Tag: retail

Will they or won’t they pay?

21st February 2011by Consult Hyperion1 Comment

The outsourcing company Accenture conducted a survey to find out if consumers want to use their mobile phones for payments. Unsurprisingly, there is a strong correlation between countries where people have already used their mobile phones for payments (eg, China) and where people wanted to use their mobile phone for payments (eg, China).

Overall, 69 percent of survey respondents in Asia indicated they favored using mobile phones for most payments, led by Chinese consumers (76 percent) and India (75 percent), followed by Korea (56 percent) and Japan (47 percent). Outside of Asia, the next highest positive response was in Brazil, where 70 percent of consumers favored using mobile phones for most payments… asked if they had used a mobile phone to make purchases in the past six months, nearly half (47 percent) of tech forward consumers in China indicated they had, followed by Korea (42 percent) and Japan (33 percent).
[From Interest in Mobile Phone Payments Strong Among Most Active Mobile Users Despite Security and Privacy Concerns | Business Wire]

Now, the figures cannot represent a desire for mobile out of a lack of alternatives. I’m in China right now, where China UnionPay already has gazillions of cards out there and I’ve been using my splendid Travelex prepaid Visa card all day without a problem (some shops just wanted signature, some wanted online PIN and signature, I don’t know why). Meanwhile, back home, the situation looks rather different.

In the U.S. and Europe, combined, however, only 26 percent of respondents favored using mobile phones for most payments.
[From Interest in Mobile Phone Payments Strong Among Most Active Mobile Users Despite Security and Privacy Concerns | Business Wire]

Oh well, I guess there’s no need to spend much money on m-payment solutions in Europe or the US then, when only a 100 million or so people will want to use them, especially so in the US where another survey shows that few consumers are prepared to pay for m-payments.

However, the [Yankee Group] consumer survey results also indicate that less than 10% of respondents would be willing to pay extra for mobile transaction services such as mobile banking, mobile coupons and mobile payments
[From Less than 10% of US consumers willing to pay for mobile payments • NFC World]

But hold on, I thought. If you asked consumers in the US if they were prepared to pay for debit cards then only 10% would have said yes. Yet everyone has (and uses) a debit card. Hhmmm…

So who does pay for debit cards then? In the US, where the merchant fees are much higher than in Europe, transaction fees are the major source of income. But the economics of debit are different in Europe where the already lower debit interchange and fees mean that in some countries (eg, the Netherlands) the banks lose money on every debit transaction, whereas in some countries (eg, the UK) they make a small but vanishing margin. Yet debit is profitable for banks. Why? It’s because the major component of income from debit schemes is not the transaction fee but

The interest foregone on current accounts. Consumers who use their debit cards keep money in their current accounts to fund and the bank earns interest on that money.
The fees earned from unauthorised overdrafts and such like. If you are out spending on your debit card and you see something that you want, you might go into the red to get it. Or you might make a mistake.

This led to an interesting twitter conversation with Forum friend Scott Loftesness. As Scott pointed out, people do, of course, pay for debit cards, but they just don’t see explicit pricing. But they might, if the “Durbin debate” ends with issuers being forced to reduce interchange. The National Retail Federation (NRF) in the US has told Congress that delay to debit card swipe fee reform will save banks and their customers more than a billion dollars for every month of delay. Actually, that’s not quite what they said…

A postponement of the debit card swipe fee reform could cost US retailers and their customers more than $1bn per month, the National Retail Federation (NRF) warned Congress.
[From Debit fees regs delay could cost $1bn]

I wrote before that if retailers think that they are being so grotesquely overcharged for debit schemes then they should start their own, and I do have to say that I am puzzled that more of them haven’t already gone down the decoupled debit route, especially those with strong loyalty databases (eg, Tesco).

My wife’s visit to Target this week prompted a revisit to the decoupled debit space. Target’s value proposition: hand me your check and sign a release form, you will then receive a RedCard linked to your checking account and good for 5% off all future purchases
[From Decoupled Debit « FinVentures]

Retailers in the US, it seems, prefer a different kind of competition. A little while ago I read a piece in the Financial Times, which I couldn’t find given five minutes googling, that said that the regulatory capture of $1 billion a month, most of it going to America’s biggest retailers, wouldn’t make any difference to the prices that consumers pay. I’m sure that’s true, and I don’t suppose banks pass on all of that billion to customers any more than retailers would, but let’s face it: someone has to pay.

