It is interesting to speculate on what will happen to the value chain when the euro-API is in place. Will the European Commission create a vigorous and dynamic financial services world, or replace its bogeymen (Visa and MasterCard) with bugaboos (Facebook and Google)?

The wonderful people at ECN invited me to Berlin to give the keynote at their Mobile Payments Innovation Opportunity and Risk conference. My presentation is up on Slideshare if you want to take a look, but I can tell you right now that it wasn’t the best presentation at the conference. That was made by Olivier Halluitte from Chappuis Halder & Cie, who gave a super overview of the new digital bank experience, delivered a fascinating case study around AXA’s “mobile first” bank Soon and handed out some insightful ideas around the model for services going forward. I’ll paraphrase what he said by saying that he saw the implementation of banking functions being hidden and accessed through an identity layer created and owned by Facebook, Apple, Google and such like. He is not alone in seeing a future role for banks as an API that delivers financial services. According to Perficient, and I’ve got no reason to disagree with them, this kind of “Connected Banking” is one of the top five trends in the financial technology world at the moment.

The use of APIs and integration to diversify and advance product offerings is the future of financial services. Innovators at some of the well-established financial institutions are extending access to banking services for developers and partners in today’s digital economy to deliver new products and services in the marketplace, personalize experiences, add new mobile services and protect people’s privacy through authentication.

[From Top 5 Financial Services Technology Trends – March 2014 | Perficient Financial Services Blog]

There is a danger that this “connected banking” model turns into a sort of “dumb pipe” model of banking, perhaps as is envisaged by the European Commission in their consultations around regulated third-party access to bank accounts (as discussed in part one of this API Blast). This was covered later in the day but our old friend Jean Allix from the Directorate GeneralCompetition (DGComp) and his colleague Philippe Pelle from Directorate General Internal Market (DGInt). Ulf Geismar from Edgar Dunn also referred to the “coming wave of regulation” and explained about the opportunities for new entrants to come into the payment space to compete in a fair playing field.

Here I am lobbying Jean Allix on your behalf.

I couldn’t resist asking, though, whether it really will be a fair playing field. Going back to the Olivier’s presentation, if the banks are essentially condemned to a future as utility pipes that are mandated to provide a “euro-API” for third parties (as discussed in part 2 of this API Blast), including the “OTTs” who have the relationship with the customer (and all the value-added services and profits) then they better have some plans to become operationally-efficient pipes otherwise they will be accumulated and agglomerated.

Naturally, this leads me to speculate what this will mean specifically for payments. If anyone can initiate payments through the API then won’t the fascist nature of monopoly capitalism shape the new business environment? How is opening up the market to competition going to help if the market is then dominated by (e.g.) Facebook and Apple instead of Visa and MasterCard? This cannot be what the Commission intends, but I am curious to know what other outcomes people are imagining. It could be that retailers and service providers take the initiative themselves and access bank account directly, for example.

I’m sure this won’t happen, of course, because I imagine that Visa and MasterCard are right now developing strategies for new push products that will sit on the euro-API and make it easy for merchants to accept new, lost-cost, hard-token, debit-lite payments.

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.

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In time, banks are going to be “Amazonised” and will open their APIs both internally and externally. So what should the focus of the API be? The customer, maybe, rather than their money.

A couple of years ago at the Intellect/Payments Council conference, I gave a talk that touched on the “triple A play” strategy of Authentication, Apps and Application Programming Interfaces (APIs) for payment providers and I said that for most people, most of the time, there will be no “payment experience” because the payments will vanish into the apps. David Marcus, who was then President of PayPal, said the same.

I believe we’re heading very quickly toward a new era in which payments will essentially disappear.

[From State of Payments: Reinventing Money | LinkedIn]

I referred back to this to kick off my talk at the excellent MEETS 2014 conference in Frankfurt. This is the annual event from Sylvia Lukas’ PayComm organisation and my once per year opportunity to catch up payment industry friends from northern, central and eastern Europe. It was as educational, enjoyable and entertaining as always, and for me particularly stimulating this year because of the opportunity to sit in on discussions with banks, schemes, processors and acquirers all developing strategies in response to some significant shifts about to occur in our industry, many of them centred around impending regulatory change. One specific category of interest and importance to our clients is that of the API in banking.

