Tag: retail

Bar none

30th May 2011by Consult HyperionLeave a comment

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

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

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

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

Damn that Joe DiVanna!!

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

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

Who’s square? Jesse is

25th May 2011by Consult HyperionLeave a comment

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

Last Friday, Congressman Jesse Jackson Jr. (D-IL) took to the floor of the House of Representatives to decry the iPad as a job killer, as people are using the device to read books rather than buy them from bookstores.
[From Lesson to Congress: iPad Doesn’t Kill Jobs, Government Does – Gary Shapiro – The Comeback: Innovation Economy – Forbes]

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

In 1994, the dominant global provider of mobile handsets was Motorola: its shares were trading at an all-time high and it was seen as an outstanding innovator and even described by a senior consultant at A. T. Kearney as “the best-managed company in the world”
[From Why Nokia’s Collapse Should Scare Apple – Patrick Barwise and Seán Meehan – The Conversation – Harvard Business Review]

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

Motorola missed most of these market trends, was slow to invest in digital (it was a classic victim of the innovator’s dilemma),
[From Why Nokia’s Collapse Should Scare Apple – Patrick Barwise and Seán Meehan – The Conversation – Harvard Business Review]

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

Bill Gajda, Visa’s head of mobile innovation, is confident that Visa and the other card networks, in conjunction with banks, will be at the center of mobile payments in the future.
[From Leading Mobile Payments | Visa’s Blog – Visa Viewpoints]

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

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

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

So where is Square seeing the most traction? Without a doubt, small businesses, independent workers and merchants comprise most of Square’s rapidly growing user base.
[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]

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

While merchants have to qualify for the app, Square’s qualification rules are more relaxed than those of standard credit card processors.
[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]

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

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

The obvious idea is to make payments “frictionless” — easier and faster for the user and merchant. (Assuming that the app is fast enough that it is actually more convenient to pay this way than just to have your card swiped. Wireless data networks aren’t always reliable, etc.)
[From Jack Dorsey’s Square Starts Its Bid To Kill The Credit Card]

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

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

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

just as the iTunes store completely upended the sale and distribution of digital media, Square just might upend the entire real-world payments industry–whether it meant to or not.
[From How Jack Dorsey’s Square Is Accidentally Disrupting The Entire Payments Industry | Fast Company]

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

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

payment cards

Day zero

20th May 2011by Consult Hyperion7 Comments

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

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]

Some observations on Japan

4th May 2011by Consult Hyperion2 Comments

Someone interrupted one of my rants against cash the other day by pointing out that in the last resort, cash is the only payment mechanism that society can depend on. Their trump card was reference to the aftermath of the recent Japanese cataclysm, where following a magnitude 9 earthquake and a tsunami, the nuclear reactors didn’t melt down but the payment system did.

I think this is wrong lesson to draw from it. Yes, there were some temporary problems with the card networks because of the disruption, but it’s important to note that this did not impact all cards: Japan has quite a rich retail payment landscape, as shown in this diagram (which I drew a couple of years ago, so it’s a bit dated, but you get the point).

I saw Nobuhiko Sugiura, Associate Dean of Chuo University Business School, give a good overview of the current situation at last year’s E-Money, Cards and Payments conference in Moscow. He said that e-money usage in Japan is growing rapidly but still a small fraction of total consumer spending (¥1 trillion out of a total of ¥300 trillion, a 300% increase in the last three years). A third of the population use e-money and half of them (ie, one sixth of the population) use it in their phones. It’s a competitive market, centred on non-banks because the Japanese banks have no real interest in handling small payments because or their cost base. The non-banks, as I’ve often noted on this blog, have different business models, not based on transaction fees. The railways, for example, don’t expect to earn anything from their e-money system, it’s about reducing their costs. In comparison, convenience stores want to issue e-money to reduce their cash float. The bottom line is that the of cash at POS in Japan is “already falling” because of e-money.

After the earthquake and tsunami, the offline electronic money systems (such as Edy and nanoco) carried on working so long as there was power and the backup battery systems or generators were working, so you could still pop round to 7-Eleven and buy your staples. In fact, it was people who kept their money in cash who suffered greatly.

In Japan, lots of people — especially older people — keep their life savings in cash in their homes. (The country’s banks pay very low interest rates, so the incentive to deposit that money into bank accounts is lower than in other countries.) This is all well and good, until a tsunami destroys your home and washes your money out to sea.
[From Schneier on Security: Unanticipated Security Risk of Keeping Your Money in a Home Safe]

That’s not to say that people didn’t want cash after the event.

