Mobile payments are good for mobile banking

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Mobile payments and mobile banking are not the same thing at all and, as I have long maintained, there is no reason to think that mobile payments should be provided by banks, nor that mobile operators want to get in to banking. This is why I maintain the much of the comment around these topics is misleading. For example:

Geo-strategic and political consultant at Nova-Comm Strategy Group, Brett Goldman, says: “With M-Pesa… Essentially, what you are doing is eliminating the need for a bank,”

[From Near field comms: How are mobile payments changing traditional banking? - 2/22/2011 - Computer Weekly]

Well, up to a point. They are not eliminating the need for a bank, they are eliminating the need for banks to run payment services. And this is not bad for banks, or customers, because M-PESA don’t need to eliminate banks in order to improve the banking infrastructure as it demonstrates with the example of the M-KESHO service, launched with Equity Bank, that allows M-PESA customers to transfer money to and from savings accounts.

With the M-Kesho Account, customers will be able to get pre-qualified personal accident insurance, access to short-term loan facilities ranging from KES 100, and interest on the mobile account from as little as KES 1. The application is built with the ability to score a customer’s credit rating using a six-month history of his M-Pesa balances.

[From Safaricom, Equity Bank launch M-Pesa bank account - Telecompaper]

How interesting is that? The transaction history built up inside M-PESA provides a straightforward mechanism for financial inclusion, simply not available in a cash economy, and an apparently entirely viable alternative to credit history. The service has been tremendously successful.

He noted that some 21 percent of M-PESA users in Kenya now use the service simply to store money and earn interest. The savings service – branded as M-KESHO and in partnership with Kenya’s Equity Bank – has effectively set-up 750,000 new bank accounts in Kenya since launching in May with deposits totalling KES900 million (US$10.7 million).

[From Vodafone, Telenor To Expand Their Financial Services | Telecom Recorder]

Scatchamagowza! They’re on their way to creating a million new bank accounts. Far from taking customers away from banks, M-PESA is bringing customers to them! As far as I can see, this is pretty conclusive proof that banks are wrong to lobby regulators to insist that mobile payments can only be provided by banks and that regulators are wrong to listen to them. (In Europe, fortunately, this is not true because of the Payment Services Directive: O2 have applied for a payments licence in the UK, for example). So, an efficient and effective mobile payments platform adds value to mobile financial services by making those financial services more accessible at lower cost. And while stimulating this, operators can make money too.

Aite says mobile payments will account for $214 billion in gross dollar volume by 2015, up from only $16 billion in 2010

[From The Smartphone Payments Train’s Leaving the Station - Bank Technology News]

That means lots of transaction fees. It’s interesting to note how M-PESA’s transaction fee income has held up.

As the use of M-Pesa spread, Kenyans started using it for smaller and smaller transactions. The average amount sent through M-Pesa declined from the equivalent of about $50 in March 2007 to less than $30 by March 2009.

[From Fascinating Stat and Lesson for the US About Mobile Payments in Africa]

So Kenyans are sending smaller amounts and are paying transaction fees that amount to larger fraction of the transaction (around 7%) because they still find it more convenient to do this than to use any of the alternatives. Once again, we see the mobility premium in action and a new value network that enables mobile operators to provide profitable payment services (because of that mobility premium) while simultaneously enabling bank, insurance companies and others to provide profitable financial services using mobile payments as a conduit.
More important than the mobile payments business itself will be the businesses that it enables. Just like M-KESHO, there will be new financial services businesses that only make sense on the mobile payments platform. In the UK, initiatives such as O2 Mobile Money and Orange Cash should provide some useful early indications as to how the market might evolve: if third-party financial services offer new products using these payments (eg, SME payments, media subscriptions, that kind of thing), then I think that will show that the pie will get bigger instead of getting sliced.

P.S. By way of an experiment in the service of readers, I have instructed no.1 son to go mystery shopping for an Orange Cash card and will report here in a couple of weeks.

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.

More on the debate about whether consumers will pay for m-payments

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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 know. 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.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

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.

Will they or won’t they pay?

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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.

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.

Mobile World Congress indicates NFC moving to mass market

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It’s that time of year again, so along with many of my peers I went to the GSMA� Mobile World Congress in� Barcelona, the annual festival for the mobile industry. There were 60,000 people there this year. You can’t not go, even if you don’t look forward to trudging around with 60,000 fellows! Since some of our biggest customers are there, we’re there, and that’s all there is to it. Actually, there was an extra factor: the GSMA had kindly invited me to be one of their awards judges— I voted in the “Best Mobile Money Product or Solution” category—so I was there for the� awards dinner as well.