Banks have never lost out because of their gracious generosity in allowing customers to use cheque books, debit cards or cash machines for free.
[From The end of free banking would be another slap in the face | Chris Leslie | Comment is free | guardian.co.uk]

This is what people in the UK genuinely believe. As Scott says, they see debit cards as free. There’s no way you can now charge them for them. So why wouldn’t mobile payment cost be bundled into the bank account fee just as the debit card cost is? Actually, I suspect that it won’t be, for the simple reason that I don’t believe that consumers won’t pay. Mobility has value. If you had asked me whether I would be happy to pay an 8% transaction fee for using mobile payments a few months ago then I would have told you no way. But that’s exactly what I did last week when I went and parked at Woking station, cheerfully paying a 40p extra charge for using RingGo (a mobile payment for parking scheme) rather than use cash for a £5 parking charge.

Scott asks how mobile payments can deliver additional value to the merchants. I would say that in my recent dealings with issuer/acquirer/merchants, three general themes have emerged (I stress that these are general: they don’t relate to any specific project we are involved in).

The first is that retailers like mobile wallets. anticipate lower online abandonment rates with mobile wallets and I suspect they may also anticipate a higher average sale than with cash in physical environments.
The second is that retailers expect to be able to use these mobile wallets to interact directly with consumers through loyalty products, coupons, special offers and so on.
The third is that mobile should mean fewer disputes and chargebacks, which cost retailers time and money.

All of which means that the retailers will incentivise customers to use mobile, so customers will use it even if it costs them an explicit fee versus the implicit fee associated with debit. Ultimately, I’m pretty sure, that the fact that only 10% of consumers say they will pay doesn’t mean anything.

And they vote, too

16th February 2011by Consult Hyperion2 Comments

Last year, I read a Deutsche Bank Research note about mobile payments that was given to me in a meeting with one of our clients (E-Banking Snapshot 34, August 2010). It highlighted a Forrester Research finding that 74% of European consumers and 64% of US consumers are not interested purchasing goods or services via their mobile phones and said that this means there are substantial barriers to adoption of mobile payments. Well, there are certainly substantial barriers to the adoption of mobile payments, but in my experiences consumers are not one of them. Quite the reverse: in every project that I have been involved in, consumers have loved buying things using their mobile phones. The discrepancy comes, I think, because when you ask consumers about something in new in a field they don’t care about (let’s face it, consumers don’t really spend that much time thinking about payments) they will react conservatively. Say to the average British consumer “would you like to use your mobile phone to pay for cups of coffee” and they can’t envisage what you are talking about, especially if they don’t live in London and use Oyster all the time or use 2D barcodes for travel tickets or whatever.

In a survey of 2,500 members of Springboard UK, the market research experts, on behalf of Vision Critical, half of respondents (51%) reported being fairly or very uncomfortable at the prospect of mobile payments.
[From British ‘uncomfortable’ about making mobile payments – Marketing news – Marketing magazine]

When consumers are given a mobile payment system that works and is convenient, adoption is rapid. Incidentally, in that survey only a fifth of consumers said they were interested in a prepaid wallet. I’ve heard this over and over again: one of the arguments against substituting cash (which most consumers don’t see as a pre-paid product) with some form of “purse” product is that people don’t want to pay up front for good or services that they might use in the future. Fair point. Oh, wait…

Starbucks Corp. customers loaded a record $700 million on to the Seattle coffee chain’s prepaid card accounts during its most recent quarter, up 39% from a year earli
[From Starbucks Prepaid Loads Jump 39% – American Banker Article]

Turns out that if you know stuff about marketing, consumer behaviour, distribution, management, convenience, payment choices, advertising, incentives and, above all, retailing then customers are only to happy to go with mobile prepaid. That’s how come Starbucks went from a mobile payments experiment…

The ultimate goal of the program is to get customers to trade in their physical Starbucks Cards for the digital variety — it’s a time saving exchange for the customer and a cost saving exchange for the company. Already, one in five of all in-store transactions are paid for via Starbucks Card (mobile or physical), and more than $1 billion will have been loaded on to cards by year’s end.
[From Starbucks in New York Now Accepting Mobile Payments | The Total Footballer]

…to a national roll-out in a quarter. Our good friend Brett King gave the Starbuck’s national mobile payment scheme a try and said that

this is far superior to a current interaction using cash or a card for a number of reasons. This gives us a glimpse of what the cashless society will be like; it isn’t risky, it isn’t subject to fraud or theft, it is safe, secure and fast.
[From Brett King: Starbucks Mobile Payments — The Future Is Coming Fast (VIDEO)]

We all know that mobile will be the focus for the evolution of retail payments, and I think the message is getting out. Eric Schmidt’s talk at Barcelona — saying that NFC will be profitable — attracted a great deal of attention, mainly from people who didn’t listen to what he said when still CEO of Google.

