Reasons to go contactless, part 97

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[Dave Birch] Does anyone know if this story is true? Apparently, In 1997, to mark the handover of Hong Kong, coins bearing the Queen’s head were replaced with coins engraved with a bauhinia flower. Passionate speculators, Hongkongers began hoarding the old coins, convinced they would be worth something. By the end of the year, when the Octopus card was launched, there was a serious coin shortage. Convenience stores began giving change in kind – either as chewing gum or other small items – or simply insisted on the correct money. Anyone trying to buy tickets from machines taking coins had a problem, unless they had the time to queue up at the bank to get their (carefully rationed) coin supply. So when buses and minibuses, which had taken coins, began accepting Octopus cards, it was not hard to persuade people to get them.

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Slow penetration

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[Dave Birch] The roll-out of contactless payments is proceeding, but it’s still slow, because it takes a long time for merchants to change or upgrade their POS technology, even when they want to. Bu they may not want to, because they don’t perceive enough value for them, or because they anticipate incentives from other players in the market.

An absence of incentives—particularly for merchants—is handicapping contactless payments in the U.S., and by extension mobile payment at the point of sale could suffer, according to a new report by Aite. About 40,000 U.S. merchants now accept contactless cards and fobs, or 0.5% of all merchant locations. That number will grow to 271,000 over the next six years, but the penetration rate after that time will still be only 2.5%. If these projections prove accurate, it will mean rough going at best for near-field communication (NFC). To make NFC work, cashiers must be equipped with contactless readers. The painfully slow merchant penetration by contactless “kills NFC”, according to the report author Nick Holland.

[From Digital Transactions News]

Nick is, of course, right to highlight the feedback loop that is operating here. There are some banks and retailers who are investing in contactless for its own sake, but there are many who are investing in contactless because they see it as a stepping stone to the greater value-added possibilities around mobile. Now, I certainly see myself in the mobile camp, but that doesn’t mean that contactless can’t be successful in its own right as well, as I was reminded yesterday when driven insane by a Woking Borough Council parking machine that purported to accept cash (credit cards, having been invented less than fifty years ago, are not yet on the menu) but refused my tenner and my 5p pieces, rendering me unable to pay until I found some more coins on the floor in my car. How can it be more cost-effective to operate antiquated system than to accept cards? Anyway, the point is that converting unattended points of sale to contactless must be a good idea if you want to drive acceptance:

MasterCard Worldwide and USA Technologies announced the expansion of ePort cashless payment terminals to 17,500 vending machines nationwide, adding more than 4,000 new locations that accept MasterCard PayPass contactless payments.

[From MasterCard Expands PayPass Acceptance to Over 17,000 Vending Machines]

I wonder if the roll-out will naturally accelerate as merchants replace their POS terminals and systems or whether specific incentives (as noted above) will be required to tilt the balance? If I was a merchant, I’d think it worthwhile holding out and even though I know that it makes commercial sense, I’d still want to try and get a better interchange rate out of the bank if I could. In theory, if the benefits are distributed between banks, consumers and merchants then the costs should be distributed similarly, but in practice in the short term it means banks spending money issuing contactless cards and the acquiring side catching up later (this, incidentally, is one of the lessons from the DoCoMo “curves” in Japan). Therefore, so long as the merchant benefits are sufficient, the infrastructure will sort itself out.

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Bringing privacy into the equation

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[Dave Birch] The equation, in this case, being sum(security+privacy)=rand(). Now, while you might argue that it is at least possible that there is some more complicated mathematical expression that may relate the two in some way, I think I’m coming round to the opinion that we should treat security and privacy as entirely uncorrelated from the point of view of system specification and design. Apart from anything else, it’s why I think we should decouple the concept of the national identity register (which is about security) from the concept of the national identity card (which ought to be, but isn’t, about privacy). It’s also the reason why any statement (in particular, government statements) about giving up some privacy in order to obtain security seem so empty and why technology could deliver so much more than many people imagine.

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Cashlessness and futures

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[Dave Birch] Chris Skinner was talking about cashlessness over at FinanSer but says that we’re not going in the direction. In fact,

instead we have rising levels of cash in the economy
[From The FinanSer: But cash is better than cashless]

I don’t think that’s true, or at least true everywhere. In Iceland, 93% of all retail transactions are non-cash. Recent data by the Bank of Japan showed that the number of coins in circulation dropped 0.25 percent to ¥91.45 billion in June, the largest year-on-year decline ever, due largely to the spread of e-money. In Hong Kong, the Octopus transit card has replaced 1% of the cash in circulation. In Singapore, the government has been considering Singapore Electronic Legal Tender (SELT). In Japan, unlike all other developed countries, the number of coins in circulation has started to fall (because of mobile phone-based payments). In Kenya, the new mobile payment system M-PESA has more than a million customers. In the UK, debit cards have overtaken credit cards and cheques will certainly vanish in our lifetimes. It seems as if the trend toward electronic payments is accelerating around the world.
How far will this trend go? Since the social cost of cash is high, and the associated transaction costs fall disproportionately on the poor, we might all be better off once the shift to e-paymemnt (m-payment, actually, for most people in most of the world) is complete. But we need to explore to be sure: there are some aspects of cash (such as anonymity) that are valued and we need to understand how and why some characteristics might need to be preserved. Is a cashless economy realistic? Or desirable? How might such an economy emerge and is it possible to imagine the impact of the end of notes and coins?