The big news was, of course, the whole Nokia/Microsoft thing. But the news that I was really interested in was the stuff about shaping and control the value network around secure transactions which, in the first instance, means getting decent penetration of NFC handsets and, in the second instance, the war over the secure element (SE). This was a good show for NFC. NFC isn’t new to the show—or to Spain, where Visa has been running a trial in Sitges for a year.

The phone for the Telefónica trials, the Samsung S5230, known as the Star or Player One, is an EDGE handset–not a 3G phone. But Samsung said it is one of the handset maker’s top sellers.

[From� New Samsung NFC Phone Gets First Trial in Spain | NFC Times – Near Field Communication and all contactless technology.]

It’s also a Single Wire Protocol (SWP) handset that implements the “GSMA NFC” model where the SE is on the UICC and under the control of the mobile operator, who hopes to rent security domains (SDs) to banks and others. And this is where things were different at the show this year: SWP/UICC isn’t the only game in town any more because of the spread of embedded SEs and removable SEs (eg SD cards).

The NFC interface is all the rage. ZTE said all of their new handsets would be NFC, Nokia had already said that all new smartphones announced in 2011 would be NFC, Blackberry said NFC was central to their strategy, an NFC iPhone is rumoured. Some of these handsets contain their own SEs. For example, the Android Nexus. How many times have I bored people to death on this blog, and at conferences, by complaining that the business side of some organisations (and their management consultants) don’t understand the relationship between nerdy technical decisions being made over the last couple of years and the business models that they enable or constrain? One of the first of the mass-market NFC_enabled handsets, the� Google Nexus S, illustrates this rather well. The onboard SE is the� widely used SmartMX.

The Nexus S comes with a PN65N from NXP. This chip is a combination of the PN544 NFC controller and an embedded SmartMX secure element.

[From� Uncovered: The hidden NFC potential of the Google Nexus S and the Nokia C7 • NFC World]

This means, of course, that anyone with access to the SmartMX embedded SE can run secure applications (eg, credit cards) without going through the operator’s TSM etc. You may even have applications split between the two, so your O2 Money prepaid card is on your UICC (say) whereas your Visa debit card is in the handset. Both of them could be accessed through the same mobile wallet. Note that in order to create and access SDs you need keys—a big part of of our work on other mobile secure applications to go into various handsets (eg, for banks) is working out the key management strategies for these Global Platform (GP)-based SEs—so someone is still in control of the SE (hint: not the operator), but the framework in which you can do this is there.

Here’s what we did next: Download the source (actually from CyanogenMod 7 to have the full build environment for the new Nexus S), make the appropriate changes to the code, recompile everything and put it back into the phone and it works — Nexus S supports card emulation and SWP… Then we developed an Android app which we call “The Secure Element Manager” that gives the user full control over the secure element in the phone as well as the NFC chip.

[From� Uncovered: The hidden NFC potential of the Google Nexus S and the Nokia C7 • NFC World]

This is getting so interesting. In the early days of NFC, I wrote once or twice about the need for “open” SDs (that is, SE SDs that are not under the control of the mobile operator) because I suspect they will be the home of innovation. Perhaps all Android handsets should come with one open SD on the SE for people to experiment with. Of course, there still has to be a structure for, say, banks to obtain their SDs (you wouldn’t want to share an SD with anyone else, because the SD contains things like security keys).

Talking about Android, that really was the story of the show, I think. (Someone joked that next year they should call it the Android World Congress.) I even know a couple of people who have switched from iPhones to Android, which seems to be a barometer of change!

All in all, the show was a great place to catch up with a whole bunch of friends from around the industry and the exhibition was mildly interesting (to me, I stress, since I don’t really care about adding Facebook buttons to phones and that sort of thing), but satisfactory progress on the inevitable march towards mass-market digital money and victory in the war against cash that has been made winnable by the device formerly known as the mobile phone.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

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.