Google wants the next generation of Android phones to replace credit cards, Eric E. Schmidt, Google’s chief executive, said Monday at the Web 2.0 Summit in San Francisco. The newest version of Android, Google’s mobile phone operating system, code-named Gingerbread, will come out in a few weeks, he said. It will include NFC…
[From Schmidt: Android Phones Will Be Credit Cards – NYTimes.com]

There’s still a long way to go in the mass market though, and it’s fair enough to comment on it. Consumers, journalists, commentators don’t yet understand how this new infrastructure is going to work. But I think that’s about to change. Britain’s biggest retailer is Tesco, so they are a benchmark for the acceptance of new technology, and they are going to go contactless this year.

Tony Saunders is the director of marketing for VeriFone in Europe, the Middle East and Africa… Saunders told us that within six months, Tesco will be rolling out near-field communications capabilities to its 35 – 38,000 checkouts across Britain
[From The future of the high street: near-field communication (Wired UK)]

This might be connected with a story that I touched on before in another context, illustrating the point about the ability of retailers to exploit the new contactless technologies in interesting ways.

Tesco will relaunch its Clubcard scheme as an online rewards programme as it gears up to reach customers in the digital age. Developing a ‘secure, multichannel’ smart card, the UK retailer will move the scheme to digital channels in an effort to simplify its rewards programme and cut down on direct-mail costs.
[From Tesco will relaunch Clubcard scheme in 2011 : WCJB]

Incidentally, I didn’t quite understand the rest of the Wired story, so I dropped an e-mail full of NFC articles to the reporter who had said that

The only obstacle could be similar, but proprietary, technologies set up by banks — which are known as “contactless” payment options. Barclays’ contactless cards are a good example, as are Visa’s PayWave cards, which are being trialled in Europe using an iPhone dongle.
[From The future of the high street: near-field communication (Wired UK)]

I shouldn’t make fun. The technology might be old to us, but it’s new to the mass market. And I should not that it isn’t just UK journalists who get a bit confused.

For example, special payment stickers are available already that allow merchants to NFC-enable their point of sale terminals by simply affixing a sticker to the terminal, Litan said. Such stickers go for as little as $18
[From Analysts: Apple could disrupt mobile payment industry | BappProducts | iOS Central | Macworld]

Wait, what? I think the journalist got the wrong end of the stick on this one! Let’s be clear. The contactless payment schemes are NFC and the cards, phones, stickers, watches, hat, badges or anything else will all work with the NFC POS terminals. The key point here is that the retailers are rolling out NFC at POS not just because they want to accept NFC contactless cards, which many of them don’t really care about, but because of NFC contactless phones, which promise an entirely new mobile shopping experience. The retailers want mobile wallets as soon as they are practical, because the value-adding opportunities around coupons, loyalty, location-based marketing and all sorts of other things besides payments are so great.

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

How d’ya like them Apples?

30th January 2011by Consult Hyperion2 Comments

WIth Apple’s domination of media mindshare almost total, the fact that you can already buy other handsets with NFC in them (eg, the Google Nexus S and the Nokia C7, although both are currently software-limited) and that the first Blackberry handsets are imminent has been overlooked. All press comment (I know, because I contributed to some of it) has been about the iPhone. One of the questions that I was asked, repeatedly, was about iTunes morphing into a new payment scheme.

“They have 160 million users with digital wallets in iTunes accounts. They don’t have to do anything other than to NFC-enable their phones,” Litan said.
[From Analysts: Apple could disrupt mobile payment industry | BappProducts | iOS Central | Macworld]

They do have numbers on their side, that’s true. But as we all know, payments is a two-sided market, so there has to be a reason for the merchants to get on board too.

For merchants, an Apple payment system could prove attractive. Many merchants are raring for alternative payment systems, to avoid having to pay the hefty fees that credit card companies charge for every transaction.
[From Analysts: Apple could disrupt mobile payment industry | BappProducts | iOS Central | Macworld]

Yes, but how will Apple avoid them? Everything I buy on iTunes goes to my MasterCard. Sure, Apple aggregates the payments, but the banks don’t provide this service for free, even for Steve Jobs. In order to avoid having to pay credit card fees, Apple would have to do what PayPal does and start persuading people to sign up with their bank account details, which would in turn mean building the kind of anti-fraud platform that PayPal have been building for a decade. And why would they do that? It seems like a lot of non-core investment to commit to.

This investment is needed because the biggest problem will be security. So long as my iTunes password only allows you to buy music tracks for my iPod or games for my iPad or note-taking applications for my Macintosh, to risk is manageable. But if my iTunes password allows you to walk out of a store with a pair of shoes or a telly, then my iTunes password will become valuable. Microseconds after extending iTunes payments to retail stores, Apple would be dealing with millions of customers calling up because their passwords had been phished, copied, guessed.