My reason for referring back to my prediction about payments vanishing was to stress the API as the mechanism for it to occur but then to build on this point to consider the impact of API-centric strategies throughout the payments value chain. It was lucky I’d decided to emphasise the “Amazonisation “of the payments industry in my talk, because the best talk of the event, which was Michael Salmony’s (from Equens) opening piece on APIs on the second day, came to similar conclusions from a less technical direction. Michael, as an aside, had the best slide of the entire event, and it wasn’t (directly) to do with payments, but was a comment on European standardisation efforts and how they work out in practice!

I must stress that this focus on APIs is not new. It’s been clear for some time that this is way forward. I remember from a study on APIs that Consult Hyperion carried out last year for one of our US financial services customers that API-centric strategies make sense – because it’s a platform game – whether banks are forced to provide them by the regulators or not.

Moyer cites some banks that are already opening up public APIs, like French banks Crédit Agricole and AXA Bank, and others that have announced plans to do so, like Commonwealth Bank of Australia, ING and Capital One. Overall, she believes there is a growing understanding in the sector of the need for transformation. “I think most banks will provide a public API in the next two years,” she says.

[From Interview: Banks must focus on APIs and apps, not applications – Gartner analyst - Ireland’s CIO and strategy news and reports service – Siliconrepublic.com]

Now, after Michael’s excellent talk on the topic, he ran one of the workshop sessions and I was able to join in a fascinating and detailed conversation about the emerging European environment that I commented on in part one of this API Blast series of posts.

The EBA (European Banking Authority) is given the task to develop, in close collaboration with the ECB, ‘common and secure open standards of communication’ (incl. specs for data transmission and how TPPs are to authenticate themselves vis-à-vis AS PSPs). These standards will need a high level of detail and quality (testing) in order to make them usable.

[From Access to the Account (XS2A): accelerating the API-economy for banks? | Innopay]

I did ask a couple of people what the process for the EBA to develop this API is and what input they are seeking from different stakeholders, but I wasn’t able to obtain sufficient clarity to be able to report. Perhaps a correspondent might be able to point me in the right direction?

Anyway, at the workshop session I was in, the delegates were discussing trends in retail payments and they used an interesting classification to drive the debate, exploring how retail payments are changing in all of these areas.

It’s not the point of this blog to report the discussions, but I will say that as far as I could tell most of the European banks at the event seemed to agree with Michael’s point about the importance of developing a strategy around APIs, given the inevitability of the regulatory mandate. There are many aspects to this strategy and, as Craig Burton has said about this, many organisations will have to develop entirely new competencies in order to participate in API-based competition.

I think the biggest change is in the area of token and key management. If an organization wants to make sure that its API(s) are not being abused, well managed keys and tokens are essential. Managing developer’s with keys is probably not something most organizations have ever done.

[From 1 Raindrop: Security > 140]

A final point with respect to opportunities for banks. There is another way of looking at the strategy around APIs: not centred on payments, but centred on identity. Suppose the bank stored your personal information (rather as was suggested by the SWIFT Innotribe in their work on the digital asset grid, or DAG). Then the API would allow third-parties (and these could be a wide range of organisations, not only PSPSs) controlled access to support recognition, relationships and reputation transactions, reducing the overall costs to the stakeholders while giving the the customer control over their own data via their bank. Could the bank be the ideal partner to implement what Greg Meyer calls “The API of Me”:

I believe that we as consumers have a right to control the data we share about and between the services and products we use, and that the economic benefit of using and sharing that information by companies should be more transparent. “The API of Me” is the name I’d like to propose for a system of capturing, sharing, and limiting information about consumers

[From The API of Me « Information Maven: Greg Meyer]

As I said at the Wired Money event, perhaps the role of the bank in the future will change from being a place where you store your money (who keeps their money in a bank these days?) to being a place where you store your identity (surely you’d want to store it with a regulated organisation?).