The tragedy playing out in Japan this past week highlighted that in times of crisis, there’s nothing like cash in hand as the universal method of payment. By all accounts the banking system in Japan survived and is functioning well after the earthquake and tsunami – such is the level of disaster preparedness. But Mizuho, Japan’s second largest bank, reported outages in its payments and ATM networks – coincidentally as demand for cash surged.
[From The end of cash for payments? Not so fast! – Microsoft Perspectives on Payments and Core Banking in Financial Services – Site Home – MSDN Blogs]

So they wanted cash, but did they need it? In this kind of catastrophe, where the online POS network goes down but the ATM network stays up and the ATMs remain stocked with notes, you could see people going and withdrawing cash. But suppose there are no ATMs?

Imagine that there was a magnitude 9 earthquake and a tsunami in Woking (unlikely – our last natural disaster was an ice age in 18,000 BCE) and when I go round to Waitrose to buy some bottled water and rice my John Lewis MasterCard proves useless because the acquiring network is down and the ATM proves useless because the ATM has no power. The store manager at Waitrose can leave the food to rot on the shelves or he can accept a signed IOU. He could accept no sale because of flaws in the electronic payments or he could develop a rational fall-back strategy. We discussed this a couple of years ago, with reference to the famous case study of the Irish bank strike.

The owners of shops and pubs knew their customers very well and so were perfectly capable of deciding whether to accept cheques (or just IOUs) from those customers. And since the customers also knew each other very well, they too could make sensible decisions about which paper to accept.
[From Digital Money: Payments without banks]

If I was the manager of Waitrose after the Woking earthquake, then I would simply accept payment by writing down card numbers, or photocopying driving licences, or taking pictures of customers, or whatever. The core of the issue is identification and trust, not the payment instrument. As many media commentators noted, society in Japan did not collapse. My conclusion: natural disasters are not a convincing argument for cash.

By the way, I case anyone was wondering about the origami cranes that I was giving out in Chicago this morning… My wife is a teaching assistant in a primary school in Surrey. The seven year old brother of one of the boys who was in her class (they boys have a Japanese mother) has been spending two hours every day for the last month making these (they are a symbol of peace in Japan) to raise money for the British Red Cross appeal for Japanese tsunami victims. Consult Hyperion have purchased a hundred of these beautiful and special cranes, so if you come to our office anytime over the next couple of weeks, please feel free to pick one up with our compliments.

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

Cash and machines

27th April 2011by Consult HyperionLeave a comment

In a comment on an article about mobile payments that I was reading, I noticed that someone wrote

I hate it when a retailer tells me they don’t accept cards. I feel like I have to remind them what year they’re living in. They usually prompt me to use an ATM within their store and accept a 2 dollar or more fee just to get the cash to pay for a candy bar. This results in me leaving the store and finding a 7-11 or some such thing.
[From Paying by phone is insecure and unnecessary. – By Farhad Manjoo – Slate Magazine]

It seems to me that this is the market at work, and I don’t see a problem with that. If some retailers and some customers want to carry on using cash, then fine, let them, but don’t make me pay for it. So long as they are paying the full cost and I’m not subsidising them, so what? (Actually, there is a so what which is to do with the impact on society, but that’s not my point here.) But then I began to wonder why the store would need an ATM at all. Wouldn’t costs be reduced for everyone if the customer could use their ATM card to withdraw money from the retailer’s cash draw? This is the sort of thing that is going on in India.

As a part of the ambitious Unique Identity (UID) card project, a micro-ATM will be a payment platform that would make use of mobile technology and the customers’ UID will serve the ‘know your customer’ (KYC) norms required by the bank to open an account.
[From Banks take to the shrinking cash machine – dnaindia.com]

The micro-ATM is a POS terminal-with-knobs-on so that customers can make “ATM” withdrawals at agents but also open accounts and carry out other basic functions. Presumably these don’t cost the merchants much more (if any more) than regular POS terminals and they must cost less than an ATM, so everyone’s better offer, except for ATM manufacturers.