Barcelona

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It’s that time of year again, so along with many of my peers I went to the GSMA Mobile World Congress in Barcelona, the annual festival for the mobile industry. There were 60,000 people there this year. You can’t not go, even if you don’t look forward to trudging around with 60,000 fellows. At least we had an eventful start to the trip. I bumped into Claire Featherstone from Maxis at the gate and we sat next to each other on the bus chatting. When the bus was almost at the plane, it was clipped by one of those trolleys that carry the baggage containers and the window right next to Claire shattered! When we got on the plane she was a little nervous about sitting next to the window…

MWC is getting to be a bit of a pain, to be honest. It’s just too big, but for a company in our market you just have to go, because that’s where everyone wants to arrange their meetings. Maybe it’s time to split it into two different events and have all of the mobile infrastructure at one event and the mobile software, services and solutions at anotherSince some of our biggest customers are there, we’re there, and that’s all there is to it. Actually, there was an extra factor: the GSMA had kindly invited me to be one of their awards judges — I voted for Colin Firth in the King’s Speech (just joking, I voted in the “Best Mobile Money Product or Solution” category) — so I was there for the awards dinner as well*.

The big news was, of course, the whole Nokia/Microsoft thing. But the news that I was really interested in was the stuff about shaping and control the value network around secure transactions which, in the first instance, means getting decent penetration of NFC handsets and, in the second instance, the war over the secure element (SE). This was a good show for NFC. NFC isn’t new to the show — or to Spain, where Visa has been running a trial in Sitges for a year.

The phone for the Telefónica trials, the Samsung S5230, known as the Star or Player One, is an EDGE handset–not a 3G phone. But Samsung said it is one of the handset maker’s top sellers.

[From New Samsung NFC Phone Gets First Trial in Spain | NFC Times – Near Field Communication and all contactless technology.]

It’s also a Single Wire Protocol (SWP) handset that implements the “GSMA NFC” model where the SE is on the UICC and under the control of the mobile operator, who hopes to rent security domains (SDs) to banks and others. And this is where things were different at the show this year: SWP/UICC isn’t the only game in town any more because of the spread of embedded SEs and removable SEs (eg SD cards).

The NFC interface is all the rage. ZTE said all of their new handsets would be NFC, Nokia had already said that all new smartphones announced in 2011 would be NFC, Blackberry said NFC was central to their strategy, an NFC iPhone is rumoured. Some of these handsets contain their own SEs. For example, the Android Nexus. How many times have I bored people to death on this blog, and at conferences, by complaining that the business side of some organisations (and their management consultants) don’t understand the relationship between nerdy technical decisions being made over the last couple of years and the business models that they enable or constrain? One of the first of the mass-market NFC_enabled handsets, the Google Nexus S, illustrates this rather well. The onboard SE is the widely used SmartMX.

The Nexus S comes with a PN65N from NXP. This chip is a combination of the PN544 NFC controller and an embedded SmartMX secure element.

[From Uncovered: The hidden NFC potential of the Google Nexus S and the Nokia C7 • NFC World]

This means, of course, that anyone with access to the SmartMX embedded SE can run secure applications (eg, credit cards) without going through the operator’s TSM etc. You may even have applications split between the two, so your O2 Money prepaid card is on your UICC (say) whereas your Visa debit card is in the handset. Both of them could be accessed through the same mobile wallet. Note that in order to create and access SDs you need keys — a big part of of our work on other mobile secure applications to go into various handsets (eg, for banks) is working out the key management strategies for these Global Platform (GP)-based SEs — so someone is still in control of the SE (hint: not the operator), but the framework in which you can do this is there.

Here’s what we did next: Download the source (actually from CyanogenMod 7 to have the full build environment for the new Nexus S), make the appropriate changes to the code, recompile everything and put it back into the phone and it works — Nexus S supports card emulation and SWP… Then we developed an Android app which we call “The Secure Element Manager” that gives the user full control over the secure element in the phone as well as the NFC chip.

[From Uncovered: The hidden NFC potential of the Google Nexus S and the Nokia C7 • NFC World]

This is getting so interesting. In the early days of NFC, I wrote once or twice about the need for “open” SDs (that is, SE SDs that are not under the control of the mobile operator) because I suspect they will be the home of innovation. Perhaps all Android handsets should come with one open SD on the SE for people to experiment with. Of course, there still has to be a structure for, say, banks to obtain their SDs (you wouldn’t want to share an SD with anyone else, because the SD contains things like security keys).

Talking about Android, that really was the story of the show, I think. (Someone joked that next year they should call it the Android World Congress.) I even know a couple of people who have switched from iPhones to Android, which seems to be a barometer of change!

All in all, the show was a great place to catch up with a whole bunch of friends from around the industry and the exhibition was mildly interesting (to me, I stress, since I don’t really care about adding Facebook buttons to phones and that sort of thing), but satisfactory progress on the inevitable march towards mass-market digital money and victory in the war against cash** that has been made winnable by the device formerly known as the mobile phone.