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.

The post API Blast part 2: ECB, EBA and DAG appeared first on Tomorrow's Transactions.

It’s important to understand why APIs are so strategically important, not only in the payment space but in the financial sector as a whole. I thought I’d put together a few posts on the European banking API environment because it is rather dynamic at the time of writing. So here we go!

The organisers of the International Payment Summit 2014 decided to take a little bit of a risk by turning over half of the Day One program to Consult Hyperion for a Future of Money Unconference to explore the subject in an interactive and (hopefully) fun way. So we set off for the Hilton Tower Bridge bright and early on April Fools’ Day to test the theory.

As you might have expected, mobile phones and social media were the main technologies that the delegates were discussing and I did learn a lot about different kinds of financial services organisations varying approaches and attitudes, but personally the area of discussion I found most engrossing was around third-party access to bank accounts, the so-called “XS2A” consultation. This is rather a hot topic in Europe because of the European Commission consultations underway in this and related areas.

Forum friend Thaer Sabri, the CEO of the EMA, gave a super presentation on “PSD and third-party access to accounts” that provided a valuable update on the situation. He began by pointing out that the European regulatory landscape, over the last decade or so, hasn’t been too constraining and has allowed a reasonable Payment Service Provider (PSP) marketplace to develop and went on to explain how what he called the Technology Service Providers (TSPs) would be developing in the future as well. In the new Payment Services Directive (PSD), PSP’s will be divided into two categories, as I’ve written before, so that there will be the Account-Servicing PSP’s (ASPs) and the Third-Party PSPs (TPPs). The TPPs come in two flavours: Payment Initiation PSP’s (PIPs, that might be someone like Nutmeg) and Account Information PSP’s (AIPs, that might someone like Mint).

Thaer went on to talk about some of the additional provisions: that ASPs will be compelled to provide information on funds availability; that PSPs will have to provide a common API under the auspices of the European Banking Association (EBA) – and we’ll be coming back to this “euro-API” in future posts; and that new payment instruments (e.g., decoupled debit) will allow third parties to create payment products on top of that API.

There are of course a great many unanswered questions about the legislation, as there always are with this sort of thing, and the answers will shape some aspects of the business model. For example: are end-user contracts sufficient or will TPPs be required to have contracts with banks? And the obvious question of where liability rests in the event of unauthorised transfers, which is the sort of thing will need to be sorted out before any of this can go anywhere near consumers. Thaer did the audience (and me) a great favour by sketching out some of the likely business impact of these changes and pointed out something that I think is likely to require some significant thoughts on behalf of participants: what is going to happen when bank apps can use the euro-API to access the bank accounts of competitor banks?

He was kind enough to stay in joining the discussions on the “regulators table” (several people had put regulatory questions on their post-it notes for discussion even before he had started talking so we set aside a whole table just for this) and I’m sure everybody will join me in thanking him for his time.

This is the sort of thing that makes unconferences rock, and one of the reasons why I love them so much. I look forward to seeing all of you at our next unconference, which is the 3rd CHYP/NYPAY Tomorrow’s Transaction Unconference at Google in New York on Monday 22nd September where you’ll be able to get round the table with some of the leading thinkers in the FinTech space, including Brett King from Moven and Matt Harris from Bain Capital Ventures. Oh, and I’ll be there too, conference bombing them.

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.

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The middle class don’t think that paying their builder or nanny or gardener in cash is a crime. But it is. And, just for the record, I pay mine using FPS. We need to change this attitude to start the revolution.

Remember the interesting discussions a while back concerning the use of cash in informal economies world wide? I have speculated at a couple of recent events, including at the enjoyable Wired Money in London in July, that this “cash gap” can no longer be tolerated in developed countries and ought to lead to government policies that boost the electronic payments sector. Now I read in Prospect magazine — H. McRae. “Make your own work” in Prospect (Jun. 2014) — that Morgan Stanley estimate the UK economy might be around four percent larger than the official GDP per work statistics indicate because of this informal economy. Apparently, the increase in the VAT rate to 20% seems to be correlated with a jump in the amount of cash in circulation, as cash-in-hand becomes the norm even amongst the normally law-abiding middle class. The number of us PAYE wage-slaves is decreasing as more people become self-employed (at some point in the next few years, the number of self-employed people in the UK will exceed the number of government employees) and this has major implications for fiscal policy.

