Taking the long view, prepaid looks good, largely because of mobile

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[Dave Birch] I was pottering around the British Library’s superb� exhibition on science fiction and, since it is free, felt it only moral and just to stop off in the gift shop and buy a couple of books. Truth be told, there were a hundred books there I wanted to buy, but I decided to limit myself to two, one of them being a copy of Edwin Abbott’s magnificent� Flatland, one of my all-time favourite books, for no.2 son. Browsing on, I was astonished to find a new edition of Edward Bellamy’s “Looking Backward, 2000-1887” from the Oxford University Press. This is dated 2009, so it didn’t exist when I wrote about the book back in 2006.

I’m always curious about the first reference to the credit card in literature. The oldest I’ve found so far is in a long-forgotten text from 1886 called “Looking Backward, 2000-1887” by one Edward Bellamy. I picked up a 1947 edition from the Amazon marketplace, which suggests it must have been reprinted a few times. Indeed, the dust jacket claims it to be one of the best selling utopian fantasies of all time.

[From� Digital Money: 1886 and all that]

In this new version, according to the web site (I haven’t read it yet – will start tonight):

  • The second most successful novel to be published in nineteenth-century America—a book whose thunderous indictment of industrial capitalism and vision of life in a socialist utopia still touches a nerve in the twenty-first century.
  • The introduction offers a highly original reassessment of the novel, exploring the political and psychological peculiarities of this celebrated utopian fiction
  • Uses the second, revised edition text of the novel which made “Looking Backward” a bestseller, and the notes detail significant variations from the first edition.
  • Contains an up-to-date bibliography and chronology of the author’s life

The discovery of this new edition made me think again about just how long it takes to effect change in the conservative world of money. Yet perhaps Bellamy was only a couple of decades out in his predictions of cashlessness, which isn’t bad across a 125-odd span. Public attitudes are changing, even in conservative nations such as our United Kingdom.

Only 31% of people said using notes and coins was their preferred payment method, with 41% saying they would choose to use a card if they could, according to the Payments Council.

[From� The Press Association: Consumers ‘choose cards over cash’]

Personally, I would never use notes and coins again if I had the choice, and it looks as if more and more people are coming to the same conclusion.

It found that while 83% of people aged over 55 would use cash when buying something for up to £3, 12% of under-35s would use a debit card.

[From� The Press Association: Consumers ‘choose cards over cash’]

I’m certainly over 35, but I fall in the later category. I would always used a card, given the option, although I never use a debit card of course. Why anyone would use a debit card when they could use a credit card (except in the face of surcharging, about which more in a later post) I don’t know. But this leads me to conclude that Bellamy may well have been a more accurate soothsayer than anyone suspects. This is because the “credit card” that he describes in the book is actually a pre-authorised offline prepaid card, and these surely are they key cash replacement product de nos jours. In the Federal Reserve Payments Study last year, prepaid was identified as the fastest growing segment.

The Study found that prepaid cards represented the fastest growing payments segment from 2006 to 2009, with an annual growth rate of transactions at 21.5%. By way of comparison, the number of debit card transactions grew at 14.8% and the number of credit card transactions declined by .2% annually over the same time period.

[From� PaymentsJournal - Prepaid Transaction Volume Continues to Grow, Even as the Size of the Transactions Gets Smaller]

I’ve just been exploring some prepaid opportunities with one of our clients, and one of the factors that we were kicking around (not giving any secrets away!) was that prepaid is a way to experiment (provided that not-too-ridiculous KYC/AML/CTF doesn’t derail it) in a way that other products aren’t.

From the consumer side, prepaid allows consumers to test new opportunities and options without risking a lot of money or putting their bank accounts or credit cards on the line.

[From� PaymentsJournal - When It Comes to New Payments Technology, Prepaid Will Lead the Way]

This is a good point, but I feel there’s another factor, at least in Europe. You don’t need to be a bank to offer prepaid services: the combination of an Electronic Money Institution Licence (ELMI) and a Payment Institution Licence (PI) means that any company can offer a full service: an open-loop prepaid card. I suspect that many of the companies applying for these licences are doing so because they want to use new technology to deliver new services that need payment, if you see what I mean. That is, they don’t expect to earn money from the payments themselves, but from the value-added services that need the payments to take place (what people are starting to call the “Google Model”). Hence Bellamy’s vision may be realised not from within the payments industry, but from, say, retail or mobile or brand or somewhere else entirely.

I’ve been using the prepaid contactless MasterCard on my Orange phone for a couple of weeks now—mainly in Pret and McDonalds—and I have to say it works pretty well. I’ve very comfortable with the idea of switching to prepaid, because prepaid on the phone isn’t a pain, it’s easy. When the prepaid balance falls below a certain level, you’re asked to enter your PIN and top up. Simple. Thus while it may be initially hard to imagine prepaid cards replacing cash in retail transactions, the more I use my prepaid “card” in retail transactions, the easier it becomes.

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.

Future tension

by 3 Comments

I was pottering around the British Library’s superb exhibition on science fiction and, since it is free, felt it only moral and just to stop off in the gift shop and buy a couple of books. Truth be told, there were a hundred books there I wanted to buy, but I decided to limit myself to two, one of them being a copy of Edwin Abbott’s magnificent Flatland, one of my all-time favourite books, for no.2 son. Browsing on, I was astonished to find a new edition of Edward Bellamy’s “Looking Backward, 2000-1887” from the Oxford University Press. This is dated 2009, so it didn’t exist when I wrote about the book back in 2006.

I’m always curious about the first reference to the credit card in literature. The oldest I’ve found so far is in a long-forgotten text from 1886 called “Looking Backward, 2000-1887” by one Edward Bellamy. I picked up a 1947 edition from the Amazon marketplace, which suggests it must have been reprinted a few times. Indeed, the dust jacket claims it to be one of the best selling utopian fantasies of all time.