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Still practising

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[Dave Birch] I went to a European Commission “epractice” seminar to share best practice about electronic identity — and in particular the interoperability thereof — in Europe. Consult Hyperion have been doing a lot of work in this area — we were commissioned by the EU to study identity interoperability last year — and so I thought it would be very useful to come along and exchange ideas. It was gratifying to discover that the conclusion of our work for the Commissin was congruent with the findings of all of the other studies for the Commission: not only is there no interoperability whatsoever at a European level, there’s precious little of it at the local level either (ie, you can’t use your HMRC login to log on to DVLA and so on). There were some studies that have gone down another level, and they discovered that one of the reasons for the lack of interoperability is that none of the European identity schemes are using a standard-based approach (with the except of SAML that is being used in a small number of schemes).

It was quite well-attended (there must have been more than 40 people there) and while there were a few familiar faces, I enjoyed the opportunity to listen to some new(to me) perspectives. One of the points made at the beginning was, I think, key not only at the international level but at the national level too. It was that the focus should be on interoperability rather than harmonisation. There is no need for everyone to use the same identity management scheme, identity cards, identifiers and all the rest of it. Hence one of the ways forward is to imagine a set of technology-neutral national gateways and interconnect through those gateways.

In the afternoon I went into the breakout to discuss mobile e-identity, which I’m becoming increasingly enthusiastic about. The reasoning is that in order to make some form of electronic identity useful to citizens, it has to do some interesting things. But a card can’t do anything interesting things, whereas mobile phones can and — and I think this is central to the discussion looking forward two or three years — what’s the point in issuing another smart card when the entire population has a mobile phone already.

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Freebanking and free banking

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[Dave Birch] Foreign readers may be unaware that banks in Scotland and Northern Ireland issue their own banknotes. In the England and Wales (and everywhere else in the entire world), banknotes are issued by the central bank. As The Economist points out, feelings run deep. Sir Walter Scott is commemorated on banknotes in Scotland precisely because he fought off the Bank of England’s 1826 attempt to stop Scottish banks from issuing their own notes.
There are nearly £3 billion-worth of Scottish banknotes in circulation (and half as much in Northern Irish banknotes). For odd historical reasons, the issuing banks have to back their note issue with a deposit of 95% the value of notes outstanding, but only at the weekends! Seriously. So during the week they can lend the money out and earn seigniorage. The Scottish banks currently earn good money this way so the change

would lose Scottish banks some of the £65m they now earn in interest and “seigniorage” (income from selling their notes to other banks).

[From Scottish banknotes | Under threat | Economist.com]

The Treasury, presumably still wondering what to do about Northern Rock, wants to spoil the party and force Scottish and Northern Irish note-issuing banks to keep the deposit backing the note issue at the Bank of England all the time, just in case (eg) RBS goes bankrupt but not on Saturday or Sunday. In the England and Wales there is a different system: the Bank of England, the most profitable nationalised industry in British history, backs its notes not with deposits of euros or gold bars but with fixed-interest instruments bought from the British government and remits the interest earned to the Treasury.

I don’t imagine that I might agree with Alex Salmond, leader of the Scottish National Party, on much beyond the issue of independence for Scotland, but I do agree with him on his defence of the Scottish note issue: he said that there’s no need for the Treasury to take this action because Scottish banks are among the most stable in the world. The SNP’s defence is robust…

The changes suggested will cost Scotland’s financial sector £80 million a year. This is daylight robbery by the UK Treasury and will provide Scotland’s financial sector no advantage whatsoever.

[From MP Warns Treasury - 'Hands Off Scottish Bank Notes' — SNP - Scottish National Party]

As it happens, I have a particular interest in the history of Scottish banks because of the lessons of that period of “free banking”. This does not, as you might think, mean that Scottish banks were once operated as charities but that they were free to compete in note issue. And the result, as most historians would confirm, was a period of incredible innovation when the more tightly regulated London and country banks failed more often than the less tightly regulated Scottish banks did (I know this is an appalling precis of a complicated and interesting period, but I’m trying to make a bigger point).