* The awards dinner featured: Jonathan Ross, who was less objectionable than I had expected, and entirely unknown to the majority of the audience; a Canadian indie rock band called Metric, who I’d never heard of but were mildly interesting; and the Welsh singer Duffy, who I’d never heard of, and was OK but not really my cup of tea (I’d been listening to Molotov on the subway on the way over). Many thanks to Rory Cellan-Jones from the BBC and Matt Warman of The Daily Telegraph for the company and conversation.

** The war on cash wasn’t going very well in Barcelona. In one of the bars, I saw a chap pay with a €500 note. I was sure it would be refused, but the patron accepted it cheerfully and returned the 480-ish euros in change. Either the customer was a regular or I stumbled across a rather blatant money-laundering operation.

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

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.

Smart meters will need smart identity

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I had an interesting conversation with the CTO of a multi-billion company at the Mobile World Congress in Barcelona. He, like me, felt that something has been going wrong in the world of identity, authentication, credentials and reputation as we try to create electronic versions of physical world legacy constructs instead of starting from a new sets of requirements for the virtual world and working back. He was talking about machines, though, not people.

Robots could soon have an equivalent of the internet and Wikipedia. European scientists have embarked on a project to let robots share and store what they discover about the world. Called RoboEarth it will be a place that robots can upload data to when they master a task, and ask for help in carrying out new ones.

[From� BBC News - Robots to get their own internet]

RoboEarth? No!� Skynet, please. And Skynet needs to share an identity infrastructure with the interweb tubes, because of the rich interaction between personal identity and machine identity that will be integral to future living. The internet of things infrastructure needs an identity of things infrastructure to work properly. Our good friend Rob Bratby from Olswang wrote, accurately, that

The deployment of smart meters is one of the most significant deployments of what is often described as ‘the internet of things’, but its linkage to subscriber accounts and individual homes, and the increasing prevalence of data ‘mash-ups’ (cross-referencing of multiple databases) will require these issues to be thought about in a more sophisticated and nuanced way.

[From� Watching the connectives | A lawyer’s insight into telecoms and technology]

I can confirm from our experiences advising organisations in the smart metering value chain that these issues are certainly not being thought about in either sophisticated or nuanced ways.

“The existing business policies and practices of utilities and third-party smart grid providers may not adequately address the privacy risks created by smart meters and smart appliances,

[From� Grid Regulator: The Internet & Privacy Concerns Will Shape Grid: Cleantech News and Analysis «]

Not my words, the Federal Energy Regulatory Commission in the US. Too right. The lack of an identity infrastructure isn’t just a matter of Facebook data getting into the wrong hands or having to have a different 2FA dongle for each of your bank accounts. It’s a matter of critical infrastructure starting down the wrong path, from which it will be hard to recover after the first Chernobyl of the smart meter age, the first time some kids, or the North Korean government, or a software error at the gas company shuts down all the meters, or publishes all of the meter readings in a Google maps-style mashup so that burglars can find out which houses in a street are empty, or the News of World can get a text alert when a sleb gets home, or whatever.

My CTO friend was, I’m certain, right to suggest that we need to start by working out what we what identity to look like in general and then work out what the subset of that in the physical world needs to look like. If we do start building an EUTIC or a UKTIC to complement NSTIC then I think it should work for smart meters as well as for dumb people.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

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.

How smart?

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I had an interesting conversation with the CTO of a multi-billion company at the Mobile World Congress in Barcelona. He, like me, felt that something has been going wrong in the world of identity, authentication, credentials and reputation as we try to create electronic versions of physical world legacy constructs instead of starting from a new sets of requirements for the virtual world and working back. He was talking about machines, though, not people.

Robots could soon have an equivalent of the internet and Wikipedia. European scientists have embarked on a project to let robots share and store what they discover about the world. Called RoboEarth it will be a place that robots can upload data to when they master a task, and ask for help in carrying out new ones.

[From BBC News - Robots to get their own internet]

RoboEarth? No! Skynet, please. And Skynet needs to share an identity infrastructure with the interweb tubes, because of the rich interaction between personal identity and machine identity that will be integral to future living. The internet of things infrastructure needs an identity of things infrastructure to work properly. Our good friend Rob Bratby from Olswang wrote, accurately, that

The deployment of smart meters is one of the most significant deployments of what is often described as ‘the internet of things’, but its linkage to subscriber accounts and individual homes, and the increasing prevalence of data ‘mash-ups’ (cross-referencing of multiple databases) will require these issues to be thought about in a more sophisticated and nuanced way.