[From Digital Money: 1886 and all that]

In this new version, according to the web site (I haven’t read it yet – will start tonight):

  • The second most successful novel to be published in nineteenth-century America–a book whose thunderous indictment of industrial capitalism and vision of life in a socialist utopia still touches a nerve in the twenty-first century.
  • The introduction offers a highly original reassessment of the novel, exploring the political and psychological peculiarities of this celebrated utopian fiction
  • Uses the second, revised edition text of the novel which made “Looking Backward” a bestseller, and the notes detail significant variations from the first edition.
  • Contains an up-to-date bibliography and chronology of the author’s life

The discovery of this new edition made me think again about just how long it takes to effect change in the conservative world of money. Yet perhaps Bellamy was only a couple of decades out in his predictions of cashlessness, which isn’t bad across a 125-odd span. Public attitudes are changing, even in conservative nations such as our United Kingdom.

Only 31% of people said using notes and coins was their preferred payment method, with 41% saying they would choose to use a card if they could, according to the Payments Council.

[From The Press Association: Consumers 'choose cards over cash']

Personally, I would never use notes and coins again if I had the choice, and it looks as if more and more people are coming to the same conclusion.

It found that while 83% of people aged over 55 would use cash when buying something for up to £3, 12% of under-35s would use a debit card.

[From The Press Association: Consumers 'choose cards over cash']

I’m certainly over 35, but I fall in the later category. I would always used a card, given the option, although I never use a debit card of course. Why anyone would use a debit card when they could use a credit card (except in the face of surcharging, about which more in a later post) I don’t know. But this leads me to conclude that Bellamy may well have been a more accurate soothsayer than anyone suspects. This is because the “credit card” that he describes in the book is actually a pre-authorised offline prepaid card, and these surely are they key cash replacement product de nos jours. In the Federal Reserve Payments Study last year, prepaid was identified as the fastest growing segment.

The Study found that prepaid cards represented the fastest growing payments segment from 2006 to 2009, with an annual growth rate of transactions at 21.5%. By way of comparison, the number of debit card transactions grew at 14.8% and the number of credit card transactions declined by .2% annually over the same time period.

[From PaymentsJournal - Prepaid Transaction Volume Continues to Grow, Even as the Size of the Transactions Gets Smaller]

I’ve just been exploring some prepaid opportunities with one of our clients, and one of the factors that we were kicking around (not giving any secrets away!) was that prepaid is a way to experiment (provided that not-too-ridiculous KYC/AML/CTF doesn’t derail it) in a way that other products aren’t.

From the consumer side, prepaid allows consumers to test new opportunities and options without risking a lot of money or putting their bank accounts or credit cards on the line.

[From PaymentsJournal - When It Comes to New Payments Technology, Prepaid Will Lead the Way]

This is a good point, but I feel there’s another factor, at least in Europe. You don’t need to be a bank to offer prepaid services: the combination of an Electronic Money Institution Licence (ELMI) and a Payment Institution Licence (PI) means that any company can offer a full service: an open-loop prepaid card. I suspect that many of the companies applying for these licences are doing so because they want to use new technology to deliver new services that need payment, if you see what I mean. That is, they don’t expect to earn money from the payments themselves, but from the value-added services that need the payments to take place (what people are starting to call the “Google Model”). Hence Bellamy’s vision may be realised not from within the payments industry, but from, say, retail or mobile or brand or somewhere else entirely.

I’ve been using the prepaid contactless MasterCard on my Orange phone for a couple of weeks now — mainly in Pret and McDonalds — and I have to say it works pretty well. I’ve very comfortable with the idea of switching to prepaid, because prepaid on the phone isn’t a pain, it’s easy. When the prepaid balance falls below a certain level, you’re asked to enter your PIN and top up. Simple. Thus while it may be initially hard to imagine prepaid cards replacing cash in retail transactions, the more I use my prepaid “card” in retail transactions, the easier it becomes.

Naturally, I obtained a spare copy of the new edition of “Looking Backward” and I have it on my desk beside me as I type. I will cheerfully dispatch it post-haste to the first person to respond to this post with the name of the first-person narrator of the story in question. In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and is not connected in any way with the London Olympics 2012. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

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

, , , ,

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.

What should the “mainstream” think about Bitcoin?

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[Dave Birch] Anyone in the e-payment space will not have failed to notice the attention that Bitcoin has been attracting over the last few weeks. I have to say that I was surprised by the interest from journalists—I was even interviewed for the� Wired podcast and for New Scientist—for what is, after all, pretty small potatoes. Thanks to its open and transparent nature, it’s easy to see just how big the Bitcoin economy is. This is how it looked on one of the biggest exchanges on 18th May 2011 when I was talking to a European journalist:

Last Price: 7.285; High:7.98; Low: 6.9799; Volume: 34428

[From� Mt Gox - Bitcoin Exchange]

So that’s a quarter of a million dollars in trades, although you can’t tell how much of that is people shifting bitcoins between their own accounts and how much is new money coming in. That’s not a huge business. Yet in some of the more hysterical reporting—the most dangerous idea ever, etc etc—you’d think that China was switching its reserves from dollars to bitcoins.

Because on Friday, the Bitcoin experienced a rather dramatic drop. In the words of one anonymous commenter: “it looks like it lost 1/3 of its value in the last 24 hours. Lots of big sells, complaints of liquidity, and pissed off nerds.”

[From� FT Alphaville » Bitcoin’s Black Friday]

A couple of weeks later, then, the value has fallen and the first bitcoin heist has been reported.

In the first Bitcoin theft of its size, a user has lost 25,000 BTC — or nearly $487,749 at today’s market rates — to an unknown thief.

[From� Close to US$500k stolen in first major Bitcoin theft - Industry]

As I somewhat uncharitably posted on Twitter, “help I want my anonymous, untraceable digital cash back!”. Now we read that Bitcoin is dead, it’s a scam, it’s a bubble etc etc. So what’s the truth? What strategy, if any, should stakeholders in the e-payments space consider?

The only thing that’s even kept Bitcoin alive this long is its novelty. Either it will remain a novelty forever or it will transition from novelty status to dead faster than you can blink.

[From� The Underground Economist, Why Bitcoin can’t be a currency]

I think it’s more than a novelty. I’d actually started writing something about Bitcoin a while back, when twitter friends pointed me to a paper “Mobile Payment Systems and Services: An Introduction” by Mahil Carr which says that (with no evidence at all to support the assertion) “mobile payments have to be as anonymous as cash transactions” and I’d been involved in a subsequent discussion about whether bitcoin might be suited to this environment. I couldn’t help but observe that cash is the wrong benchmark: it isn’t as anonymous as some people think.