Which means, despite the fact that the use of currency in the legal economy is dwindling due to advances in cashless payments, the world still remains hopelessly addicted to cash for black economy reasons.

[From Rogoff on negative rates, paper currency and Bitcoin | FT Alphaville]

How much longer can cash be tolerated? As the burden of taxation falls squarely on the backs of those of us honest enough (or dim-witted enough) to pay electronically, and as that burden will increase disproportionately as the informal economy grows, when are we going to storm the note-issuing department of the Bank of England shouting “I’m mad as hell, and I’m not going to take it any more’ ?!

“CASH”, wrote Marcus Felson, an eminent American criminologist, “is the mother’s milk of crime.”

[From Cash and crime: Less coin to purloin | The Economist]

I suppose the average middle-class reader doesn’t regard actively conspiring with their builder to defraud the authorities and raise my tax burden to be a crime, but it is. And the scale of the crime is enormous.

For the government, the annual value of under-reported taxes in the United States is $400 billion to $600 billion. According to the national taxpayer advocate’s estimates, 52% of this gap is because of under-reporting by self-employed taxpayers. If even half of this under-reporting is directly enabled by a cash economy, the U.S. Treasury loses at least $100 billion annually because of cash.

[From The Hidden Costs of Cash - Bhaskar Chakravorti - Harvard Business Review]

But we shouldn’t be mad at the Bank of England and the US Bureau of Engraving and Printing only because of crime. Although that is reason enough to get rid of cash, there are other good reasons for changing government policy to actively manage the stuff into oblivion.

First, it would eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash. Second, phasing out currency would address the concern that a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity.

[From Paper money is unfit for a world of high crime and low inflation - FT.com]

As that piece in the FT notes, getting rid of physical currency and replacing it with electronic money would kill both birds with one stone. Why are we waiting?

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.

The post Revolutions start with the middle class appeared first on Tomorrow's Transactions.

The problems around KYC for new financial services, especially for new entrants, might be mitigated by the introduction of a financier services passport based on modern technology and not stupid bits of paper.

There was a great story on BBC Radio recently. It caught my attention because it demonstrated faults with our useless and outdated cheque payments system and our useless and outdated identity infrastructure at the same time.

A listener posted a cheque for £36,000 to his bank. It was stolen and paid in by someone else to an account in approximately his name. £20,000 was withdrawn. Barclays, his bank, have agreed to refund him only the balance of £16,000. What are his rights? And will the new cheque imaging service be any safer and quicker?

[From BBC Radio 4 - Money Box, Wonga woes]

During the episode, the bank is quoted as saying that their cashiers are not experts in identification. Indeed, They are not. Which is why the business case for KYC and AML and ATF stuff is so confused. What is the point of asking people to present documents that cannot possibly be verified? How is the poor chap at the bank counter expected to know whether my Portugese fishing licence is still valid or not? Clearly the fraudster had to present some documents to open the account.

If you’re applying for a Barclays Bank Account or a Premier Current Account you’ll need to show us 2 valid and original documents from the list below -  one from the proof of ID list and the other to give proof of your current UK address. The same document cannot be used to verify both your identity and your address.

[From Identification for bank accounts]

Clearly, the documents presented were fraudulent. I’m not picking on Barclays, obviously. This is a general problem across jurisdictions and banks. While it is complicated and expensive and annoying for legitimate customers and business to comply with stupid KYC requirements, it is apparently trivial for the criminals to do so.

There is no point having an identity infrastructure where it is impossible to verify identity. On the other hand, an infrastructure that means identity is verified at every turn is invasive and open to abuse. We have a system that delivers neither, and costs a fortune.

