March 2008 - Page 2 of 2 - Tomorrow's Transactions

Dutch lessons

Friday, 14 March 2008 by Dave Birch 3 Comments

[Dave Birch] I saw a presentation in Amsterdam about an NFC pilot going on in the C1000 supermarket chain (check out this video) with real consumers.

One hundred consumers who shop at the C1000 grocery store in Molenaarsgraaf, the Netherlands, have begun paying for transactions with mobile phones equipped with Near Field Communications (NFC) RFID chips. The group is participating in a six-month pilot conducted by Schuitema, the nation’s second largest retail chain,
[From RFID Journal - - RFID (Radio Frequency Identification) Technology News & Features]

Well, the pilot is now complete and the results are in. The guy from the retailer who was presenting said that he was extremely surprised because he had "never, never" seen such a positive results from consumers and that they never had a single technical problem in six months. Wow.

The market research contained, I think, an interesting nugget of information that will be grit in the oyster of someone’s business plan. It turned out that the service was a fantastic success with the customers, and 49% of them said that if the service were offered then they would buy a new handset to get it! More than half, and I suspect this is the important figure at the current state of evolution, said that they would switch operators to get an NFC service. Overall, there was a something like 90% approval rating for the service.

Yet, when pressed on costs, 78% of those consumers said they would not use their NFC payment "card" if they had to pay more than they do for using their existing payment card. Just to reiterate: they would be happy to spend money on buying a new phone, but not on a paying a bank a little more.

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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.

UK Card Fraud – gosh, shock, horror

Wednesday, 12 March 2008 by Richard Allen 2 Comments

We’re told that fraud migrates – push it down here and it goes up over there. The introduction of Chip & PIN in the UK has squeezed out counterfeit, lost & stolen, and mail interception fraud. This is countered by a rise in card-not-present fraud and overseas use of skimmed cards is on the up. This trend has been clear over the last few years. The net result is that overall UK card payment fraud has been flat at £400-450 million for 2001 to 2006.

The release of the latest UK card fraud statistics for 2007, by APACS, the UK payment clearing association, has created headlines. It’s up 25% to £535m, they scream. A quick glance reveals the usual trends, but chip & PIN in the UK has reduced fraud as much as it can whilst the CNP and overseas fraud continue to grow apace. Hence the overall rise.

So, where is this fraud coming from? It may be a blip – it hit £500m in 2004, for example. Or perhaps fraud is migrating from elsewhere. What happens to VAT carousel fraud when it is squeezed, for example? [VAT carousel fraud is a peculiar wealth support mechanism dreamed up by the EU that costs UK taxpayer £8.4bn a year.]

What can be done to stem this rise? CNP fraud is being tackled by 3-D Secure (branded Verified by Visa and SecureCode). To stem skimmed card fraud overseas and skim & PIN fraud (whereby fake magnetic stripe cards are used with a captured PIN to withdraw cash at ATM), UK banks have gone so far – by introducing ICVV and declining technical fallback at ATM.

But they could go further. Why not an opt-in for all but the most frequent travellers whereby my card is automatically declined for all overseas (non-chip & PIN) payments and cash withdrawals? Before I go on holiday, I tell the bank where I’m going and for how long. It’s easy to implement and easy for the cardholder. Mandate 3-D Secure?

Sadly, inconveniencing the cardholder gets in the way and we can’t possibly have that. And fraud is still only ~0.1% of total card spending. So, perhaps it’s not such a big issue for the banks, anyway. Afterall, card fraud was projected to be £1bn by 2010 were it not for Chip & PIN.