Perhaps we should stop looking at these band-aids to slap over cash’s inefficiency though. It’s time to get tough. According to recent research by McKinsey and Wincor-Nixdorf (who make, amongst other things, ATMs), cash “in circulation” from the US to Europe through to Asia Pacific is increasing year-on-year,which has resulted in the global cost of handling cash increasing to more than US$300 billion, and retailers bear the brunt of those cash handling costs compared to banks, cash-in-transit operators,cash centers and central banks. As much as 61% is attributed to the cost of handling, transporting and securing cash in the checkout zone and back office of a retail store compared with 32% for a retail bank. Incidentally, I thought I remembered seeing that $300 billion figure a few months ago, and it turns out I did.

Eckard Heidloff, president and CEO of Wincor Nixdorf and Dr. Karsten Ottenburg, chairman of the management board and CEO of Giesecke & Devrient, noted that $300 billion is spent annually on cash processing worldwide. And since the euro’s introduction, the number of banknotes in circulation in euro-member countries has increased 8 percent yearly.
[From Wincor Nixdorf and Giesecke & Devrient form a partnership | ATM Marketplace]

Banknotes “in circulation” going up 8%, while retail sales went up, what, 1% last year? What on Earth are people are these banknotes for? Earlier in the recession, the Bank of England put forward a theory:

As a share of nominal GDP, the value of notes in circulation declined from 6% in 1970 to a low point of 2.4% in the mid-1990s but has since stabilised and then increased, noticeably over the past two years… Rising demand for notes might reflect some loss of confidence in banks and very low interest rates, which reduce the opportunity cost of holding banknotes as a non-interest bearing asset. Andrew Bailey says that is “…pretty good prima facie evidence that there has been an increase in demand for banknotes as a store of value”.
[From Bank of England|Publications|News|2009|Banknotes in Circulation – Still Rising: What Does This Mean for the Future of Cash? Speech by Andrew Bailey, 6 December 2009]

Yes, but a store of value for who? Certainly not for a normal, law-abiding taxpayer like me. Does anyone you know keep cash at home now instead of leaving it in the bank? This isn’t a purely European phenomenon, since the amount of cash has been going up in the USA as well.

The quantity of US currency in circulation in the world was $2776 per US resident in April 2009. That’s a lot of currency – the stock held at any point in time is about 6% of US annual GDP. In case you think that’s all held overseas, a study by the Bank of Canada (in the Bank of Canada Review – look it up) shows that Canadian currency outstanding is about 3% of annual Canadian GDP, and most of that has to be in Canada.
[From Stephen Williamson: New Monetarist Economics: The Use of Currency]

These figures seem about right: the US has far more currency out there per person, because more than half of all US currency isn’t in circulation in the US and will never be repatriated, so in the UK, Canada and the US we see approximately the same figure, that M0 is 3% of M4.

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

Contactless in chaos

18th April 2011by Consult Hyperion3 Comments

When I was in Singapore a few days ago I went to Starbucks in the conference centre where the Cards Asia and NFC World Asia events were being held, accompanied by senior executive from major international financial services organisation (SEXMIF) to get a coffee. When we got there, I noticed a contactless terminal, proudly advertising that it preferred Citibank cards. We ordered a couple of coffees and the delightful young clerk smiled and cheerfully asked for $8.40 or whatever it was. After a theatrical flourish of my splendid contactless Visa card I triumphantly tapped it against the reader. Nothing. I tapped it again. Nothing. I told the attendant that I wanted to pay with contactless. Ah, he pointed out, you can’t because it’s not a Citibank card. I politely explained that it was a Visa card, and there was a Visa logo prominently displayed on the reader. He went off to get his supervisor.

The super appeared to see the problem. Ah, he pointed out, the terminal isn’t ready. He proceeded to re-key the transaction into another POS terminal (they had three: two for cards, as far as I could see, and one for NETS, the domestic contactless purse.)

Nothing. The terminal still didn’t display the invitation to tap and go, although the blue light was on. He told me to tap the card. I told him that it would be pointless, because the terminal wasn’t in the correct state. He insisted. I tapped. Nothing happened. SEXMIF, who was videoing all of this on his phone, presumably so that he could show his management the future of consumer payments, was having trouble keeping the camera still while laughing at me.

We cancelled the transaction out and tried again. It still didn’t work. I rummaged for my trusty Travelex pre-paid MasterCard and paid by swipe. Remember, I do this so you don’t have to.