KYC Exchange estimates that whereas a KYC request might take 30 – 50 days to turn around using standard industry measures, its own system can do the same work in five minutes. The time saved for a bank initiator is estimated at approximately 90%, while the receiving bank saves around 40-50%, according to von Hänisch.

[From Cost of KYC too high says Swiss start up » Banking Technology]

Maybe KYC Exchange could then issue a Financial Service Passport of some kind? There’s a thought. I’ve been with Barclays for 37 years: perhaps they could provide me with some sort of app on my smartphone that I could use to present KYC credentials when I want to take out insurance or get a mortgage or rent a house or anything. This is the sort of thing that I think we will be discussing at techUK next Monday, where Ian Jenkins of Deloitte and I will be chairing a discussion around the concept:

A ‘financial services passport’ refers to an aspirational digital identity, issued by UK financial services providers, and mutually recognised across the financial services industry. Such an interoperable digital identity could be utilised to correctly identify and authenticate end-users with appropriate security in a wide variety of circumstances and across a wide variety of channels.

[From Workshop: Towards a Financial Services Passport]

Look forward to seeing you there.

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.

The post What about a financial services passport? appeared first on Tomorrow's Transactions.

The bank will change from being the place that looks after your money to being the place that looks after you identity.

The nice people at the Financial Times invited me along to take part in their first “Camp Alphaville” event in London. I took part in a panel discussion with David Galbraith (a co-founder of Yelp), Jamie Macintosh (Director of the Institute for Security and Resilience at UCL), Sean Park (Anthemis) and the Assistant Governor of the Reserve Bank of Australia, Guy Debelle. The ostensible subject of the discussion was whether the conventional bank model is broken or not, and so I made some notes on the interaction between changes in technology and post-crisis changes in financial services and tried to draw a few conclusions.

How I did this was to build on some work that I’ve been doing recently one of our banking clients looking at the technological impact on the different functions within banking. For this I’d used a fairly standard model of banking in the economy, one that divides banking into a number of economic functions and makes the obvious and long-standing observation that while the economy needs these functions to be performed it doesn’t necessarily need banks. Therefore the assumption is that the institutional arrangements around these functions will change but that the functions themselves will not. This seems reasonable to me. My key observation was going to be that post-crisis the assumption that some of these core functions such as what economists call the “transfer” functions (savings and loans) and (in particular) the SME lending areas were surrounded by an insurmountable regulatory moat that rendered the banks impervious to competition. However this has turned out not to be the case and technology has introduced new players such as Zopa, Funding Circle and Wonga.

Therefore it seems to me that one way to look at the changing role of the bank is to see shifting from an organising or directing (or one might even say controlling) role to more of a coordinating role reinforcing what economists call the “incentive functions” around banking, the functions that enable transactions to take place. I imagine I’m a fairly typical middle-class want-to-be saver in the UK market and I already have more money in my Zopa account than I do in my ISA. I can see that in the future my bank might find it more useful and convenient and a means of delivering a better service to me to provide access to my Zopa and my Funding Circle accounts through my banking services and to facilitate transactions between these different kinds of accounts.

If this is even vaguely true then one of the key central coordinating roles of the bank will be to manage the know-your-customer (KYC) and related customer-due-diligence (CDD) issues and to federate identity in a well-defined way between all of the function providers. I tried to sum up this point of view using a conference soundbite that actually got retweeted fairly frequently, not that that necessarily means that I was right, and said that the bank might shift from being a place where you store your money to being a place where you store your identity. This is the paradigm shift that I refer to in title and it reinforces the view that the banking sector as a whole ought to be developing a convincing narrative around identity before it loses even that co-ordinating role.

Anyway, as it happened, we never really got round to talking much about this sort of thing, instead focusing on prostitution and broccoli, because we got a bid side-tracked around cash.

Speaking at the Financial Times’s Camp Alphaville event, a panel of experts said empirical statistics show that the majority of cash in circulation in places like the UK goes towards funding prostitution, drugs, and tax evasion.

[From Physical Cash Economy Propping Up Drugs and Prostitution, say Future of Money Experts]

But that’s the fun of live discussion. Thanks again to Izabella Kaminska at the FT for putting together such a terrific panel for the discussion. I learned a lot.