Japanese police have arrested two people suspected of stealing virtual goods from players of online game Lineage II. The pair tricked victims via a booby-trapped program that claimed to help people play the game. Instead of boosting a character’s abilities the program stole account names and passwords.
[From BBC News – Lineage II pair arrested for stealing virtual goods]

I’m sure Apple are perfectly well aware of this kind of crime and know that were iTunes to become a general payment paltform, then it would become widespread. This is hardly wild projection, since the phishing of iTunes accounts is already widespread.

It least one group of scammers has found a way to charge thousands of dollars to iTunes accounts through PayPal. One targeted customer told us, “My account was charged over $4700. I called security at PayPal and was told a large number of iTunes store accounts were compromised.”
[From Fraudsters Drain PayPal Accounts Through iTunes]

I’m sure Apple already has lots of people working on this problem but ultimately it’s very difficult to stop people from giving away their passwords and I’m sure the phishers will soon learn to send out the right kind of e-mail messages.

Roughly 50,000 Apple iTunes accounts stolen by hackers are said to be for sale on China’s largest auction site.
[From 50,000 Stolen iTunes Accounts On China Auction Site — Apple iTunes — InformationWeek]

The underlying problem is, of course, that passwords are not security and no-one should be allowed to use the phrase “password security” in any serious context. So long as the cost of phishing, guessing or actually breaking passwords is fantastically less than the value of the account that they give access to, there is no solution.

Thomas Roth of Cologne, Germany told Reuters he used custom software running on Amazon’s Elastic Compute Cloud service to break into a WPA-PSK protected network in about 20 minutes. With refinements to his program, he said he could shave the time to about six minutes. With EC2 computers available for 28 cents per minute, the cost of the crack came to just $1.68.
[From Researcher cracks Wi-Fi passwords with Amazon cloud • The Register]

Ah, you might say, but suppose Apple implements a Secure Element (SE) for NFC and that SE uses standard PKI applications on industry-standard Global Platform in an industry-standard JavaCard. Then a thief would have to steal the iPhone as well as the password, and this indeed true. Apple could implement an identity-based payment mechanism and persuade merchants to install the contactless terminals, implement the new scheme and pay Apple instead of paying the banks (whose fees have just been capped by the Durbin amendment.

Again, why bother. You may as well do a deal with a bank to put a contactless EMV application in the SE. But suppose you are not going to care about anything at retail POS — except in your own stores — but instead want to improve security and convenience for customers in general? Imagine this scenario a year from now: I log in to iTunes and it gives me the option of switching to two-factor authentication. (Apple wouldn’t call it that, they have better marketing people – suppose they call it Apple Passport or something like that, maybe iMe or whatever.) I accept. From then on, when I log in to iTunes on my iPhone, I don’t noticed anything different, but under the hood iTunes is sending a digitally-signed challenge to a digital signature application in the SE. It’s decoded using Apple’s public key, and signed using my public key (which, of course, Apple know) and sent back. Sorted. Now with this strong authentication, Apple can have higher-priced items for sale via iTunes. When I log in on my PC, a message pops up on my iPhone and I have to enter my passcode. Under the hood, the same process. Now you have to steal my passcode and my iPhone.

A little later, I’ll be given the option of making my OSX login “iMe only” and so on.

If anyone can bring PKI to the masses, Apple can. Soon, other companies will negotiate with Apple to join “iMe Connect” and because it is more secure than a password, they will pay to use it. There are payments applications for this (it means that mobile payments can be lifted beyond ringtones and music tracks, and at a lower margin than operators) but I don’t see them as being central to the business proposition, because people will be using their iPhone to log in to everything (internet banking, shopping, government) and then, because of the NFC interface, they will begin to use it to “log in” in Apple retail stores and then, soon, enough, other places. Meanwhile, credit cards and Bling, Amex and PIN debit will all be loaded into the SE anyway, so customers will find themselves using their iPhones to get on BART and pay in CVS. This will save the issuers money, because they don’t need to issue the plastic, so they can offer a good deal. Andrew Johnson was surely right to point this out in American Banker.

In the end, banks have a lot to gain by being willing to give pricing concessions to Apple in exchange for getting their payment card information directly located in Apple’s mobile wallet service. Doing so could give those banks a first-mover advantage.
[From In Apple Mobile Pay Plans, a Possible Opening for Banks – American Banker Article]

Apple doing the identification and micropayments, leaving larger payments to the finance sector who will in turn pay Apple. Now we can see the real play, and a first-rate strategy for the next phase of online evolution: own identity and authentication. ITunes as a payment scheme to rival cards, PayPal, iDeal? No. iTunes as a payment scheme to get people used to logging into things with their iPhones? Plausible. iTunes as something that delivers a variety of customer communication and management option of real value to merchants (a cross between Barclaycard Freedom, Bling and Taggo)? Yes. Why? Because knowing who someone is is so much more valuable than a small slice of their payments, a fact that informed industry observers have pointed to since the Apple/NFC rumourmongering began.