Not only was using contactless not quicker than paying with cash, it was not quicker than paying with a cheque. Nor, for the matter, was it quicker than walking across the mall to an ATM, drawing out the cash, walking back and paying with a S$50 bill and getting the change in 5-cent coins. What a joke. It’s almost as if a double-agent from the cash-in-transit (CIT) industry has gone under deep cover and is now working for the banks, sabotaging the deployment of contactless from the very heart of the industry. After all, what consumer is going to try tapping their phone on this terminal after they’ve had these experiences with contactless cards?

The next day, on my own, and refusing to accept that contactless deployment had been damaged beyond repair by the combined actions of the acquirers and merchants, I went into another Starbucks to try again. I asked for a Latte (with an extra shot this time) and then asked if I could pay by contactless. The guy told me I needed a “white card” (I think this is what he said). I wasn’t sure what he meant, so I confidently pointed to the Visa logo on my UK Barclays debit card and, expressing full confidence in the global brand promise that has made Visa what it is today, I prepared to tap. He rekeyed the transaction, and, ta da!, the terminal lit up. I tapped! The light went amber, then green! He handed me a receipt that confirmed an offline EMV no-CVM debit transaction, and I wheeled away in triumph.

But the clerk called me back. He told me that they have to swipe the card, even when the customer has paid by contactless. I was incredulous. But he was insistent. I asked him why. He said that they had to. I told him I was sure that wasn’t the case, but he insisted, and by now my use of contactless had caused a queue to build up. I didn’t want to embarrass him — it’s not his fault — but I was really curious what they needed the swipe for. So I handed over my Travelex MasterCard, and he swiped that. It charged me for the coffee again. I looked at both receipts, astonished. Then I gave him back the Travelex card and had him unwind the transaction, then gave him my debit card and he swiped that, for a reason that wasn’t clear to me. When I got home, I logged in to both accounts to see what had transpired. Nothing had been posted to the Barclays account three days after this, and when I tried to log in to Travelex it said “site down for maintenance”. Oh well.

For reference, this is what should happen in the retail environment if a retailer wants to cut cash handling, speed up serving times and increase the average spend: I ask for a coffee, the guy rings up S$6.40 and the terminal lights up, clearly displaying “6.40” and then I tap it with my card/phone and the light goes green and that’s it done. End of transaction.

Licensed operators

13th April 2011by Consult Hyperion1 Comment

France has been in the forefront of the NFC revolution, with an early commitment to cross-industry co-operation, considerable work on standards and models and an aggressive timetable for getting phones into the market. Remember this?

A dozen French cities plan to launch wide-scale contactless payment and information service on mobile phones with the backing of the ministry of industry, reports Les Echos. The city projects approved under the initiative will receive state assistance for consultancy and engineering, but no other subsidies are planned at this stage.
[From Aid from French Ministry of Industry for mobile contactless cities. « Contactless & NFC City League]

You will undoubtedly recall that a few months later, the French mobile operators decided to get together with a processor and form a mobile payments proposition to launch a serious assault on the banks’ retail payment franchise.

Orange, SFR, Bouygues Telecom et Atos Origin créent une société commune pour proposer une plate-forme unique de paiement en ligne, sécurisée par le mobile.
[From Union sacrée des opérateurs mobiles dans le paiement sur Internet – OPERATEUR DE TELECOMMUNICATIONS SERVICES INFORMATIQUES ATOS ORIGIN FRANCE TELECOM SFR BOUYGUES TELECOM]

Well they’ve made their first assault on the enemy positions and have been granted a PI licence. Why would they bother, you might wonder, when polls show that the majority of consumers don’t want to use mobile payments?

The 59% of consumers who were against the idea, meanwhile, gave their reasons as: Security (79%)
[From Most French consumers not in favour of mobile payments • NFC World]

The answer is, of course, that consumers don’t know what they are talking about and it’s a waste of time asking them about anything new. Whatever they might say a priori, in all of the pilots and trials that we have been involved in, they really, really, liked mobile proximity.

But there are some real issues, and we need to address them.

Dead phone batteries. Wrong merchant terminals. Terminals turned off. Terminals unrepaired. No terminals at all.

These and other, less obvious glitches suggest contactless technology may not be the mobile payments panacea for tattered magnetic stripes and other problems with plastic cards.
[From Mobile Payments Inheriting the Problems of Contactless – American Banker Article]

Well, yes and no. (I am a consultant, after all). Let’s have a look at these

Dead phone batteries. NFC is interoperable with the existing contactless payments and ticketing systems. As you may have noticed, your Oyster card doesn’t have a battery in it: that’s because it is powered through the electromagnetic field of the terminal you touch it to, and the same is true for the NFC interfaces in phones: if the phone has no battery you may not be able to access your m-wallet to check your transactions, redeem coupons and so on, but you will be able to to use it pay in a shop and ride the subway.