Realistic dynamics of contactless

Monday, 10 March 2008 by Dave Birch 5 Comments

[Dave Birch] In a recent post, Aneace observes that if improved speed is the key merchant benefit of contactless (which I’m not sure about: as discussed before, it’s one of a portfolio of benefits) then the use of magnetic stripe cards under $25 (ie, with no signature required) undermines the business case:

Contactless has always been positioned on one single merchant benefit: speed. So waiving the signature for transactions under $25 just kills contactless.
[From Waiving signatures for small purchases torpedoes contactless]

This is true to some extent. But it’s really only true in the U.S., where all transactions are online, and in comparison to similar card transactions. In chip environments, an offline chip-based transaction is going to take a couple of hundred milliseconds. Contactless is very fast, remember, partly because of the technology’s heritage in the transit world, where it is turning full circle: transit companies don’t really want to run ticketing operations at all, so they would be more than happy to have “pay at gate” where bank and other payment cards are used to enter/exit the transit system. This is why pilots and trials in this direction are useful indicators of the way the payment environment might develop. For example,

MasterCard is teaming with The Port Authority of New York and New Jersey and NJ Transit for the eight month trial, which is set to kick off in early 2009. Customers will be able to pay fares on buses and trains between New York City and New Jersey by tapping their contactless device at turnstiles and on fare boxes.
[From Finextra: NY commuters to trial contactless payments on buses and trains]

In the non-transit environment, or I should say non-”closed” environment, the only way to get 200ms transactions is to go offline. But even then, while you’re standing around waiting 10 minutes for your latte, 200ms may be neither here nor there! So in most markets (ie, markets where not all the transactions are online), contactless products will run adequately fast and are a better option than no-signature stripe cards because of the improved security.

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Privacy TV

Friday, 7 March 2008 by Dave Birch Leave a Comment

[Dave Birch] I’ve been watching ever since the BBC launched it’s new drama series about the surveillance state. It’s called The Last Enemy, and I was quite looking forward to watching it, as were others, since it touches on a lot of the issues that I spend a lot of time thinking about. Given my conviction that sometime you need to turn to art to help you to understand change, I thought it might deliver some insight into the balance between privacy and security in the modern world. Actually, it’s turned out to be a bit dull, and I’ve been a little disappointed.

It’s just occurred to me why.

It’s because the BBC, like the Government, is a vast hierarchical beauracracy that it is essentially backward-looking, group-thinking and inward-focused. Just as the government can only envisage things like ID cards in a kind of 1960s frame of reference, of centralised databases and giant computers, so the BBC can only construct a discussion around them in that same frame of reference, a cross between George Orwell and Groundhog Day, endlessly retreading the same tired version of the future.

Hence the event stream seems a bit ridiculous: why on earth would people be lurking around looking for anyone in a world where there appears to be camera in every room? In one episode there’s a bit of road rage and one motorist shoots two others, but nothing happens. I guess the cameras are only looking out for dangerous double-parkers or congestion charge-evaders. As far as I can see, the scriptwriters are just producing a standard cowboys-and-indians story with ID technology as a plot backdrop, not even a maguffin to keep things moving (although I’m sure that, at some point, there will be a chase involving a CD containing important data that could just as easily be e-mailed). And as in all TV shows that involve computers, it was rife with stereotypes:

People type furiously on a keyboard to open up a new window – check
People have multiple screens open with photos on, but never seem to pick a screen to put stuff onto – check
Fonts are big enough to be seen from miles away – check
Interface is in its own basement room – check.
[From Tech & Gadgets Editor's Blog]

And, of course, the computer spoke, which in "real life" would drive you mad. What was funniest of all was the central icon of the near-future state, the pillar of the technologically omnipotent surveillance state: the ID card that the characters had to use to get into buildings and so forth. It was a trivially-counterfeitable magnetic stripe card, circa 1971.

ID cards, privacy, technology

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ID-Day

Thursday, 6 March 2008 by Dave Birch 4 Comments

[Dave Birch] In any discussion about identity in the U.K. recently, the big unknown has been the government’s proposed national identity card scheme. There was a lot of uncertainty about how exactly the scheme might work, what the timetable might, what the vision for the scheme was. I was therefore very excited to have been invited to come along in person to the think tank DEMOS this morning to hear the Home Secretary, Jacqui Smith, set out the government’s plan. I was thinking that I don’t often get the chance to talk to someone like Jacqui (ie, an incumbent in one of the great offices of state) and that she probably doesn’t often get the chance to talk to someone like me (ie, someone who knows about national ID card schemes), so it would be an interesting exchange. The government published both a plan to deliver the ID scheme (well, most of) by 2017 and the Crosby report.