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.

The post Bank camp appeared first on Tomorrow's Transactions.

I don’t understand why European policy makers continue to think about a “third scheme” for cards. The time has gone, so let’s move on.

In the winter 2013/2014 Journal of Payments Strategy & Systems (Vol. 7, No. 4, p. 344-358) there is an excellent paper by Ewald Judt and Malte Krueger called “A European card payments scheme: forever a phantom?” which is about the European so-called “third scheme”, otherwise known as the European Card Payment Scheme (ECPS), otherwise known (by me) as the EU Non-American Emergent Electronic Legacy Interchange Exclusion scheme, or the NEELIE for short.

The authors set out to try to understand why generations of European policymakers have failed to create a pan-European alternative to (in essence) Visa and MasterCard and conclude that (and I paraphrase) that there are three main reasons:

1. There are genuine economies of scale.
2. The historical timing of the MasterCard IPO and competition authorities pressure on interchange means that the opportunity has passed.
3. Bank management doesn’t care.

I think that this last point is important for policymakers to fully understand. Banks are not that bothered by the current situation, as it kinds of suits them. Now, when it comes to competition policy and interchange rates I have constantly argued the competition, rather than regulation in the sector. Policymakers should focus on competition in the payment sector – which we fairly have done to a great extent – and let the market work out interchange rates for itself.

Forcing banks to create a third scheme with low interchange rates just isn’t going to work. And it’s looking in the rear-view mirror anyway. If the European Commission wants to create a dynamic new payment service across Europe, why would it bother with cards at all? Why not a euro M-PESA, setting to one side the fact that the Commission is (as I understand it) going to rule against using M-PESA accounts in Romania as “euro basic bank accounts” under impending regulation. I don’t get it.

The authors point out the contradictions between, broadly speaking, using competition policy or regulation to obtain the Commission’s desired outcome. There is a tension that will need to be resolved at the policy level, because competition (my preferred solution) will not deliver what they want. I think this is a good thing, personally. I also think that the mental model behind this (that there should be a card that can be used at any terminal in Europe) is somewhat last century. Having 50 different cards in my wallet that I need to use in different places in Europe would, of course, be a real pain in the arse. But having 50 different apps on my phone? Not a problem: especially since the phone knows where I am so it can use an appropriate payment mechanism wherever I am and link all of them (via the proposed euro-API for banking) back to my account automatically so it doesn’t need to bother me about that sort of thing at all.

Celent does not believe that any of the main contenders will deliver a new viable and competitive European card scheme any time soon. Furthermore, we argue that the market has moved on in the last seven years, and the case for a European-only card scheme created from scratch is simply no longer there, if it ever was.

[From In Search of a Third European Card Scheme: Time to Move On | Celent]

Indeed. And that was written a couple of years ago. If we ever do build the NEELIE, it will be for political purposes, a sort of symbolic pan-European canal network in the age of the bullet train. Why bother?

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.

The post The phantom NEELIE appeared first on Tomorrow's Transactions.

As we have long advised our clients, a working push payment infrastructure (ie, smart devices and an immediate settlement network) means that a lot of day-to-day payments will shift to the infrastructure).

The “Push Payments Manifesto” at OpenPayee echoes my views on the long-term evolution of the retail payments sector precisely. I’ve written before about how effective push payments will displace other mechanisms, and the manifesto identifies the core reason why.

Payments made using any form of identity token which gives the payee the ability to pull the payment out of the payer’s account are bad.

[From Push Payments Manifesto | OpenPayee]

Quite. And as the manifesto points out, pull payments are a relic from the bygone past when consumers did not have devices and there was no network to connect them to. Now that there is a network and there are smart devices connected to it, there’s no need for these dated hacks. To illustrate the point, as I did at the BayPay London meeting recently, consider the prosaic (and in my case entirely hypothetical) example of gym membership.

Right now, this system “works” through continuous authorities (CAs) on cards. And, as we all know, these are nothing but hassle. If you’ve ever tried to stop someone from taking money from your card once you’ve given them an authority, you’ll know what I mean. People often find that the only way to do it is to cancel their card and switch issuer!