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Far-out east

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[Dave Birch] U.S. consumers are keen to use their mobile handsets for making in-store payments, but the majority only want to have one credit/debit account for making those purchases, according to an ABI Research survey of US consumer attitudes. Much of the work on developing a standard application platform across NFC handsets has been geared at providing a platform capable of supporting and managing multiple payment accounts from any number of credit and debit card issuers. However the ABI survey, carried out at the end of 2007, indicates that consumers would be happy with one. I’m not sure that this makes any difference to the architecture projects we’re involved in though, which is, frankly, a reflection of the success of the GSMA telco-centric model of the world where that platform is the combination of the Trusted Service Manager (TSM) and Secure Element (SE). Yet I must again ask why there is such interest in a technology that consumers cannot buy in shops? It cannot be the solely down to the technology push, there is very clearly a very strong market pull as well. The Guardian says that mobile contactless will be “a cracker”, the next key technology for the post-iPhone age, and points to Japan. Half of all the new mobile phones sold there already have the contactless interface built in, so phones are used as electronic cash for buying newspapers, electronic credit cards for larger-ticket items, as pre-paid tickets or season passes for travelling on trains and buses and as storage media for receiving discount coupons from restaurants and collecting a bewildering range of in-store cash-back-style points. The Guardian is not alone in looking east, rather than south (ie, to Barcelona, where the 3GSM jamboree is full on), for a window into the future of payments:

Check out this list of the five advanced technologies available only in Japan: True mobile digital TV (all the regular terrestrial channels at no cost), connected cars (with a navigation system connected to a cell phone), primary wave earthquake warning systems, and home-help robots. And my personal favorite is Osaifu keitai–mobile wallets. They put my so-called “smartphone” to shame

[From Reason Magazine - Hit & Run > Japanese Mobile Phones Smarter Than Average American]

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Be there or be square: the 11th annual Digital Money Forum

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[Dave Birch] The programme for the 11th annual Digital Money Forum to be held in London on 23rd and 24th April 2008 — sponsored by Visa Europe and Webmoney with support from ACI Worldwide — is coming together over at www.digitalmoneyforum.com and already features speakers and panellists including Giles Andrews of Zopa, Charles Cohen from Probability, Jim Wadsworth from J.P. Morgan, Mike Jackson of Shaping Tomorrow, Ronnie O’Toole of National Irish Bank, Sandra Alzetta from Visa Europe, economist and author Diane Coyle, Donal Rice from the National Disability Authority in Ireland, Colin Swain from Barclays, Peter Jones from Payment Systems Europe, Jerry Dischler from Google, Anne Caffrey from RBS, Oliver Kelly from Vodafone, David Boyle fron New Economics, Jof Walters from Shopcreator, Julian Wilson from Mobbits, Charles Bryant from the European Banking Association, David Hunter from Click ‘n Buy and Europe’s most informed commentator on the economics of cash replacement, Leo van Hove from the Free University of Brussels.

They, and the delegates, will be discussing all of the major trends in the sector and what the next trends might be. Contactless payments, NFC in mobile phones, Internet payments, remittances, cash replacement and public policy, the often-forgotten needs of the disabled, the nature of innovation in payments. All of the speakers and all of the panellists have been invited because they have something interesting and worthwhile to contribute: you won’t find yourself sitting watching product marketing presentations, you’ll find yourself engaging and learning.

There will be a special “Meet the Bloggers” panel where you will be able to question in person some of people you turn to first on the net everyday for perspectives on the retail electronic payments sector; Chris Skinner from FinanSer (UK), Colin Henderson from Bankwatch (Canada), Scott Loftesness from Payments New (USA) and Aneace Haddad (Singapore).

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Of course, the camera adds 110lbs

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Unbelievable but true: I’ve been to London Fashion Week. And to prove it, here’s a video I took at the actual fashion show…

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

3D Secure, give it your best shot

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[Dave Birch] How pathetic is it that when I want to buy something on the Internet using my bank card I have do mess around typing in endless details, numbers, codes, passwords and the like. It’s all so 1994. In an a modern economy, that sort of thing is seen as being on a par with Babylonian clay tablets or filling out paper forms to make a SEPA Credit Transfer. But in advanced countries, there is another way:

According to Sony Japan, the company has just sold its five millionth USB RFID dongle for home computers… the USB gadgets can be used in multiple ways. The most common involves swiping an IC-chipped phone or credit card to pay for purchases made online. The advantage lies in encryption applied to the card number before it is transmitted – a valuable safety net in these days of endless data breaches.

Other uses for the technology – terminals are already built into all Japanese Sony Vaios, by the way – include encrypting files on the PC, authenticating users for access to secure parts of a network and even acting as a screensaver lock. The most prosaic FeliCa application is, however, considerably more useful than any of those. Instead of using a ticket machine in a train station, travellers with IC passes can add cash to or renew their validity from the comfort of their desk using the PaSoRi, something we can expect to see in the West soon.

[From Personal RFID terminals go big in Japan | News | TechRadar.com]

So when you want to buy something online with your DoCoMo phone, you just touch the phone to your dongle. That’s it. Since I have a brand-spanking new Barclaycard with Visa PayWave on board, what’s the barrier to a dongle to go with it? I’ve got my calculator-thingy from Barclays, and that works really well for using my bank account, but it doesn’t help me with payments at all. There are millions of these things being issued in the U.K…

Nationwide Building Society has contracted with French vendor Xiring for the provision of over one million handheld authentication devices which it will begin rolling out to its online retail banking customers this spring.

[From Finextra: Nationwide to dish out Xiring smart card readers]

You’d think we’d at least be able to use them in 3D Secure, if nowhere else. I hate to be a big whinger, but isn’t this just another example of the silo mentality at work, where the guys in charge of home banking are nothing to do with the payment guys.

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These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.