On April 26, a state police trooper was called to the Subway after the owner said one of her employees found three “obviously counterfeit” $20s in the safe. The owner checked the surveillance video and saw one of her employees, the 17-year-old boy, take bills from his pocket and exchange it for money in the cash register… Before exchanging the bills, the employee marked the bills with a counterfeit marking pen, which resulted in a dark brown mark, meaning they were fake.

[From� subway counterfeit money: subway counterfeit money, teens charged with making fake money on computer scanner - mcall.com]

In a world of mobile phones, twitter and CCTV, anonymity is a high bar to set. In the virtual world, however, anonymity can be an implementation choice, should it be a requirement for a payment system. Personally, I don’t think it is. Transactions need to be private, not anonymous, and that means a different set of design principles. In all of my experience, even during my days as an firm proponent of anonymity as a key element of retail transaction schemes, I never saw the slightest demand for this from any of the stakeholders, including consumers. Nevertheless, that doesn’t mean that new technology could not, quite easily, lead to entirely new ways of making payments recognising the fact that the underlying technology has changed beyond all recognition in the previous generation.

Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices.

[From� Cryptography, Law and Privacy Blog: Re: Bitcoin P2P e-cash paper]

Will Bitcoin be the new technology to revolutionise money? To answer that, I have to step back a little. Generally speaking, I think there is a problem with language, because people (I mean normal people, not people like us) never think about what money is or how it works. Sterling (the currency) could continue to exist even if there were no notes printed by the Bank of England or coins produced by the Royal Mint. People could sign contracts for Sterling payments, but those payments would be commuted for execution: when the payment falls due, the counterparties agree on a mechanism for exchange (which might be Dollars in a bank account, Euro bank notes or cowrie shells). Why would they, then, sign a contract in Sterling in the first place? Well, it’s because they expect the currency to serve as a means for deferred payment in that its value in the future is predictable. I’m not saying that this always works well, because currencies are not as stable as might be hoped, but that’s the theory.

Now let’s move on to this specifc implementation. Bitcoin is a decentralised, peer-to-peer means of exchange. If you have a bitcoin, which is just a string of numbers, you can send that bitcoin (or a subdivision of it) to anyone else on the interweb. If you want to understand how Bitcoin works, a good place to start is the original paper on the topic, “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto. I’m no expert on cryptography but there’s no reason I know of to question the basic idea: use a computationally difficult challenge to create strings of bits that it’s hard to make but easy to copy, then use digital signatures for transactions. I get my bitcoin (a string of bits) and then in order to transfer them to you I add a digital signature and send them to you. Every time we do a transactions, we tell (essentially) everybody else that the bits now belong to you. The closest analogy to this is the stone currency of the island of Yap, in the South Pacific. The huge stones that represented money never went anywhere, people just remembered who they belonged to.

Every transfer of ownership is public knowledge, and the physical stone can stay in place.

[From� Quezi » How is Yap stone money similar to Bitcoin?]

Rather like Bitcoin, in some ways. So far so good. But why would people use Bitcoin? There seem to be three key reasons: one is that they want a cheap, irreversible online means of exchange (cash for the 21st century), another is that they want an anonymous means of exchange (coins for the 21st century) and yet another is that they want to use of non-government currency because they don’t trust governments to manage money properly. Let’s have a quick look at each of these.

Frictionless low-value payments

Now, having been involved in a previous attempt to create a global, decentralised, peer-to-peer means of exchange that addressed the first two of these issues,� Mondex, I’m naturally interested to see how Bitcoin develops. I’m frankly sympathetic to many of its goals, because I too believe that a “frictionless” means of exchange for the online world would stimulate a new era of trade, and therefore prosperity. In an essentially frictionless system, where the transfer of value is simply the transfer of bits, the key problem to overcome is that of “double spending”. In other words, if I send you some value (bits), how do you know that I haven’t already sent that value (ie, a copy of those bits) to someone else? There are a number of different approaches.

  • The usual solution is to have a central register.
  • The Mondex solution was to use tamper-resistant hardware (smartcard chips) to store the balances.
  • The Bitcoin solution is to distribute the transaction record across the network (every node knows every transaction), which works provided that the timestamps can be co-ordinated properly (otherwise the nodes wouldn’t know the order of the transactions). When you get a bitcoin, it takes a few minutes before you can spend it again because the network needs to be updated.

Which is best? It’s not really the topic of this post, but I’d say a combination of 1 and 2: a central register plus tamper-resistant hardware so that low-value payments can handled quickly, offline in some environments.

Anonymity

What the general public want is privacy, not anonymity. If I lose my wallet, I want my money back. This is why I always carry prepaid cards when I travel, rather than carrying cash. In fact I’ve just been through the very process of getting my money back because I gave my son a prepaid Euro card to use on a school trip in Spain (a Thomson MasterCard) and he lost it when there were still €70 on the card. No-one else can use that card (they don’t know the PIN and it has no name on it so they can’t pass AVS online) and I am getting the money back. Personally, I think this is closer to the kind of cash that makes sense in the new economy. It’s economically infeasible (although not computationally infeasible) to track and research every payment, but when something goes wrong it can be restored. And if I did use the card for some illegal purpose, the police could get a warrant and Thomson would of course point them to me.

I’m not sure that I want to live in a society where unconditional anonymity exists for payments. I don’t want the bad guys to be able to operate with impunity. But neither do I want every little transaction I make trawled by corporates, the media, the government. The solution has to be payment systems with privacy built-in, so that

Private Currency

This may well be the most contentious area for debate. I am a Hayekian, in that I would prefer to see a system of competing private currencies rather than government monopolies, because I think that sound money is an important base for the economy. But this issue is, to my mind, orthogonal to the other two. You could implement competing private currencies in anonymous, pseudonymous or absonymous (note to pedants: this is a word I made up, that’s why it fails the spell-check, not because I spelt it wrong) ways and you could implement the mechanism for exchange using all sorts of systems. Whether transactions are reversible or not has nothing to do with the currency.

Trajectory

Is Bitcoin a good currency? I suspect not, but I’m not an economist, so I must defer to the experts. The question that most of our clients are interested in is whether Bitcoin will form a niche parallel economy or whether they will scale into the mainstream economy. I have a suspicion that this won’t happen, and that’s because the anonymity that is the attractive feature to the early-adopting bitcoiners is not attractive to the mass market.

