[Dave Birch] It’s undeniable that some people will spend more money digitally than physically. Studies and surveys have repeatedly found that for all kinds of psychological reasons, certain people will, in certain circumstances, spend a pile of cash more “responsibly” than a digital balance. It isn’t a goal of the industry to get people to spend irresponsibly. I can honestly say that in all of the projects I’ve been involved in over the years for payment schemes old and new, I’ve never heard anyone say that getting people to spend more is a goal. The goal is always about getting people to switch transactions from method A to method B. (For most of my clients right now I would say that method A is cash, cheques and other card schemes!) Nevertheless what does this mean? I think it means two things, and I’ll come back to them in a minute. But first I’ll explain why I’m thinking about them.

It’s because I went to Dinah Tobias’ excellent Payments Forward “Afternoon Tea Debate” on whether internet and mobile payments make it harder for young people to manage their money. As well as my professional interest in the subject, I also have a personal interest in it as the father of two teenagers, one at University and one who will be heading to University in a couple of years. Dinah had come up with a clever structure for the debate: she had invited IDEA UK to organise expert student debaters to speak for and against the motion and then had the audience ask questions at the end. They ran the debate under what were referred to as “Parliamentary Short Form” rules. I’d not come across these before. They didn’t seem to have much to do with the British Parliament, at least, since the students spoke intelligently, made interesting and well-informed points, were polite to each other and at no point yelled “rubbish” or ” hear, hear”, rustled papers or made irrelevant and offensive sexist comments.

IDEA UK’s panel included David Jones, a former International Mace finalist, Richard Robinson, former head debate coach at Eton College, Belize Harrison, President of the Inner Temple Debating Society, Ben Dory, European Championships finalist, Ioan Nascu, an IDEA trainer and former Romanian national debate champion, and John Harper, a debate coach and graduate of St Andrew’s University.

[From IDEA UK works with the Payments Forward network to discuss young people's use of new payment technologies | idebate.org]

But I digress. The student debaters were excellent and, like many in the audience, I really enjoyed seeing a different format and hearing from different people. And some of the points that were made in passing struck me as rather interesting: I’m sure a lot of the bank delegates were scribbling down notes at the same rate that I was! For example, one of the students mentioned that they prefer mobile banking apps that display the account balance prominently before you make a transaction and another asked why receipts hadn’t gone electronic yet.

The discussions led me to think that there is an apparent block to industry (ie, our electronic transactions industry) progress. It is this: the lowest total social cost to society comes from, broadly speaking, PIN debit. So shifting away from cash is a good thing. Therefore society should make PIN debit the baseline. However, if we do this, many (but not all) people will spend more or find it harder to manage their spending. So shifting away from cash is a bad thing. What do we do? Is this a genuine paradox or are we not looking at the issues the right way.

Ben Dory made a very, very good point in his short speech. In fact, he neatly summarised the way forward for our industry. He said that mobile and online payments have the potential (and I stress, potential) to support people in making better decisions around spending. In some of our work on the connection between social and financial inclusion (e.g., for the Technology Strategy Board) we saw some fascinating early examples of this. I’m thinking about the work that UCL had done on graphic interfaces for apps to show people barometers of their spending and such like. If we can realise the potential that Ben referred to then we have a genuine win-win, providing people in general (not only students) with an electronic solution that is better than cash.

So, to wrap up, I said I think that the debate meant two things to me.

1. It meant that we don’t have the right apps yet and that there is a need for “social PFM” on top of basic payments.
2. It meant that people take time — a lot of time — to adjust to new money technology.

There’s plenty of opportunity here for both incumbents and new entrants to provide these tools, but a precursor to behaviour-changing use of the data is the provision of the data itself and this might turn out to be an excellent value-adding opportunity in the mobile wallet world. We talk a lot about providing APIs to retail apps to handle payments, identity, location and such like. But what about having the retailer apps provide APIs so that consumers can download software from the Consumer’s Association or the National Union of Students or Saga to look at their spending and provide them with trusted advice? Unfortunately, as others have found, not everyone is excited about the opportunities afforded by this level of data sharing.