the real revenue streams to Apple will not be from “interchange” but from advertising as iAD provides the “Yang” to the NFC’s “Ying”. Creating a new payment ecosystem means having incented partners. The timing on Apple’s iAD and NFC developments are not accidental, my belief is that they are part of a very solid mCommerce expansion strategy.
[From Apple’s NEW NFC Patent « New Ventures in Financial Services]

Look, I don’t know what Apple’s strategy is any more than you do, but from the perspective of helping clients to formulate their own broad strategies for NFC, payments, value-added payment services and identity, this is a reasonable strawman, which is why we’ve been using it.

Resolution no.1: stop making predictions

7th January 2011by Consult HyperionLeave a comment

Osama Bedier, VP of Platform, Mobile and New Ventures at PayPal, joins the tradition of making predictions for the coming year. I’m always loath to do this, for two reasons:

because it’s a dangerous game as a consultant. Consult Hyperion are working on plenty of client projects that are confidential and relate to new products and services that will be announced during the year and I don’t want to mess up and accidentally “leak” any of these;
because it’s really difficult and wrong predictions come back to haunt you.

In Osama’s case, however, I think at least four of his five key trends are spot on and the fifth is probably right. Let’s join in the New Year fun and have a look at what he said.

Mobile, mobile, mobile. Wallet in the cloud. The digital wallet. Call it what you want, but mobile devices are poised to become a primary form of payment for millions of people around the world… Consider that PayPal saw a 310 percent increase in mobile payment volume on Black Friday 2010 compared to the previous year, and a 292 percent increase in mobile payment volume on Cyber Monday 2010 compared to Cyber Monday 2009. Without a doubt, mobile payments are here to stay and will see significant innovation in the coming year.
[From Five payment trends to watch in 2011 | VentureBeat]

This is impossible to contradict and anyone who doesn’t think that mobile is central to the evolution of the entire payments market this coming year is absolutely 100% wrong. I’ve consistently said — for a decade — that mobile payments will be more important than web payments and I absolutely stand by this. I think I might go further and say that the biggest mobile payments story of the year will be the arrival of Android phones with NFC interfaces, and these will transform the payments landscape.

T-commerce. TV will go from a passive (viewing-only) experience to a highly interactive activity as more and more apps are developed specifically for the platform.
[From Five payment trends to watch in 2011 | VentureBeat]

One of the very first reports that I ever wrote about payments and the new media said the companies should focus on t-commerce as well as m-commerce because in the medium term these would become the key channels. I was wrong about the TV side of things: it has take much longer to develop than I thought, probably because the sector remains focused on “traditional” business models around subscription and advertising. Surely it’s going to change this year.

‘Appification’. IDC issued a new report that says, among other things, over the past three years the mobile apps space has seen an “appification” of “broad categories of interactions and functions in both the physical and the digital worlds.” And this only stands to continue — in fact, the same IDC report projects mobile app revenue to grow from $4.9 billion in 2010 to $35 billion by 2014.
[From Five payment trends to watch in 2011 | VentureBeat]

In the smartphone world, payment apps are going to be big, but I think we all recognise that they are one part of a new value-adding ecosystem that involves vouchers, coupons, loyalty and so on as well as the basic payment itself. This is why I suspect that simply porting exiting payment mechanisms (eg, credit cards) to the mobile platform will not be sufficient to obtain competitive advantage.

A Cashless Society. Now let’s not go crazy here, I’m not suggesting that by this time next year we’ll be living in a cashless society. Far from it. That said, 2011 will undoubtedly see several significant steps that will take us closer to such a world.
[From Five payment trends to watch in 2011 | VentureBeat]

I think he’s right about this, even though plenty of other people are sceptical. In many places, these first steps have already been taken and I think the pressure to reduce the amount of cash in circulation over the coming year will come not from the electronic payments industry but from governments, law enforcement agencies, trade unions and others who want to make a start on reducing crime and tax evasion. The trigger, however, is mobile. It is the arrival of mobile payments that makes cashlessness a realistic possibility and means that the industry can respond to these pressures.