The best strategy is to learn, and to think about ways that the cryptography at the heart of Bitcoin can be used to deliver new kinds of services in a connected environment. I don’t think cash will be one of them.

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.

Bitcoins and PCs

by 10 Comments

Anyone in the e-payment space will not have failed to notice the attention that Bitcoin has been attracting over the last few weeks. I have to say that I was surprised by the interest from journalists — I was even interviewed for the Wired podcast and for New Scientist — for what is, after all, pretty small potatoes. Thanks to its open and transparent nature, it’s easy to see just how big the Bitcoin economy is. This is how it looked on one of the biggest exchanges on 18th May 2011 when I was talking to a European journalist:

Last Price: 7.285; High:7.98; Low: 6.9799; Volume: 34428

[From Mt Gox - Bitcoin Exchange]

So that’s a quarter of a million dollars in trades, although you can’t tell how much of that is people shifting bitcoins between their own accounts and how much is new money coming in. That’s not a huge business. Yet in some of the more hysterical reporting — the most dangerous idea ever, etc etc — you’d think that China was switching its reserves from dollars to bitcoins.

Because on Friday, the Bitcoin experienced a rather dramatic drop. In the words of one anonymous commenter: “it looks like it lost 1/3 of its value in the last 24 hours. Lots of big sells, complaints of liquidity, and pissed off nerds.”

[From FT Alphaville » Bitcoin’s Black Friday]

A couple of weeks later, then, the value has fallen and the first bitcoin heist has been reported.

In the first Bitcoin theft of its size, a user has lost 25,000 BTC — or nearly $487,749 at today’s market rates — to an unknown thief.

[From Close to US$500k stolen in first major Bitcoin theft - Industry]

As I somewhat uncharitably posted on Twitter, “help I want my anonymous, untraceable digital cash back!”. Now we read that Bitcoin is dead, it’s a scam, it’s a bubble etc etc. So what’s the truth? What strategy, if any, should stakeholders in the e-payments space consider?

The only thing that’s even kept Bitcoin alive this long is its novelty. Either it will remain a novelty forever or it will transition from novelty status to dead faster than you can blink.

[From The Underground Economist, Why Bitcoin can't be a currency]

I think it’s more than a novelty. I’d actually started writing something about Bitcoin a while back, when twitter friends pointed me to a paper “Mobile Payment Systems and Services: An Introduction” by Mahil Carr which says that (with no evidence at all to support the assertion) “mobile payments have to be as anonymous as cash transactions” and I’d been involved in a subsequent discussion about whether bitcoin might be suited to this environment. I couldn’t help but observe that cash is the wrong benchmark: it isn’t as anonymous as some people think.

On April 26, a state police trooper was called to the Subway after the owner said one of her employees found three “obviously counterfeit” $20s in the safe. The owner checked the surveillance video and saw one of her employees, the 17-year-old boy, take bills from his pocket and exchange it for money in the cash register… Before exchanging the bills, the employee marked the bills with a counterfeit marking pen, which resulted in a dark brown mark, meaning they were fake.

[From subway counterfeit money: subway counterfeit money, teens charged with making fake money on computer scanner - mcall.com]

In a world of mobile phones, twitter and CCTV, anonymity is a high bar to set. In the virtual world, however, anonymity can be an implementation choice, should it be a requirement for a payment system. Personally, I don’t think it is. Transactions need to be private, not anonymous, and that means a different set of design principles. In all of my experience, even during my days as an firm proponent of anonymity as a key element of retail transaction schemes, I never saw the slightest demand for this from any of the stakeholders, including consumers. Nevertheless, that doesn’t mean that new technology could not, quite easily, lead to entirely new ways of making payments recognising the fact that the underlying technology has changed beyond all recognition in the previous generation.

Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices.

[From Cryptography, Law and Privacy Blog: Re: Bitcoin P2P e-cash paper]

Will Bitcoin be the new technology to revolutionise money? To answer that, I have to step back a little. Generally speaking, I think there is a problem with language, because people (I mean normal people, not people like us) never think about what money is or how it works. Sterling (the currency) could continue to exist even if there were no notes printed by the Bank of England or coins produced by the Royal Mint. People could sign contracts for Sterling payments, but those payments would be commuted for execution: when the payment falls due, the counterparties agree on a mechanism for exchange (which might be Dollars in a bank account, Euro bank notes or cowrie shells). Why would they, then, sign a contract in Sterling in the first place? Well, it’s because they expect the currency to serve as a means for deferred payment in that its value in the future is predictable. I’m not saying that this always works well, because currencies are not as stable as might be hoped, but that’s the theory.

Now let’s move on to this specifc implementation. Bitcoin is a decentralised, peer-to-peer means of exchange. If you have a bitcoin, which is just a string of numbers, you can send that bitcoin (or a subdivision of it) to anyone else on the interweb. If you want to understand how Bitcoin works, a good place to start is the original paper on the topic, “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto. I’m no expert on cryptography but there’s no reason I know of to question the basic idea: use a computationally difficult challenge to create strings of bits that it’s hard to make but easy to copy, then use digital signatures for transactions. I get my bitcoin (a string of bits) and then in order to transfer them to you I add a digital signature and send them to you. Every time we do a transactions, we tell (essentially) everybody else that the bits now belong to you. The closest analogy to this is the stone currency of the island of Yap, in the South Pacific. The huge stones that represented money never went anywhere, people just remembered who they belonged to.

Every transfer of ownership is public knowledge, and the physical stone can stay in place.

[From Quezi » How is Yap stone money similar to Bitcoin?]

Rather like Bitcoin, in some ways. So far so good. But why would people use Bitcoin? There seem to be three key reasons: one is that they want a cheap, irreversible online means of exchange (cash for the 21st century), another is that they want an anonymous means of exchange (coins for the 21st century) and yet another is that they want to use of non-government currency because they don’t trust governments to manage money properly. Let’s have a quick look at each of these.