Wrong merchant terminals. I don’t think this will an issue. Right now there are some problems with some cards not being accepted in some terminals, but this is the result of standards problems three or four years ago. The contactless EMV standard should interoperate seamlessly. Some of the terminals are certainly “wrong” from the point of view of consumer experience, but that’s a different thing.

Terminals turned off. Fair enough, I do see this from time-to-time. But it’s a teething problem. There is a problem with terminals being turned off after the merchant has rung up the purchase and then having press some more buttons to turn it on, but that’s an implementation issue.

Terminals unrepaired. I don’t think this is a long term problem. Contactless terminals (since they have no slot or contacts) are considerable more reliable in practice than contact or stripe terminals. Experience from other sectors suggests to me tha tthe cost of maintaining an estate of contactless terminals is less than half the cost of maintaining an estate of conventional terminals.

No terminals at all. This, I think, is the real problem. When I was last in the US, I saw contactless terminals in places where they didn’t really have much impact, like in CVS. But in the places where contactless would have really helped and speeded things up — BART machines, airport carts, Coke machines and so on — nothing.

The point is, that those are real issues that do need dealing with, whereas what the public says are their concerns, such as about the security are, in my opinion, not real issues and it should be handled through marketing communications. Oh, wait…

85% of users said they considered the protocols for operating with the NFC system to be sufficiently secure.
[From Sitges trial results: Consumers pay more often and spend more with NFC phones than with cards • NFC World]

This must be a translation from Spanish, because I’m not sure that “protocols for operating with the NFC system” translates properly in English, but it’s good news all the same. I’m not saying that everything is perfect in the NFC world. Even in France, where progress has been slow despite the commitment of major banks and operators. It’s still a new technology.

The problems are one of the main reasons bank Crédit Mutuel-CIC has held back on launching its m-payment service, according to Patrice Hertzog, payment systems manager for Crédit Mutuel-CIC. He said it has been difficult for the bank’s trusted service manager, Gemalto, to set up and manage the bank’s PayPass application on SIM cards produced by other vendors, such as Oberthur Technologies.

The problems have occurred despite much standards work by the French Association Française du Sans Contact Mobile, or AFSCM, and prior trials involving multiple French banks, mobile operators and vendors.
[From ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]

To be honest, this suggests that vendors are not building TSMs from scratch based on the new standards but are putting wrappers around their existing card personalisation systems. That sort of thing is, to me, more of a real issue than incorrectly worrying about what the public think, but whatever. Things are moving. Even in the US, the new technology is getting a foothold and there will soon be TSMs there too.

The joint venture formed by U.S. mobile carriers to launch NFC-based mobile payment… has selected France-based Gemalto to download and manage payment and other secure applications on NFC phones to be used in pilots expected to be held in three to four cities during the second half of 2011
[From U.S. Carrier Joint Venture Chooses a Trusted Service Manager | NFC Times – Near Field Communication and all contactless technology.]

There’s plenty of activity in the US as elsewhere, and since I’ve been looking at the US for clients recently I was interested to read about the work done by the Federal Reserve Banks of Atlanta and Boston. This work suggests that the success factors for the US will rest on the evolution of an open eco system for NFC.

The mobile infrastructure would likely be based on Near Field Communications (NFC) contactless technology resident in a smart phone and merchant terminals.

Ubiquitous platforms for mobile should leverage existing rails, including the ACH network for non-card payments, and support new payment types that meet emerging needs.
Some form of dynamic data authentication would be at the heart of a layered mobile payments security and fraud mitigation program.

Standards would be designed, adopted, and complied with through an industry certification program to ensure both domestic and global interoperability, including a standard to ensure that devices used to facilitate mobile payments do not create any electronic interference problems.

A better understanding of a regulatory oversight model should be developed in concert with bank and non-bank regulators early in the effort to clarify compliance responsibilities.

Trusted Service Managers should oversee the provision of interoperable and shared security elements used in the mobile phone.
[From Mobile Payments in the United States Mapping Out the Road Ahead – Boston Fed]

On that final point, things are already moving.