Now consider the modern alternative. You are walking down the street and a message pops up on your phone: it’s your Barclays app telling you that the gym have requested their monthly tenner. (Is this about right? I have no idea what gyms cost.) You put your thumb on your iPhone fingerprint reader to OK the transaction and go about your day. Meanwhile in the background there is an FPS transfer to the gym account and about one second later they have their money. Now, you probably wouldn’t want to be bothered with this kind of payment trivia all day long, so I expect that you would set your Barclays app to auto-OK future payments to the gym within certain bounds. So actually when walking down the street you would simply see a message on your phone telling you that the gym membership had been paid. Now, when you want to cancel your gym membership, you just tell your Barclays app to auto-decline instead. Sorted. Better for the customer, and better for the bank too.

Bill payment represents the biggest monthly cost on a checking account, by a wide margin (OK, maybe debit processing costs might be more, but that’s offset by revenue

[From Is Bill Payment Dead and Gone in Five Years? « Gonzobanker.com]

This might be a weapon for banks to regain some of their lost ground in billing while simultaneously improving service to customers by given them more control over payments.

The percentage of online and mobile payments made on biller sites increased from 62% in 2010 to 69% in 2013. Bank site payments declined from 38% of online/mobile bills paid to 30% (with third-party sites like Check.com picking up 2%) over the same period.

[From Banks Are Losing The Online Bill Pay Game | Snarketing 2.0]

How exactly this will work, however, obviously depends on the infrastructure available for the banks and billers to use. In the US, this means that people tend to think about ACH.

If I were at a bank right now, I’d take my fresh, new business intelligence system and identify all of my customers who use bill pay to make regular payments to utilities, phone companies and the like. Then, I’d start a campaign to get them from bill pay to biller-initiated ACH.

[From Is Bill Payment Dead and Gone in Five Years? « Gonzobanker.com]

I don’t think this is the only architecture. Given the combination of smart phones, advances in mutual recognition and the reduced management costs of push payments, surely a more likely path is for the biller to message the customer and have the customer respond by initiating a push payment across an immediate settlement network (such as FPS int he UK). It’s a win-win (except for the gym).

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.

The post Push payments are a win-win (and a lose) appeared first on Tomorrow's Transactions.

I can’t remember the last time I gave the kids an actual fiver.

Nick Reynolds posted an observation about interpersonal payments within family units.

“Dad, can you lend me a fiver?”

In a world with cash:

“Yes of course just let me dig through my loose change, there’s always some hanging about in the drawer”

In a world without cash:

“Oh, err, I’ll have to switch the broadband on… hang on a minute the wifi’s down, err… what about my phone… err, the Bluetooth isn’t working again I can’t sync our accounts together… err… where’s that contactless payment card,… err… it won’t let me transfer anything we must be over our limit… err… sorry… ”

[From “Dad, can you lend me a fiver?” in a world without cash | Nick Reynolds At Work]

Of course, Nick could always write out a cheque and have his son scan it with his phone which, given the comments in the Treasury’s recently released paper on “Speeding Up Cheques”, appears to be central to the government’s vision of a new and better Britain. I have to say I’m not the least bit interested in this mode of working. I have a cheque from British Airways in my bag right now: when I got it, I didn’t think “Oh goody, I can scan this with my Barclays mobile banking application — which, actually, I can’t — and thereby have it clear in three days instead of four”. I thought “why oh why didn’t they just send the money either to my bank account via the new-fangled Faster Payments Service (FPS) that we hear so much about these days”. They could have PingIt or Paym’d the money to me. They could have refunded it to the British Airways American Express card that I’ve used with them for a decade or so. But a cheque?

Anyway, back to Nick’s scenario. This isn’t how it works in our house because we are a modern family with mobile phones. And there is never cash in the drawer, ever. Therefore the exchange is rather different:

PingIt request “can you lend me a fiver?”

Confirm.

Er, that’s it..