Frictionless low-value payments

Now, having been involved in a previous attempt to create a global, decentralised, peer-to-peer means of exchange that addressed the first two of these issues, Mondex, I’m naturally interested to see how Bitcoin develops. I’m frankly sympathetic to many of its goals, because I too believe that a “frictionless” means of exchange for the online world would stimulate a new era of trade, and therefore prosperity. In an essentially frictionless system, where the transfer of value is simply the transfer of bits, the key problem to overcome is that of “double spending”. In other words, if I send you some value (bits), how do you know that I haven’t already sent that value (ie, a copy of those bits) to someone else? There are a number of different approaches.

  • The usual solution is to have a central register.
  • The Mondex solution was to use tamper-resistant hardware (smartcard chips) to store the balances.
  • The Bitcoin solution is to distribute the transaction record across the network (every node knows every transaction), which works provided that the timestamps can be co-ordinated properly (otherwise the nodes wouldn’t know the order of the transactions). When you get a bitcoin, it takes a few minutes before you can spend it again because the network needs to be updated.

Which is best? It’s not really the topic of this post, but I’d say a combination of 1 and 2: a central register plus tamper-resistant hardware so that low-value payments can handled quickly, offline in some environments.

Anonymity

What the general public want is privacy, not anonymity. If I lose my wallet, I want my money back. This is why I always carry prepaid cards when I travel, rather than carrying cash. In fact I’ve just been through the very process of getting my money back because I gave my son a prepaid Euro card to use on a school trip in Spain (a Thomson MasterCard) and he lost it when there were still €70 on the card. No-one else can use that card (they don’t know the PIN and it has no name on it so they can’t pass AVS online) and I am getting the money back. Personally, I think this is closer to the kind of cash that makes sense in the new economy. It’s economically infeasible (although not computationally infeasible) to track and research every payment, but when something goes wrong it can be restored. And if I did use the card for some illegal purpose, the police could get a warrant and Thomson would of course point them to me.

I’m not sure that I want to live in a society where unconditional anonymity exists for payments. I don’t want the bad guys to be able to operate with impunity. But neither do I want every little transaction I make trawled by corporates, the media, the government. The solution has to be payment systems with privacy built-in, so that privacy is the default and it takes legal process to uncover transaction details.

Private Currency

This may well be the most contentious area for debate. I am a Hayekian, in that I would prefer to see a system of competing private currencies rather than government monopolies, because I think that sound money is an important base for the economy. But this issue is, to my mind, orthogonal to the other two. You could implement competing private currencies in anonymous, pseudonymous or absonymous (note to pedants: this is a word I made up, that’s why it fails the spell-check, not because I spelt it wrong) ways and you could implement the mechanism for exchange using all sorts of systems. Whether transactions are reversible or not has nothing to do with the currency.

Trajectory

Is Bitcoin a good currency? I suspect not, but I’m not an economist, so I must defer to the experts. The question that most of our clients are interested in is whether Bitcoin will form a niche parallel economy or whether they will scale into the mainstream economy. I have a suspicion that this won’t happen, and that’s because the anonymity that is the attractive feature to the early-adopting bitcoiners is not attractive to the mass market.

The best strategy is to learn, and to think about ways that the cryptography at the heart of Bitcoin can be used to deliver new kinds of services in a connected environment. I don’t think cash will be one of them.

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

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.

EMV has arrived in the USA

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[Dave Birch] I just saw an American in a bit of a pickle at Holborn Tube. He was trying to buy a ticket, but the machines won’t take non-chip cards, so he was stuck. His US American Express card was useless. Fortunately he was my brother-in-law, so I bought his ticket with my splendid Barclaycard OnePulse card. This is happening to Americans all the time, and since it happens to the banks’ best customers, they are beginning to respond.

I was pleased to see in the news recently that Chase and Wells Fargo announced the issuance of EMV chip-enabled cards for several of their credit card portfolios.

[From� Portals and Rails]

I notice that at many of the US international airports I’ve been to recently (on a sample of three) you can buy prepaid Sterling and Euro pre-paid chip and PIN cards from the Travelex booths as well. Chase and Wells aren’t the first US EMV issuers.

State Employees’ Credit Union (Secu) is set to be one of the first financial institutions in the US to roll out chip and PIN debit cards to its customers. The non-profit cooperative has enlisted French vendor Oberthur Technologies to help migrate its 1.6 million debit card holders to EMV between March and the end of the year.

[From� Finextra: State Employees’ Credit Union makes EMV move]

The pressure for US migration is growing. As Jamie Henry of Walmart mentioned in his recent Tomorrow’s Transactions podcast, many retailers are asking the banks to go ahead with migration because they think it will reduce their costs dealing with fraud and PCI-DSS. Perhaps the pressure is reaching a critical point of some kind.

Don Rhodes, senior director of risk management policy for the American Bankers Association, says a number of emerging technologies, such as the EMV chip standard, mobile payments and peer-to-peer or person-to-person payments, will soon change the way U.S. financial institutions and merchants connect and transact. And it could all happen in 2011, much sooner than most industry experts expect.

[From� EMV, Mobile and the Payments Landscape]

The kind of things that have been going on with Google and Square and Isis would serve, I think, to reinforce that the trend is accelerating. The fact that some of the trailblazers (eg, Bling Nation) have found it heavy going doesn’t mean anything about the overall trend (the weather isn’t the climate, as they say). I saw in a Mercator Advisory Group press release that they are saying that

Merchants are advised to “spend the $10” for EMV capable terminals now in anticipation of an eventual EMV roll-out.

[From� EMV in the USA: Waiting on Debit, a Mandate, or Just the Opportune Moment]

They were anticipating an early 2011 start for the EMV roll-out, which is exactly what appears to have happened, albeit still on a limited scale. Elsewhere, the chip and PIN bandwagon rolls on inexorably.

Due to an increasing number of transaction fraud worldwide, more and more countries are shifting from the stripe card standard to the EMV standard, which substantially enhances transaction security and operation efficiency. Now some major Chinese commercial banks are to join the trend, planning to issue their chip band cards by the middle of the year.

[From� Banks in China to Launch Chip Cards]

Perhaps in the Americas it will take political leadership to enable to the final push towards EMV, a President with real vision and a commitment to the well-being of his nation.

President Chavez has mandated that the country move to EMV chip cards later this year which should stop this type of fraud

[From� Chavez figures out how to stop cross border fraud]

Well, if only President Obama shared the wisdom, vision and economic genius of the noted revolutionary leader Hugo Chavez! So Viva El Presidente and down with the reactionary and counter-revolutionary Yankee magnetic stripe hegemony imposed by the running dog lackeys of imperialist aggression.