The joint venture formed by U.S. mobile carriers to launch NFC-based mobile payment… has selected France-based Gemalto to download and manage payment and other secure applications on NFC phones to be used in pilots expected to be held in three to four cities during the second half of 2011
[From U.S. Carrier Joint Venture Chooses a Trusted Service Manager | NFC Times – Near Field Communication and all contactless technology.]

So there’s plenty of activity in the US as elsewhere and plenty of organisations are looking at how the move to mobile proximity may impact their businesses.

A white paper that outlines the survey findings, including how the most forward-thinking financial institutions are building a business case for mobile payments, is available at http://www.fiserv.com/mobilestrategy.
[From Forward-Looking Financial Institutions Focused on Mobile Payments Business Case, Says Fiserv Survey – pymnts.com]

I couldn’t help but think, as I read this, that the very act of building a business case for something like this is fundamentally backward-looking, trying to shoehorn something that is the basis of a new value network into the existing business models. The report says that the factors that the FIs evaluated across these business lines included customer retention and profitability, cost reduction, revenue generation and retention, increased customer engagement and competitive parity. When I looked at the revenue generation part of it, though, it only referred to revenue generation in terms of debit card transactions and keeping the connection to the DDA. This isn’t how forward-looking organisations are thinking about revenue generation from mobile payments, they are thinking about delivering entirely new products and services that are simply not possible in conventional (ie, card) environments, generating revenue from things that banks don’t do.

Google is to run tests of mobile payments at stores in New York and San Francisco in the summer, according to anonymous sources cited by Bloomberg. The search engine giant will pay for installation of thousands of NFC cash-register systems from VeriFone Systems at merchant locations, one source told the wire.
[From Finextra: Google to run commercial trials of NFC at the POS – Bloomberg]

Well, well. So while financial institutions are agonising over the business case, Google is giving out the terminals for free. It’s not hard to see why: they don’t care about the miniscule margins on the payment transaction and arguing about how to slide and dice the merchant fee, they care about building new business around knowing who is buying what and where. So leadership in the NFC space is may well shift away from the payment incumbents. Perhaps the answer to the age-old question about whether banks or operators would control the mobile payments space is… neither.

Hip to be Square

12th March 2011by Consult Hyperion1 Comment

Many years ago, when I was a mere slip of a consultant, I was sent by a client to check out a company called WorldPay, then run by Forum friend Nick Ogden. I reported back to the retail bank I was engaged by that I couldn’t see where WorldPay was going, since it didn’t provide any service that the bank couldn’t provide themselves given a small amount of development effort. Therefore I assumed that the bank, like all other banks, would soon be providing a comprehensive range of services for new internet businesses and that WorldPay’s niche would vanish.

Royal Bank of Scotland Group Plc, the U.K.’s biggest government-owned bank, agreed to sell its credit- card payment processing unit to Advent International Corp. and Bain Capital LLC for 1.7 billion pounds ($2.7 billion).
[From RBS Sells WorldPay to Advent, Bain for $2.7 Billion – Bloomberg]

Please! Don’t listen to me about anything to do with business! I didn’t realise that there is no such thing as a quick and dirty development in a bank, and that starting a new line of business doesn’t happen overnight. There’s a big, big gap between people like me saying that all the bank needs is a simple internet gateway and a merchant acquisition process and these systems and processes actually getting going. Things just don’t work like that, for all of the well-known reasons (focus on core business etc). I was thinking about this when I got into a discussion with someone a few days ago. They said that Square does nothing that existing stakeholders in the card business couldn’t do themselves, so it has no long-term future, the argument being that Barclays or Streamline could just offer a similar service. And Square is reducing its charges, meaning less margin, so they won’t be able to beat the big boys on cost either.

Square’s rates will fall to a flat fee of 2.75 percent per transaction instead of charging 2.75 percent plus an additional 15 cents. (The rate for when a credit card number is keyed in, rather than swiped, will remain the same at 3.5 percent plus 15 cents.)
[From Square Sacrifices Revenues to Ramp Mobile Payment Volumes | Tricia Duryee | eMoney | AllThingsD]

All true. But the reality is that just because other merchant acquirers could do this does not mean that they can do this, and if Square can provide just enough added-value with their app to get traction in the small business sector (they are already processing a million dollars a day), then when new payment technologies come along (eg, NFC phones that can accept payments from contactless cards) the merchants will just expect Square to handle them for them. We have long been advising clients that the key disruptive role of mobile phones in the payments world is the ability to take payments, not to make them.