Social shopping is clearly poised for significant growth… Among the key drivers of this trend are micropayments and digital goods. Along the same lines of merging physical world experiences with digital activity, the ability to make quick, small purchases for online content represents a huge opportunity for both content producers and providers.
[From Five payment trends to watch in 2011 | VentureBeat]

This is the one I’m not sure about, and that’s because while we tend to focus on what’s happening at Facebook and the like, I think we’re still in the very early stages of social media and I don’t think we really understand how the sector is going to develop. The role of mobile, NFC and other connectivity technologies in the evolution of social media is still changing and the disconnection technologies are still awaiting standardisation and mass deployment. So while I agree that social shopping will continue to grow, I’m not sure whether it will change the payments space or simply use the products coming from the payments space (or, to put it another way, will Facebook credits break out into new markets?). Perhaps there’s another possibility for this fifth spot. Over at the Financial Services Club, someone whose opinions I always takes seriously highlights something else:

Major investments in creating agile infrastructures and platforms to respond to regulatory requirements.
[From The Financial Services Club’s Blog: Six key technology developments for banks in 2011]

I’m sure Chris is right. The changing regulatory environment is bound to be a big influence on the technology spend for the coming year. New platforms that help to make compliance, in particular, easier to manage will be very attractive to financial institutions. You only have to look at what’s been happening in the cards world to see this.

He noted that PCI compliance has been a significant burden, costing an average of $20,000 for merchants that average only $32,000 in pretax profits; they will gravitate to solutions that reduce PCI scope (tokenization, point-to-point encryption, etc.).
[From Tidbits and Sound Bites from the 2010 Chicago Fed Payments Conference — Payments Views from Glenbrook Partners]

Scatchamagowza! Compared to the cost of renting the terminal, merchant fees and other costs associated with accepting cards payments, this is huge. Shaving a tiny amount off of fees won’t tip a business model anything like as much as making a significant cut to compliance costs, so this must be a priority area for investment and new services that can help will find a ready market.

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

Reporting from behind enemy lines

28th December 2010by Consult Hyperion1 Comment

Back on 27th October 2010, while reflecting on the EFMA “Future of Cash” conference in Paris, I reported on the talk of Mr. Benjamin Angel, who is Head of Unit for Economic Aspects of Regulatory Policy, DG ECFIN at the European Commission [PDF Directory]. In part of his presentation, he referred to the Commssion’s instruction on legal tender, which requires retailers to accept low value coins (which some had stopped doing) and high value euro notes (which some had stopped doing). In fact, the recommendation, as I’m sure you’ll recall, says that (amongst other things)

* It should be the rule to accept high denomination banknotes
* No surcharges should be imposed on payments in cash
* Member States should not adopt new rounding rules to the nearest five cent
[From Paying with euro cash in the euro area: Commission recommendation on legal tender of the euro – ECFIN – European Commission]

This is, of course, a bad idea: it raises the costs for retailers and consumers for no net welfare gain and has only come about because of the euro currency’s symbolic status. Retailers should be entirely free to reject high denomination banknotes (which should not really exist anyway) and low value coins, pointless shrapnel that are value-destroying (because they cost more to make and distribute than they add to the economy). Rather flippantly…

I decided to try and bring the system down from within, so I spoke up and called for immediate action agains the Netherlands, where some shops in Amsterdam are to cease accepting cash from next week: let’s see what happens.
[From Digital Money: Behind enemy lines]

Today I am informed — via a wholly reputable source — that Mr. Angel has indeed sent a formal letter to the Dutch Consumer Authority (part of the Competition Authority) complaining that the Saturday organic farmers’ market in Amsterdam doesn’t take cash. This was covered here back in February, when I noted that the

Dutch Consumers’ Association are predicting cashless retailing within five years.

[From Digital Money: Only five more years?]

The DCA has, so I am told, replied to Mr. Angel that it feels there is no problem. Will Mr. Angel now starting proceedings against the Netherlands for defying a Commission recommendation? Stay tuned…

My old Dutch

23rd December 2010by Consult Hyperion2 Comments

The Netherlands seems to be a front line in the European war on cash and it is the retailers who are leading the charge. Here, for example, is a pharmacy that no longer accepts cash: Twitter crowdsourced translation of the sign is that “From 1 Oct 2010 onwards, payments can only be made using debit cards – this for the security of our employees”. This is an interesting new development: a skirmish between cash and cards that is based on something other than merchant costs. I understand that the local government wants to make one of the major shopping streets in Amsterdam “Ferdinand Bolstraat” cash free. In the south of the country is Almere, which the mayor would like to see as Europe’s first cash-free town. I see that

Pinnen en winnen is een actie van Cashless Almere, een samenwerkingsverband van winkeliers- en ondernemersverenigingen, banken, Currence (merkeigenaar PIN), Koninklijke Horeca Nederland afdeling Almere, politie en gemeente. Deze partijen werken samen aan het verminderen van contant geld in de winkels en horeca. Dit verkleint de kans op overvallen.
[From Burgemeester van Almere]

According to Google, this means that “PINs and winning is an action of Cashless Almere, an association of retailers and trade associations, Currence (brand owner PIN), Koninklijke Horeca Netherlands Almere department, police and council”. It says that they are working together “to reduce cash in the shops and restaurants” because this reduces the risk of robbery. Something that may help them in this goal is the arrival of mobile payments, because there are probably the most significant step on the road to cashlessness.