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.

Viva El Presidente!

by Leave a Comment

[Dave Birch] I just saw an American in a bit of a pickle at Holborn Tube. He was trying to buy a ticket, but the machines won’t take non-chip cards, so he was stuck. His US American Express card was useless. Fortunately he was my brother-in-law, so I bought his ticket with my splendid Barclaycard OnePulse card. This is happening to Americans all the time, and since it happens to the banks’ best customers, they are beginning to respond.

I was pleased to see in the news recently that Chase and Wells Fargo announced the issuance of EMV chip-enabled cards for several of their credit card portfolios.

[From Portals and Rails]

I notice that at many of the US international airports I’ve been to recently (on a sample of three) you can buy prepaid Sterling and Euro pre-paid chip and PIN cards from the Travelex booths as well. Chase and Wells aren’t the first US EMV issuers.

State Employees’ Credit Union (Secu) is set to be one of the first financial institutions in the US to roll out chip and PIN debit cards to its customers. The non-profit cooperative has enlisted French vendor Oberthur Technologies to help migrate its 1.6 million debit card holders to EMV between March and the end of the year.

[From Finextra: State Employees' Credit Union makes EMV move]

The pressure for US migration is growing. As Jamie Henry of Walmart mentioned in his recent Tomorrow’s Transactions podcast, many retailers are asking the banks to go ahead with migration because they think it will reduce their costs dealing with fraud and PCI-DSS. Perhaps the pressure is reaching a critical point of some kind.

Don Rhodes, senior director of risk management policy for the American Bankers Association, says a number of emerging technologies, such as the EMV chip standard, mobile payments and peer-to-peer or person-to-person payments, will soon change the way U.S. financial institutions and merchants connect and transact. And it could all happen in 2011, much sooner than most industry experts expect.

[From EMV, Mobile and the Payments Landscape]

The kind of things that have been going on with Google and Square and Isis would serve, I think, to reinforce that the trend is accelerating. The fact that some of the trailblazers (eg, Bling Nation) have found it heavy going doesn’t mean anything about the overall trend (the weather isn’t the climate, as they say). I saw in a Mercator Advisory Group press release that they are saying that

Merchants are advised to “spend the $10″ for EMV capable terminals now in anticipation of an eventual EMV roll-out.

[From EMV in the USA: Waiting on Debit, a Mandate, or Just the Opportune Moment]

They were anticipating an early 2011 start for the EMV roll-out, which is exactly what appears to have happened, albeit still on a limited scale. Elsewhere, the chip and PIN bandwagon rolls on inexorably.

Due to an increasing number of transaction fraud worldwide, more and more countries are shifting from the stripe card standard to the EMV standard, which substantially enhances transaction security and operation efficiency. Now some major Chinese commercial banks are to join the trend, planning to issue their chip band cards by the middle of the year.

[From Banks in China to Launch Chip Cards]

Perhaps in the Americas it will take political leadership to enable to the final push towards EMV, a President with real vision and a commitment to the well-being of his nation.

President Chavez has mandated that the country move to EMV chip cards later this year which should stop this type of fraud

[From Chavez figures out how to stop cross border fraud]

Well, if only President Obama shared the wisdom, vision and economic genius of the noted revolutionary leader Hugo Chavez! So Viva El Presidente and down with the reactionary and counter-revolutionary Yankee magnetic stripe hegemony imposed by the running dog lackeys of imperialist aggression.

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.

Will banks and operators be able to work together more effectively in the future?

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[Dave Birch] A few days ago I was at Experian’s annual� Payment Strategies conference, where I had been kindly invited to provide a closing keynote. In it, I made a few predictions about the next phase of evolution of the European payments business, and in passing I mentioned that I felt that some progress had been slow.

Birch lambasted traditional banks and payments providers for their failure to grasp the nature of the opportunities presented by mobile technologies, which has led them to miss the boat. “I’m almost embarrassed to stand before you and say that I thought that banks and mobile operators could work together,” he told the conference. “It was a stupid fantasy for which I apologise.”

[From� Identity is the next big thing for payments | Banking Technology magazine]

This isn’t a new rant, but a considered opinion. In fact, I wrote about this last year, round about the time I made some similar remarks at an event at the GSMA, reflecting the fact that I think that mobile operators should have been quicker in to the NFC space and with more open models, and that I think banks should have been quicker to develop and implement mobile approaches other than “windows on to the web” or “cut down ATM” solutions.

All of my experience over the last few years has served to reinforce my opinion from those ancient times that it’s much harder for banks and operators to work together than either of them might think. So perhaps this part of the [Booz Allen Hamilton] 2001 vision for 2010 may never become reality

[From� Digital Money: Let’s put the future behind us]

The reference to Booz Allen Hamilton, a management consultancy, is because the post was discussing a magazine article by them from a decade ago:  ”Why banks and telecoms must merge to surge” from the Booz Allen Hamilton� strategy+business magazine that I’d filed away back in 2001. I took some comfort from it, because it meant that I wasn’t the only one who had expected banks and operators to get together, but I was commenting on the cultural factors that meant that it had proved very difficult for them to co-operate effectively.

This has meant that it has taken longer for the infrastructure to develop than he’d predicted, but more importantly, banks are still missing out: only recently, banks in the US had told him that there is no business case for subsidising the installation of contactless readers in retail premises, just as Google was announcing that it will.

[From� Identity is the next big thing for payments | Banking Technology magazine]

It is absolutely true that I (as well as number of other consultants) were at an event with US banks earlier in the year where this opinion was expressed. But there was nothing special about it: the banks had said exactly the same thing in public to retailers.

Representatives of three of the country’s largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the� Merchant Advisory Group… to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry. “You know what they (banks) told us? There’s just not a business case right now,” Dodd Roberts, head of the merchant group, said last week

[From� Digital Money: Inception]

But back to the 2001 article, which agreed with me about one particular strategic element. That is, that while banks had have a strong hold over payment systems, mobile network operators would be challengers.

Today, banks are at another competitive crossroads. This time the new contenders in financial services are telephone companies, specifically wireless telecoms.