Incidentally, I can’t resisting commenting on the Square-based debate that sprung up over the last few days. As I’m sure you all know, Verifone wrote an open letter pointing out that Square is not fully PCI compliant, something that has been known since the product was first announced.

iPhone cannot be made PCI compliant without first encrypting the card BEFORE it gets into the iPhone (see the Verifone solution)
[From Square Up update « FinVentures]

Not that interesting, to be honest, but it did stir things up and Square had to respond, which they did by pointing out that the problem is with a payment system built on trivially-copyable magnetic stripes and the like.

In his response, Dorsey said any technology, including “an encrypted card reader, phone camera or plain old pen and paper,” can be used to steal information. “If you provide your credit card to someone who intends to steal from you, they already have everything they need: the information on the front of your card,”
[From Square Responds to VeriFone s Security Claims – American Banker Article]

Will master criminals intent on skimming card numbers sign up with Square and then install a dodgy app? Probably not. There are plenty of better options out there, including the existing magnetic stripe readers that the criminals already use.

Exposing Square’s security vulnerabilities in this manner is an act of outright hostility on VeriFone’s part, and a sign that it’s unnerved by Square’s growth.
[From VeriFone Attacks Rival Square With Ethically-Questionable Security Exploit: Apple News, Tips and Reviews «]

Not that it’s any of my business, but this is why the letter looks like a mistake. If I were Verifone, I would have spent my time making a better iPhone card reader, or something that plugs in to Android phones or EMV chip/contactless readers or whatever, or partnering with people to deliver great merchant service, or something else to compete.

Free parking

28th February 2011by Consult Hyperion1 Comment

I’ve often mentioned that car parking represents, to me, the prosaic benchmark for e-money. Car parks are a straightforward and daily example of an environment where cash is a pain and e-money would be a better alternative. This is why I made a big deal of the fact that contactless payments never made it to my local car park, where cards have now been supplanted entirely by mobile payments. This is not true everywhere. I think I’ve mentioned before that on-street car parking is an obvious place to start contactless acquiring: no keyboard, no slot, low-maintenance, simple. Westminster started doing this last year.

From January and over a three-month period, 20 pay and display machines in the West End will be retrofitted with wave-and-pay card readers, so motorists will be able to pay car parking charges by waving a credit or debit card at a meter. According to the local authority, the project is intended to eliminate the need to carry cash around or enter chip and pin details to pay to park.
[From Westminster Council introduces contactless parking payments – 28 Oct 2009 – Computing]

I’m going to try find out what customers think about this approach. Franky, I’m sure they would rather use their Oyster cards, and here’s one reason why…

The machines also incorporate a security function that requires cardholders to confirm their identification with a chip and pin transaction on a regular basis.
[From Westminster Council introduces contactless parking payments – 28 Oct 2009 – Computing]

Hhmmm. This means having to having both a slot and a keypad, which raises costs significantly, and annoys customers when the contactless transaction fails and they are asked to insert the card and enter the PIN. I’ll put in a call to see how this went when I’m back in the office sometime. Meanwhile, the alternative apporach, of using mobiles, continues to gain ground, and it’s not only in Woking that the mobile has trumped the card.

North Devon Council has replaced its Smart card facility with a more modern, pay over the phone system called ‘RingGo’.
[From North Devon Gazette – Council winds up pre-pay parking Smart cards scheme]

It’s not favouritism, although I have mentioned RingGo here before, but I can’t help but notice that when I first went to see them (to interview them for a podcast) I thought that they were a company to watch. I’m actually one of their customers, because they operate the mobile parking at Woking station.

Councils, rail operators and other car park providers across the UK are ditching smartcard and scratchcard parking schemes in favour of streamlined, paperless RingGo.
[From RingGo Proves the Power of Paperless Parking]

I think I’ll try and get some of these guys along to the Digital Money Forum 2012, as it will be useful to learn some of the experiences from the front line. Meanwhile, I can’t help noticing that not everyone wants to remove cash from the car park. Take, for example, Wokingham council. It car park machines (according to The Daily Telegraph of 26th February 2011, p.4) took in £982,057 last year but only issued £945,417 of tickets. The discrepancy, as you might expect, comes from the machines that don’t give change, a form of institutionalised extortion. Simply arithmetic reveals that hapless motorists are thus facing a 4% service charge for using cash. It’s time to take action: councils should start making car parks cash-free as soon as possible and learn to cut their cloth. But if the car parks are cash free, and not everyone is using mobile payments, and the banks haven’t issued contactless cards to everyone yet, then how to close the gap? Well, why not have local prepaid cards that function as “town cards” as well.