[From Watching the connectives | A lawyer's insight into telecoms and technology]

I can confirm from our experiences advising organisations in the smart metering value chain that these issues are certainly not being thought about in either sophisticated or nuanced ways.

“The existing business policies and practices of utilities and third-party smart grid providers may not adequately address the privacy risks created by smart meters and smart appliances,

[From Grid Regulator: The Internet & Privacy Concerns Will Shape Grid: Cleantech News and Analysis «]

Not my words, the Federal Energy Regulatory Commission in the US. Too right. The lack of an identity infrastructure isn’t just a matter of Facebook data getting into the wrong hands or having to have a different 2FA dongle for each of your bank accounts. It’s a matter of critical infrastructure starting down the wrong path, from which it will be hard to recover after the first Chernobyl of the smart meter age, the first time some kids, or the North Korean government, or a software error at the gas company shuts down all the meters, or publishes all of the meter readings in a Google maps-style mashup so that burglars can find out which houses in a street are empty, or the News of World can get a text alert when a sleb gets home, or whatever.

My CTO friend was, I’m certain, right to suggest that we need to start by working out what we what identity to look like in general and then work out what the subset of that in the physical world needs to look like. If we do start building an EUTIC or a UKTIC to complement NSTIC then I think it should work for smart meters as well as for dumb people.

,

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.

Mobile payments will be huge, whatever the public say

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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 are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

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.

And they vote, too

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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]

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.

Pricing and payment preferences

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When I was checking in to a hotel the other day, I saw a sign on the counter advising that there would be a £2.50 surcharge for paying by credit card. Naturally, I asked the receptionist about the impact of explicit pricing of payment instruments on customer preferences (remember, I do this so you don’t have to). I’m interested in both why retailers do this and what impact it has on their customers.

She told me that it made no difference to business customers, because they aren’t paying the bill and they always pay with credit cards anyway, and many of them pay with corporate credit cards and there are no corporate debit cards. For personal customers, most of them paid by debit card anyway, but the surcharge had pushed even more of them in that direction, to the point where probably four-fifths of personal customers paid with debit cards. Of the remainder, most paid with credit cards but some paid with cash. I thought it would be impolite to enquire further as to whether the cash payers were predominantly drug dealers, prostitutes or (given the location of the hotel) politicians.

Are these results typical? To what extent pricing drives payment choices is uncertain. In some cases (remember the case study of IKEA steering customers to debit in the UK) it clearly does, in other cases—such as my favourite case study of the parking at Woking station, where it costs 40p extra to pay by mobile, and half the customers do it—it doesn’t. In theory, though, there’s nothing wrong with the idea of making the costs explicit and then letting the market choose. Except… A little while back, Deborah Baxley of Capgemini (talking about the US environment) wondered if the appearance of explicit pricing for payment instruments (in itself, a good thing) might lead to a perverse outcome as merchants seek to externalise the cost of payments.

Merchants benefit from lower acceptance costs for debit cards. In a surprising twist, incentives and steering could have the perverse result of driving consumers toward cash and checks.

[From� Changing the Game in Cards - pymnts.com]

I think this is a realistic projection, especially given that merchants don’t care about the costs they impose on the rest of society by driving up the use of cash and because customers simply do not pay the real cost of cash or checks. I would love for this to change, but it’s not going to. It’s reasonable to wonder, in response, whether banks can use EMV, NFC, SMS or some other TLA (three letter acronym) to generate added-value around payment transactions and thus stem the shift to cash. In the case of NFC, I think they probably can. Since NFC is now entering the consumer market, it might be time to firm up on some value-adding plans. This has been clear, I think, for some time.

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)]

But just because the idea has been around for some time, that doesn’t mean that finding genuinely value-adding applications around technologies such as NFC is easy. But I digress: the clear problem is that when you make the pricing of things explicit, then that pricing appears in the first instance to show an increase. Hence the perverse thinking that emerges.

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. I have no idea who they think pays for all of this stuff (hint: you do) but it does make it very difficult to introduce “real” pricing that allows consumers to make informed choices. This real pricing would take offline prepaid debit as the benchmark and then price everything else from there: debit, then probably cash, then credit, then cheques, that sort of thing. Then the consumer preferences would be meaningful.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

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.