[From� Why Banks and Telecoms Must Merge to Surge]

The Booz Allen Hamilton article finishes up by saying that it would be logical for “mega players” such as Vodafone and Citi to combine. This hasn’t happened and I can’t help but observe that Vodafone’s most successful mobile payment service, in fact, probably the world’s most successful mobile payment service, M-PESA, doesn’t involve banks at all except as a secure repositories of funds.

So why did my comments about banks and operators working together sound so harsh? It’s because we (Consult Hyperion) have been involved in a number of projects, going all the way back to the Orange/NatWest joint venture, and so have seen at first hand what works and what doesn’t in these relationships. And, yes, things are improving: but it may well be the case that having let a couple of years evolution slip away, the idea of the bank/operator partnership as the central organising principle for mobile payments is over. European operators have started to apply for their own Payment Institution licences, while I expect banks to focus more on developing value-adding services for the retailers and consumers and less on the “bare” retail payments (where the downward pressure on transactional fee income will continue).

Incidentally, I wonder if both the banks and the mobile operators held back because they’d been listening to their customers? If you had done a survey of consumers asking them if they wanted an iPod, the day before hte iPod had been invented, you would never have launched it.

in an interview with the Daily Telegraph in February 2005. The founder of Amstrad said: “Next Christmas the iPod will be dead, finished, gone, kaput.”

[From� Bill Gates and Sir Alan Sugar made some of worse technology predictions of all time - Telegraph]

Predictions are difficult, as the saying goes, especially ones about the future. Of course, you do have to understand what it is that you are predicting, and in many cases people don’t really understand the proper context. This is why I read surveys like these with a raised eyebrow.

Just One-in-Five Brits Currently Interested in Paying by Mobile Phone

[From� Just One-in-Five Brits Currently Interested in Paying by Mobile Phone]

Now this might be interesting news if I cared what the public think about anything (I don’t), but I wonder if it’s the sort of thing that causes mass market players to slow down? It caught my eye because it tallies with the revealed consumer preferences of Japanese consumers, where mobile proximity payments are mainstream. Indeed, only around one in five or six people in Japan use their proximity handsets for payments. But then only one in five or six people here pay for things using credit cards (debit cards dominate in Europe) and that’s still a business. The headline intends to be negative, but what it says to me is that the potential for mobile payments is such that ten million people could be using them in the UK in the not-too-distant future, if banks and operators (or someone else?) can come up with the right proposition.

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.

Harsh, but fair

by Leave a Comment

[Dave Birch] A few days ago I was at Experian’s annual Payment Strategies conference, where I had been kindly invited to provide a closing keynote. In it, I made a few predictions about the next phase of evolution of the European payments business, and in passing I mentioned that I felt that some progress had been slow.

Birch lambasted traditional banks and payments providers for their failure to grasp the nature of the opportunities presented by mobile technologies, which has led them to miss the boat. “I’m almost embarrassed to stand before you and say that I thought that banks and mobile operators could work together,” he told the conference. “It was a stupid fantasy for which I apologise.”

[From Identity is the next big thing for payments | Banking Technology magazine]

This isn’t a new rant, but a considered opinion. In fact, I wrote about this last year, round about the time I made some similar remarks at an event at the GSMA, reflecting the fact that I think that mobile operators should have been quicker in to the NFC space and with more open models, and that I think banks should have been quicker to develop and implement mobile approaches other than “windows on to the web” or “cut down ATM” solutions.

All of my experience over the last few years has served to reinforce my opinion from those ancient times that it’s much harder for banks and operators to work together than either of them might think. So perhaps this part of the [Booz Allen Hamilton] 2001 vision for 2010 may never become reality

[From Digital Money: Let's put the future behind us]

The reference to Booz Allen Hamilton, a management consultancy, is because the post was discussing a magazine article by them from a decade ago:  “Why banks and telecoms must merge to surge” from the Booz Allen Hamilton strategy+business magazine that I’d filed away back in 2001. I took some comfort from it, because it meant that I wasn’t the only one who had expected banks and operators to get together, but I was commenting on the cultural factors that meant that it had proved very difficult for them to co-operate effectively.

This has meant that it has taken longer for the infrastructure to develop than he’d predicted, but more importantly, banks are still missing out: only recently, banks in the US had told him that there is no business case for subsidising the installation of contactless readers in retail premises, just as Google was announcing that it will.

[From Identity is the next big thing for payments | Banking Technology magazine]

It is absolutely true that I (as well as number of other consultants) were at an event with US banks earlier in the year where this opinion was expressed. But there was nothing special about it: the banks had said exactly the same thing in public to retailers.

Representatives of three of the country’s largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group… to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry. “You know what they (banks) told us? There’s just not a business case right now,” Dodd Roberts, head of the merchant group, said last week

[From Digital Money: Inception]

But back to the 2001 article, which agreed with me about one particular strategic element. That is, that while banks had have a strong hold over payment systems, mobile network operators would be challengers.

Today, banks are at another competitive crossroads. This time the new contenders in financial services are telephone companies, specifically wireless telecoms.

[From Why Banks and Telecoms Must Merge to Surge]

The Booz Allen Hamilton article finishes up by saying that it would be logical for “mega players” such as Vodafone and Citi to combine. This hasn’t happened and I can’t help but observe that Vodafone’s most successful mobile payment service, in fact, probably the world’s most successful mobile payment service, M-PESA, doesn’t involve banks at all except as a secure repositories of funds.

So why did my comments about banks and operators working together sound so harsh? It’s because we (Consult Hyperion) have been involved in a number of projects, going all the way back to the Orange/NatWest joint venture, and so have seen at first hand what works and what doesn’t in these relationships. And, yes, things are improving: but it may well be the case that having let a couple of years evolution slip away, the idea of the bank/operator partnership as the central organising principle for mobile payments is over. European operators have started to apply for their own Payment Institution licences, while I expect banks to focus more on developing value-adding services for the retailers and consumers and less on the “bare” retail payments (where the downward pressure on transactional fee income will continue).

Incidentally, I wonder if both the banks and the mobile operators held back because they’d been listening to their customers? If you had done a survey of consumers asking them if they wanted an iPod, the day before hte iPod had been invented, you would never have launched it.

in an interview with the Daily Telegraph in February 2005. The founder of Amstrad said: “Next Christmas the iPod will be dead, finished, gone, kaput.”