Rabobank, ING and ABN Amro; and telcos: KPN, Vodafone Netherlands and Rabo Mobiel; are considering offering customers contactless payment, loaded onto SIM cards in NFC phones.
[From Dutch Banks and Telcos Consider NFC Mobile-Payment Launch | NFC Times – Near Field Communication and all contactless technology.]

There are many unique aspects to the Dutch electronic payments landscape: they still use an electronic purse (but only for parking) and they have the iDEAL internet payment scheme, which has been wildly successful in replacing the cards for online purchases.

Half of all online shoppers in the Netherlands use IDEAL, a bank-oriented payment system that started in 2005. To effect an IDEAL payment, the consumer is directed back to their own bank where they log in using bank authentication and authorize the payment. Then are then seamlessly directed back to the merchant. The system is popular with merchants because it delivers immediate payment (customers cannot charge back the payment) with bank security, and customers like it because they do not need another secure, two-factor or other complex log in. To date, there has been no reported fraud through the system.
[From Digital Money: Is this the iDEAL third scheme?]

Another unique aspect of the Dutch market is that the banks and the operators co-operate with each. In September, this agreement to “consider” NFC payments had firmed up to the announcement that the “six pack” (as they have rather bizarrely been called) are going to go ahead and launch a service.

T-Mobile, Vodafone, KPN, ABN Amro, ING and Rabobank have signed a letter of intent to jointly introduce NFC across the Netherlands from 2012.
[From Dutch banks and mobile operators to launch national NFC service • NFC World]

As an aside, I can’t resist noting that there is also a peculiarly Dutch answer to another question: which retailers won’t be accepting mobile, contactless, EMV or any other electronic payments? The answer is Amsterdam’s famous coffee shops, where bankers gather to develop new financial services products. These coffee shops are being pressured to start accepting cards so that more of their operations are on the books. This is, of course, a good idea. People like me wouldn’t feel so bad about paying their taxes if they felt that everyone else was paying theirs. But the coffee shops, tolerated under the Dutch system, have a supply chain chain that is not. The wholesalers, so to speak, have expressed a marked reluctance to be paid by SEPA credit transfer.

It’s this sort of thing that makes me love my job.

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

Dry

8th December 2010by Consult Hyperion2 Comments

[Dave Birch] Having said that I couldn’t see any circumstances in which I’d use a contactless card at my dry cleaners, I just did.

I went in with some dry cleaning which came to £11 or so. I took out my MasterCard and put it in the terminal, punched in my PIN and then waited a while for it to dial up and authorise. While this was going on, I noticed that the terminal was a new Ingenico i-series terminal with contactless interface. So, as an experiment, I bought £7 of shoe polish: the chap keyed in the transaction and sure enough the contactless interface lit up: I paid with my Visa contactless card which, since it was offline DDA, was instant. Excellent.

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Moving transactions online

25th November 2010by Consult Hyperion1 Comment

[Dave Birch] Well I managed to get myself invited to the launch of Forum friend Sir Bonar Neville-Kingdom‘s new book. As the government’s technology outreach czar, he makes a point of having his personal assistant Patricia use all forms of new information and communication technology. He has, of late, been dictating tweets for her to place on the Twitter and now, to ensure that these valuable insights into the heart of British government IT policy are preserved for posterity, they have been gathered together in “The Twitters of Sir Bonar Neville-Kingdom“. I wasn’t sure about the current regulations concerning the photographing of key civil servants, but I managed to sneak a few pictures and have put them on Flickr for the general public to peruse. Here are a few of them so that you can see what was going on (I spotted known activists in the crowd and am perfectly prepared to hand my footage over to the relevant authorities on the condition of pseudonymity).

Given Sir Bonar’s famous “ring of soup” formulation for government identity management services, I was keen to ask him how he sees the evolving balance between privacy and surveillance. In particular, I was curious about his views on Umair Haque succinct note that

The internet itself isn’t disempowering government by giving voices to the traditionally voiceless; it’s empowering authoritarian states to limit and circumscribe freedom by radically lowering the costs of surveillance and enforcement.
[From The Social Media Bubble – Umair Haque – Harvard Business Review]

Unless we take steps to build an identity infrastructure that embodies certain protections, encodes certain balances, then I think it is perfectly reasonable to anticipate a path whereby governments become authoritarian by default, simply becuase they can and not because of any directed or debated policy. I don’t think that you have to be some kind of privacy nutter to find this a concern: unfortunately, I was not able to put this point to Sir Bonar because he had to leave for a pressing bottle of claret, but I perhaps I will be able to catch up with him again in the not-too-distant future.