[From “Dad, can you lend me a fiver?” in a world without cash | Nick Reynolds At Work]

In a world in which there is an immediate settlement system so that you can transfer money between banks in (effectively) real time, there is no need for cash even with the family unit. And there is no requirement for geographic coincidence so the desperate pleas for train fare home late at night can be actioned without  getting out of bed. Come on Nick. Get with the programme, Grandad, this isn’t the US or France.

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.

The post Family faster payments appeared first on Tomorrow's Transactions.

Even the man who invented QR codes says that they are an interim technology. But some of the payment solutions built using them should translate into an NFC/BLE world pretty well.

Here’s a quick payment quiz. Have a guess before you click on the link! Which of the approximately 10,000 new payment solutions that are under development right now works this way:

The system generates a unique QR code that allows a payment to be made, but no customer information or shopping data is passed onto the merchant, and all transaction receipts are kept on the app.

[From Samsung Favors QR Over NFC | PYMNTS.com]

Well, if you guessed “all of them” you’re nearly right, but actually it’s a new payment system from Samsung (who make the S5, amongst other contactless-capable handsets) in Australia (which has a couple of hundred thousand contactless payment terminals in place and the highest retail use of contactless in the world). Why are they doing this? It’s not because QR codes are the best solution — they aren’t — but because better alternatives (NFC and Bluetooth Low Energy) have not been available. But they are now, which makes the Samsung launch rather surprising to me.

I used to think that I was abnormal because I can’t be bothered to scan QR codes, but it turns out that I’m actually quite mainstream.

In all of the time I’ve had a phone with a camera and an application for reading QR codes, which is quite a long time, I’ve probably used the functionality two, or at a maximum three, times. I wondered if this might be because I am old or because I am lazy or because I am insufficiently inquisitive, but actually it’s because I am normal.

[From A quick response to the problem - Tomorrow's Transactions]

Whereas I can’t be bothered to run a QE application and scan a code, I’m quite prepared to just tap on something or have something auto-open on my iPhone for me to confirm. Having been involved in quite a few NFC trials, pilots and tests I’m confident in saying that most people are the same. Consumers were perfectly happy to tap to get what they wanted and, as far as I can recall, actually rather liked it. It was the supply chain that didn’t work.

In other words, NFC is great but not yet relevant. This, to be honest, seem like a pretty reasonable assessment of the current situation and contains both good and bad news. The bad news is that the money that the payments industry is spending on NFC will have a much longer payback time than had been hoped. The good news is that we (consumers) end up with something that is simple and quick and secure.

[From Tomorrow's Transactions]

So, as has been known for some time, this is generally true. When people are given the option of tapping, for example, over scanning then they greatly prefer it. The barrier to NFC in the mass market was never the consumer.

An analysis conducted by NFC specialist Connecthings has found that NFC phone users account for a disproportionate percentage of interactions with its NFC- and QR code-based marketing and information services platform

[From Firm finds NFC users interact more than QR code users • NFC World+]

For these and other reasons (to do with security), I’ve always seen QR codes as an interim solution, something that will let people try out ideas (e.g., Bitcoin wallets) while we wait for something better to come along, but never the mass-market strange attractor for next-generation payments, no matter how much I like LevelUp. And it turns out that the man who invented QR codes agrees.

QR codes have seen a range of improvements through its 20 years, but Hara mentions that he believes that NFC and better image recognition will supplant the QR codes’ role.

[From QR Codes Will Be Gone in Ten Years Says Its Inventor »]

For those already in the QR code space this isn’t particularly bad news in my opinion. Or, at least it isn’t for those who used the right consultants to help them to architect their solutions in the first place… The QR code is simply the “last millimetre” connection between the merchant and the consumer. Almost all of the systems that people have built are not to do with this: so if the last millimetre replaces the QR code with the more convenient NFC/BLE combination, then their solution will be even better and more convenient than it was before. We will certainly be advising our clients to structure their solutions so that that swapping out the last millimetre can be painless and cost-effective.

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.

The post Never mind the last mile, what about the last millimetre? appeared first on Tomorrow's Transactions.