[From Bill Gates and Sir Alan Sugar made some of worse technology predictions of all time - Telegraph]

Predictions are difficult, as the saying goes, especially ones about the future. Of course, you do have to understand what it is that you are predicting, and in many cases people don’t really understand the proper context. This is why I read surveys like these with a raised eyebrow.

Just One-in-Five Brits Currently Interested in Paying by Mobile Phone

[From Just One-in-Five Brits Currently Interested in Paying by Mobile Phone]

Now this might be interesting news if I cared what the public think about anything (I don’t), but I wonder if it’s the sort of thing that causes mass market players to slow down? It caught my eye because it tallies with the revealed consumer preferences of Japanese consumers, where mobile proximity payments are mainstream. Indeed, only around one in five or six people in Japan use their proximity handsets for payments. But then only one in five or six people here pay for things using credit cards (debit cards dominate in Europe) and that’s still a business. The headline intends to be negative, but what it says to me is that the potential for mobile payments is such that ten million people could be using them in the UK in the not-too-distant future, if banks and operators (or someone else?) can come up with the right proposition.

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

[Read more...]

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.

I’m certainly me

by 1 Comment

[Neil McEvoy] I’ve been at the EEMA e-Identity conference in Tallinn, Estonia. I’ve heard a lot of people say that relying parties need to know the ‘level of assurance’ that can be ascribed to someone’s claimed identity, or in some attribute associated with an identity. A somewhat stronger version of this that I’ve also heard is that they must know the ‘probability’ that a claimed identity (or attribute) is correct.

This leaves me perplexed. If I see a die that looks like a regular cube, I can postulate that there is a one in six probability that if I throw it once I will get a six. I have implicitly assumed a couple of things; that my vision is sufficiently acute to spot any irregularity in its shape, and that the die is of an even density (strictly speaking, that the distribution of mass has cubic symmetry). I can test my proposition by throwing the die (say) 96 times. If I get roughly 16 of each number, my confidence will be increased (in a way which can be quantified) that it is a true die and that my initial postulation is correct. The points here are that:

  • my assertion on the probability rests on a limited number of assumptions
  • it can be tested
  • the more tests I do, the more confidence I can have
  • the past is a reliable guide to the future.

None of these are the case when trying to assess the veracity of a claim to a certain identity. If you receive a bundle of bits that encodes ‘Neil McEvoy’ (with some ancillary bits that indicate that some process, designed to validate the claim to my identity, has occurred), you cannot know the probability that I caused that bundle to reach you. I either did or I didn’t; but the number of ways in which I might not have is not known to you—or anyone.  Neither would you generally be in a position to repeat the process a hundred times and check the number of times that it is me or isn’t me. And, even if you could, there is no way that you can be sure that the past experience is a reliable guide to the future.

If we want an analogy with a die, it is that you receive some bits from me that purport to represent one throw of one die. Now, a die may not have been thrown—I could have made it up. It may have been thrown and I reported the wrong number, by accident or design; someone may have told me to type ‘6’ while holding a gun to my head; someone may have tricked me by handing me a die with two sixes and no ones; someone may have stolen the credentials I use to ‘prove’ that I entered a report; someone may have broken the cryptographic algorithm used to sign the transmission; or, for that matter, some Rumsfeldian ‘unknown unknown’ may have occurred. I think it is pretty clear that the probability that a report reaching you is truthful cannot be calculated, nor divined by any experiment.

So what should a relying party want? Clearly, not to be told by a provider that they can provide electronic identities that are 99.9% truthful, for such a person is a fool or a knave. By all means, he should expect the provider to have confidence in his service; but that is worth nothing unless he puts his money where his mouth is. The provider who accepts liability and has the balance sheet or the insurance to meet any losses that might ensue from your reliance on a false claim, that they have endorsed, is the only one that is worthy of your business. They will have every incentive to employ cost-effective business processes and technical measures that will limit the necessity for meeting claims.

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.

Can we learn anything from the early use of contactless cards?

by Leave a Comment

The results from the first couple of years of contactless payments use in the UK show that, as expected, contactless is being used as cash replacement for small transactions.

The average value of a contactless transaction is only £4.93.

[From� Tap-and-go is on the move to a shop near you | Mail Online]

It’s not always used simply because of the convenience, as one commentator noted in the comments on this story:

I have swtiched to using the contactless payment method to purchase sandwiches at shops such as Pret A Manger and Eat mainly because I am fed up with them ofloading their fake pound coins on me in their change

[From� Tap-and-go is on the move to a shop near you | Mail Online]

Bizarrely, I was thinking about this the other day. I parked in Derby, which is in the midlands and when I returned to the car the local council wanted to charge me £11.20. In some kind of hommage to Derby’s past, the machine didn’t take cards or mobile payments, so we were reduced to emptying out our pockets, rummaging in the glove compartment and searching the floor of the car for change. Fortunately, my fellows had plenty of pocket change. But when we started feeding it into the machine, four out of the ten £1 coins we had amassed were repeatedly rejected, presumably because they were fake. I’d never really thought that the avoidance of fake currency would be part of the retailer’s business case, but I need to revise my opinion!

But what is the business case? Is it just about payments? For some kinds of retailers, the convenience of contactless payments makes sense only when it is also part of some bigger model, generally involving value-added propositions such as loyalty. The was recognised by Bling Nation, when they decided to refocus on the loyalty side of things…

John Paul Coupa of Coupa Café has the system in all three of his northern California locations. “It gets used a lot,” says Coupa, “(even) more than American Express.” Coupa recently implemented the FanConnect system.

[From� ContactlessNews | Contactless payment scheme enables loyalty via Facebook]

In Northern California, then, things look good. But on the other side of the country, on the apparently more conservative east cost, the results were quite different.

Other merchants have not enjoyed the same level of success. Charles Savas, president of Center Beverage in Stoneham, Mass., got rid of the system after just three months. “They were going to charge me $40 a month,” he says, “and I only had $35 in sales for the first three months.”

[From� ContactlessNews | Contactless payment scheme enables loyalty via Facebook]

A mixed picture. But does any of this early experience matter? If contactless is important only as the rails for mobile to run on, then the early feedback from the contactless card deployments doesn’t really matter. It doesn’t tell us anything about the mobile future, does it?

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.