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Innovate and innovation

15th November 2010by Consult HyperionLeave a comment

[Dave Birch] One thing that struck me about PayPal's "Innovate 2010" conference in San Francisco, in (I have to say) fairly stark contrast to many of the events I attend in the more traditional banking world is just how much innovation was actually going on. Too often I'm tempted into a presentation on radical innovation in international payments only to find that the radical innovation being discussed is changing field 27 of message type 94 from two bits to three bits. At Innovate, though, the innovation was real: entirely new products and services that depend on the existence of the new payment platform underneath them.

Some of the stuff on show was fabulous: the stuff on augmented reality (with Layar), the digital TV commerce button, the digital goods purchasing. I enjoyed looking round what the developers were doing and I even wandered into the hackathon to see if I could understand what they were doing. What they were doing was writing code to create new applications there and then. And they did.

Over 300 people hacked for 15 hours and we’re pleased to announce the winners of our Hackalicious Hackathon! Congratulations to PayTEL, Affiliation APP, Tweet Engine for PayPal Docs and Buddy Beers social gift-giving for creating the most innovative demonstrations of how to “change the way people pay” using PayPal X’s tools, services and products
[From PayPal X Developer Network: Naveed Anwar's Blog: Winners of Second PayPal X Developer Challenge and Hackathon Revealed! Innovate 2010 Comes to a Close.]

It's funny though, but I thought that one of the most significant announcement was one of the dullest. While the stuff about television buy buttons and digital goods purchases and super-cool augmented reality will grab most people's attention, I thought that it was the announcement of PayPal Business Payments that seemed to me to be something that will mean real industry change. By coincidence, I happened to be chatting in the break to a developer who works on real-estate management software and he surprised my by saying that he works on commercial projects (for shopping malls and so forth) where the tenants want to use PayPal to pay bills. This, and a couple of other conversations I was involved in, leads mean to think that Russ Jones from Glenbrook is surely right to say that

We expect PayPal Business Payments to find a good reception in B2B payments, rent payments, healthcare payments, and other similar commercial markets. Learn more about PayPal X for business payment
[From PayPal X Innovate 2010 – Day 1 — Payments Views from Glenbrook Partners]

This is why I ended up spending more time looking at what the folks from Freshbooks and Bill.com were doing, because it seems to me that these kinds of solutions will be transformational: they will make a big difference to small businesses, which are most businesses. Freshbooks provides an outsourced invoicing service for small businesses, so that if you are (say) a small architect practice or law firm then you sign up and they generate invoices for you and automate collections. Bill.com works on the other end of the problem, which is to take your bills and automate their payment: when you get a paper bill you scan it in or fax it to them, and they turn it into an electronic item that you can process online (and pay using PayPal, naturally). If you think about the processes in a typical small business, the automation of the payment by itself just does not mean a massive cost saving: you have to get rid of the paper documents that go with it too.

We might summarise the sector as "e-invoicing" and, believe me, no matter how dull that sounds, the companies that crack it are going to make a lot of money.

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Russian regulation

13th November 2010by Consult HyperionLeave a comment

[Dave Birch] As many people have noted, the Russia e-payments landscape is really

According to Victor Dostov

There are 25 million active “e-purses” (web wallets containing pre-paid value) and the market is growing at 20%.

The market is now going to be shaped by regulation. It’s a difficult problem for regulators, to take a rapidly growing market and add prudent regulation without disrupting

The government has approved a bill to regulate e-payments, a market that is growing at 40% per annum.

Viktor Dostov, the chairman of the Russian E-Money Association, says that the bill is a reasonable compromise, requiring operators such as WebMoney and Yandex.Dengi to obtain a Central Bank licence for “non-banking credit organisations”. The law requires such organisations to have a minimum equity of 18m roubles ($600,000), which may be a little high for innovative startups.

It is very tempting for regulators to demand rigorous identification Here’s an example. The current “Draft law on the National Payment System” has the concept of “proportionate identification” which is important.. The law also contains a sensible balance on KYC, so no identification is needed for payment accounts with a maximum balance of 15,000 roubles.

Under current framework, there is no equivalent of the European “Payment Institution” or “Electronic Money Institution”. One of the key aspects of European regulation is that it has allowed non-banks to bring innovation to the sector

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Yota, Russia’s leading 4G networks operator (offering WiMax, battling for LTE frequencies and thinking about brand-name handset), launched a partnership with Mobi. Dengi (a mobile money transfer scheme working closely with Beeline, a Russian MNO) and Tavrichesky Bank – to allow its subscribers to use the money they have topped up to their prepaid account – to pay for other services like utility bills, TV, mobile top-up.
[From Retail Banking in Russia: Innovation Unfolded: Each decent Internet service provider strives to create its own payments wallet]

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