loop pay at gate in London with an iPhone and Apple Pay

What these results might also mean is that it is important not to listen to the general public about anything at all. This is not my curmudgeonly take on the general ignorance of our barely-literate hordes but in itself a statistically well-founded observation.

British public wrong about nearly everything, survey shows

[From British public wrong about nearly everything, survey shows – Home News – UK – The Independent]

They’re wrong about nearly everything, and mobile payments are no exception. Whatever they say about trust, they will do what’s easiest.

Apple Pay is cool and great and fun, but it isn’t disruptive

I saw a lot of comment on an article in Harvard Business Review that discussed Apple Pay and concluded that it is not a disruptive play.

By launching Apple Pay as a reseller instead of as a disruptor, Apple is helping to perpetuate a credit card payment system that is obsolete, overly expensive, and absolutely unnecessary in the present day.

[From Apple Pay Is Just a Big Giveaway to Credit Card Companies – HBR]

Well, that’s a little harsh and I’m not sure I’d agree that credit cards are obsolete, but you cannot help but agree with the core point about Apple Pay not being a disruptive technology. I’m hardly the only the person that thinks this and it’s not a new perspective. ApplePay is not disruptive because it cements in place the existing rails for retail payments. And there are good reasons for doing that (apart from anything else, they work) and it means that the service has immediate access to a mass market.

But truly disruptive new services don’t just digitize the familiar. They do away with it.

[From What Amazon, iTunes, and Uber teach us about Apple Pay – O’Reilly Radar]

This is a fair point. Apple Pay is certainly digitising the familiar rather than doing away with it.

In each of these cases, my payment information is simply a stored credential that is already associated with my identity. And that identity is increasingly recognized by means other than an explicit payment process.

[From What Amazon, iTunes, and Uber teach us about Apple Pay – O’Reilly Radar]

The point is, of course, that in time services like Uber will use Apple Pay, because they will want to switch from using stored payment card credentials under “card on file” rules and rates and instead use “cardholder present” rules and rates. This will turn all payments into push payments (which is a good thing) and greatly benefit retailers and consumers alike. What will vanish is the idea of a “point of sale”, since even in-store all payments will be made in-app, just like Uber.

Apple Pay optimizes for how the world does work. The real winner in payments will build for how the world should work.

[From What Amazon, iTunes, and Uber teach us about Apple Pay – O’Reilly Radar]

So how should payments work? Well, that depends on who you are. But if you are a merchant, for example, you want the money to come directly from the customer’s bank and into your bank (forget about what “bank” might mean for the moment) with no-one else in the loop.

Banks don’t orchestrate commerce… they are a dumb pipe payment service that cost far more than the value they provide. The greater they work to control the existing pipes, the greater the business case is for going around them, or regulating them into submission.

[From Money 2020: Tokens and Networks | FinVentures]

Tom’s typically robust approach may aggravate some but there’s no denying that he has an informed perspective. Unless banks find some added value (spoiler alert: I have a feeling that this may be something to do with identity) then they won’t get anything out of this either. Time to start developing a strategic response to falling net interest income, transaction fees asymptotic to zero, flat trading income future. Right now, only 7% of European bank revenues are “other”, so it’s time to grow this piece of the pie…

Euro Bank Income 2014

European Bank Revenues 2014 (Source: Deutsche Bank, March 2015).

If we’re being disruptive, then we don’t start with Apple Pay, we start with thinking about how payments should work. Broadly speaking, wow payments should work is how Bill Gates said they should work in his closing address to SIBOS 2014. He said:

What should the marginal cost of a transaction be, if the identities are properly established, it is extremely low.

Not my words: Bill Gates’. This is a perspective that suggests a very positive model for disruption around a new role for banks in the wider economy. The banks role is to reduce the marginal cost of everyone else’s transactions as well as their own by delivering the trusted identification with strong authentication that the new economy demands. This means more transactions, more commerce, more prosperity and a decent line of business for the banks themselves.

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