PXT Payments (PXT, formerly Parcxmart) an electronic payment solutions provider, today announced the launch of its new chip-based, secure smart debit cards, designed to create a safe, local currency that boosts consumer spending in municipalities nationwide. The town of Brookline, MA, will be the first town to adopt both Parcxmart and the smart debit card program.
[From PXT Launches Chip-Based Smart Debit Card for Cities, Towns, BIDs | Earth Times News]

I’m really interested in this kind of thing. It illustrates two points that I have been making for some time: first of all, it emphasises the role of transport in the evolution of new payment systems and secondly, it touches on the role of local parallel and alternative payment systems as a potential growth area. Fortunately both transport payments and alternative payments have their own expert panel discussions set aside at the 2011 Digital Money Forum so we’ll be able to explore both topics in detail. (Coincidence? You be the judge!)

Holding court

26th February 2011by Consult Hyperion1 Comment

When I was in Beijing I decided to try and eat some “real” Chinese food as opposed to the stuff in the hotels and tourist joints. In one of the guide books I spotted a suggestion for a cheap food court downtown where you can try and bunch of different dishes from different cooking traditions. So off I went. It was great, despite the fact that the menus and adverts were all in Chinese with no English translation. So I walked around and pointed at things that looked good (eg, not the skinned bullfrogs). I had some great food, learned to eat fried egg with chopsticks and had some wonderful fresh juice too. So why am I posting this here?

Well, the court had an interesting payment system. At the entrance is a booth where you buy a prepaid contactless card, much like an Oyster card. Inside the food court – which was big, with lots of stalls – there is no cash. When you buy something, they tap your card and off you go. Fast and convenient. When you leave, you either keep the card for next time or you can return it to the booth for a refund.

This seemed very beneficial to the retailers: no cash handling, no wasted counter space, no “shrinkage”, no counting, no security, no bank runs. Why don’t they do this at Glastonbury? Or Westfield? Or in the food court in The Friary in Guildford? Put it in the lease that the retailers have to have contactless terminals and offer a prepaid mall-branded card (like they do at the Trafford Centre, but rechargeable) with special offers. Just a suggestion.

China as a whole is cash-centric, but in Beijing many of the shops and restaurants take cards. I’ve been using my Travelex prepaid Visa card US dollar card while here and I have to say it has worked perfectly so far. Some shops ask for the PIN, some ask for PIN and signature, some ask for signature, but it’s always worked. And it worked in the ATM when I quickly needed to cash for a taxi. I left my credit cards locked up in the room safe and only took cash and prepaid when out and about.

Talking about cards, I had an annoying experience yesterday. It was a lovely spring day and the wind had blown away the pollution, so we looked in the guide book and ended up deciding to go for a bike ride (Beijing is very flat). We choose Bike Beijing and booked a tour. When we got there, however, it turned out that they don’t take cards. And I didn’t have enough cash. I was thinking about borrowing one of their bikes to cycle to an ATM when they mentioned that although they don’t take cards, they do take PayPal on their web site. Hurrah! So using my iPhone I logged into their web site and paid with PayPal. Off we went.

When I got back to the hotel that night, however, there was an e-mail from PayPal saying that my account had been restricted and that I should log in and change my password, which I duly did. The next day I got an embarrassing e-mail from the nice guys at Bike Beijing saying that PayPal had cancelled the transaction. So I figured, OK, this is some annoying fraud detection system, so I’ll connect via VPN so I don’t look like I’m in China and then sort it out. I logged in and tried to send the guys their money but got “Your account is limited. Please check your Account Overview page for messages about resolving this problem.” In order to remove the limitation, I had to verify my location through my home telephone number (which, of course, I couldn’t do because I was in China and no-one was in at home), so I tried to add my mobile number to the account, but however I typed it in I was told “Mobile Telephone: The phone number is not properly formatted.”, presumably because it’s not in a US format. I gave up.

I ended up having to promise the guys at Bike Beijing that I will sort this out when I get back to the UK and then send them their money. I promise I won’t send them a cheque.