When I took my seat, it turned out I was next to Meg Hillier, the Minister for ID Cards, who was kind enough to introduce herself. She turned out to be a good sport…

Meg Hillier: Pleased to meet you, I’m Meg Hillier.

Me: Hello, I’m Dave Birch from the Digital Identity Forum, pleased to meet you. Oh, was it you who said that ID cards were a bit like internal passports?

Meg Hillier: Yes, it was an unfortunate turn of phrase. They’re not, of course. There’ll be no legal requirement to produce them.

Me: What, not even if you’re buying a second home?

She was polite enough not have me thrown out so I was able to stay and listen to Jacqui. Anyway, the event was being recorded and broadcast so I thought I would add to the sum total of understanding by doing the same. I’ve taken Jacqui’s speech as well as the question and answer session and made them into a special edition of the Digital Identity podcast that will be posted on our feed shortly. Have a listen to what she says and make up your own mind about it (alternatively, you can read the speech online).

By the way, it wasn’t an idle boast inserted above (about knowing about national identity card schemes). Consult Hyperion is currently advising on its fourth national identity card scheme at the moment (or a European government) so I’d like to think that our opinions might count for something.

government, ID cards

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M-Pound?

Thursday, 6 March 2008 by Dave Birch Leave a Comment

[Dave Birch] I was in a discussion the other day — the circumstances aren’t relevant — when one of the participants (from a regulatory background) suggested that “third world” payment schemes (such as our very favourite mobile payment scheme, Vodafone’s M-PESA) might actually be suitable for places in U.K. where people lack access to conventional financial services. So might Vodafone be prepared to try M-PESA out in a lawless wasteland, where life expectancy is 54 and falling (in Iraq, it’s 67), where 170 gangs roam the mean streets and where a quarter of a million children are living in poverty? No, they’re not ready for Glasgow yet, so they’re going to Kabul…

Afghanistan GSM network operator, Roshan is to launch a mobile payments service, based on Vodafone’s M-PESA service. The service, branded M-Paisa, is a mobile technology platform that provides financial services for those without access to banking and aims to facilitate economic activity in the region.
[From Vodafone Launches Mobile Payments in Afghanistan]

I’m sure this will be the first of many launches. The M-PESA model works, the technology works and the business works, so I’m sure it’s going to go from strength to strength, especially given the size of the potential opportunity.

Mobile transactions carried out by 612 million mobile phone users will generate $587 billion by 2011, according to ‘Mobile Financial Services: Banking & payment markets 2007-2011′, a report released by Juniper Research on 30 January.
[From E-COMLAW.COM]

This is a colossal market, whichever way you look at it. And a great many of these potential users are people who are excluded from conventional banking and payment networks, so the impact of the mobile is very transformational.

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Faking it

Tuesday, 4 March 2008 by Dave Birch Leave a Comment

[Dave Birch] I was in a discussion about this “internet of things” again today. It reminded me about my recent visit to the Automatic Identification and Data Capture (AIDC) European Centre of Excellence, which is in Halifax. They have a super facility with a shop, bank, hospital, town hall, library and main street set up on one floor of what I imagine to be a disused mill building. Their vision is to be able to demonstrate AIDC technologies (including some of our favourites such as biometrics and RFID) in “real” environments. During my tour, I came across a notable use of RFID tagging that flagged up — once again — just how widespread the use of RFID is likely to become and just how many niches there are for it to fill. I’m not skipping over the privacy issues. Nor, for that matter, are the European Commission…

One source told me that a requirement from the EU for consumers to positively opt-in to RFID in-store and for RFID tags to be decommissioned at the point-of-sale would kill RFID at item-level in Europe. Such a move, the source added, would put us internationally behind the curve, cost thousands of jobs in the RFID industry and be a terrible waste of a very useful opportunity.
[From Is the EU about to publish RFID privacy proposals? (Tune into RFID)]

Some form of RFID code of conduct — such as the one that Toby Stephens wrote for Digital Identity Management — is a good thing, but the opt-in and decommissioning ideas are not the right way forward.

contactless, privacy, rfid

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Another perspective on chip & PIN fraud in the UK

Tuesday, 4 March 2008 by Dave Birch 3 Comments

[David Griffiths] I think it’s all good and proper that academics at world class universities have our (and I speak now as a punter) best wishes at heart, and I am grateful to the BBC for bringing it it, once again, to everyone’s attention. Taxes and licence fees well spent. I only wish that the spin revolved around reality rather than headlines!

Once again Ross Anderson has got the BBC all excited. If there was real hole in Chip and PIN, the boffins at Cambridge would have spotted it, and the the BBC could then really get excited. The reality is that Professor Ross Anderson has huge technical resources at hand, is surrounded by some very clever people, but they haven’t cracked the system – not even com close. They have, as we were told, found some vulnerabilities, but they have not found any that the banks were not aware of.

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Christmas Cards

Tuesday, 4 March 2008 by Richard Allen 2 Comments

According to APACS, the UK banking association, spending on plastic cards during the last Christmas period – December 2007 – was £32.2billion, up 4% on a year earlier.

If you take inflation into account – the UK Retail Price Index over the same period is also around 4% – then the trend for overall card use, in real terms, is flat.

Delving into the figures some more and we see the familiar trend is there – spending on debit cards is up nearly 7% and spending on credit cards fell. (Quite why anyone would use a debit card in preference to a credit card is beyond me, but more later.)

From other APACS data, we know the general trend for the credit card business – usage/spend peaked in 2004 and has been in gentle decline ever since. Credit card issuers must be morphing the business plan into a survival plan.

For a prolific user of credit cards, such as myself, it’s great. I’m being tempted by all sorts of fabulous 0% offers, free air miles, and the like. So, the industry is now fighting for my business – does that means margins will get squeezed too?

Perhaps the industry will consolidate, make efficiencies and protect profits that way? Barclaycard recently purchased Goldfish for £35million (a rather poor ROI for Discover, by the way). Perhaps we’ll just end up with a few super-size issuers?

There may be hope in new technology, such as contactless. It’s new business, i.e. cash displacement. But, it takes a lot of coffees and newspapers to match the average credit card transaction of over £60. Smaller margins on smaller transactions?

Two-thirds of retail spend over Christmas was on cards, four per cent on cheques (oh yes, cheques!) and the remaining 30% (ish) for cash, beads and bartering.

So, I’m a credit card issuer. Should I start a war on cash, tempt the credit unworthy or try to convert the unbanked?

Well, twice as much was spent on debit cards than credit cards. Debit card users aren’t afraid of plastic but they get little protection – and a sixth of the retail card spend at Christmas was online. Surely it’s got to be easier to tempt debit card users with the security of credit card purchases?

In February, I added up how much I would have spent on a contactless card if acceptance were ubiquitous. I reckon it was about £400 – double what I expected. If it were on my NFC mobile phone I would have used it in the pub, too. But I might also want protection since I’ve read those scare stories in the press recently – I’ll use a contactless credit card product every time.

So, it’s not all gloom in credit card land. New technology, new channels and targeting products to exploit the protection afforded consumers will help. In the meantime, I’m trying to work out what I’ll buy using my credit card in the TV.

Out of touch

Monday, 3 March 2008 by Dave Birch 2 Comments

[Dave Birch] I ought to be relatively easy to move ATM functionality to mobile phones, with the obvious exception of cash withdrawal. Why bother? Well, I read in the FT (25th February, page 12) that there are 2.4 billion visits to ATMs in Spain every and that a third of them do not involve withdrawing cash, which is why one of the banks in Spain in launching a mobile banking service to allow people to do ATM stuff (pay bills, mobile top-up, mini-statements, that sort of thing) on the handset. I was wondering if I would use such a function, and I’m not so sure.

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