The problem with personal financial management, or PFM, is that it needs all of a customer’s data to be truly worthwhile. But now holders of some consumer PFM data have begun to prevent Pageonce, which aims to provide worthwhile PFM, from incorporating their data into the Pageonce service.

[From PFMs, and Pageonce Specifically, Need Access to Data — and They’re Losing It | Bank Innovation]

I’m not saying this is going to be straightforward. It isn’t – no retailer wants to make it easy for competitors to find out what their customers have been spending and on what, but it will happen anyway (because the electronic receipt “OTTs” will do it) so it’s better to be inside the tent, pissing on the elephant who moved your cheese. Or something like that. Maybe the retailers can join the social PFM party as the good guys and help set some reasonable rules.

This, by the way, is what I would categorise as a “small data” play, and small data is one of our “hot five” transactions technologies for 2014. More about those later.

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.

[Dave Birch] There’s a new press regulation environment in Britain. The government has just passed a new law to stop newspapers from saying bad things. I heard about it on the radio. I didn’t quite catch all of the story, but I think in essence newspapers have to have stories approved by Hugh Grant or someone similar before publication. About time too! The excesses of the British journalist need to be addressed and the full power of the law must be applied to irresponsible reporting that scandalises, misleads and obfuscates. Exhibit A:

The banking industry […] insists: “The technology is extremely robust, has been thoroughly tested and is working as expected. Payments can only take place where the card is placed within 5cm (2 inches) of the terminal”. This was apparently disproved in the University of Surrey’s research,

[From Engineers claim to prove risks of 'contactless' bank cards - Telegraph]

This is, like anything else you read in the papers concerning a subject you have even the vaguest understanding of, wrong. The journalist clearly didn’t read the paper or pay any attention to what was actually said by the researchers. They did not say, claim, imply, hint or suggest that you can do a payment from more than a couple of inches away. They did not “apparently” or indeed actually disprove any such thing. What they said was that you can eavesdrop on a transaction from more than the 8cm read/write range for NFC devices. This is one example of the fun reporting of a recently-published academic paper on NFC security that has kept our PR people busy for a day or two…

Contactless cards can be hacked with off-the shelf technology

[From Contactless cards can be hacked with off-the shelf technology - E & T Magazine]

Really E&T Magazine? Hacked? No such thing. This paper, published by researchers from the University of Surrey, showed that it is possible to eavesdrop on NFC communications from a couple of feet away under certain circumstances. They built a rig for doing this from easily-obtainable bits and pieces.

Inconspicuous equipment including a shopping trolley, a backpack and a small antenna were used to intercept synthesised payments card data.

[From BBC News - Contactless payment data can be picked up at a distance]

Putting to one side the issue of whether a shopping trolley might genuinely be considered “inconspicuous” or not, it’s a story where the media got the wrong end of the stick big time. I urge you to go and reader the paper for yourself:

Eavesdropping near-field contactless payments: a quantitative analysis

[From IET Digital Library: Eavesdropping near-field contactless payments: a quantitative analysis]

If you read to the end of this paper, you will see…

This work was funded by EPSRC and Consult Hyperion.

So what is the background to all of this? Well, several years ago Consult Hyperion was commissioned by UK Cards to run detailed experiments on contactless security and we were able to establish that it was possible to eavesdrop on contactless transactions under laboratory conditions. Naturally, since we are seen as being industry thought-leaders in the field of secure electronic transactions, it was important to us to understand all aspects of this issue so that we could give our clients accurate advice. We do a lot of risk analysis work for organisations developing new transactional systems and the integrity of our recommendations depends on an understanding of the details of the vulnerabilities: What is the cost to an attacker? What is their likelihood of detection?

We decided to explore the area further by funding PhD research at the University of Surrey to get some new perspectives on the subject and I have to say that it has been wonderful to witness the ingenuity that the researchers brought to the topic! If you read the paper, you will see that they were able to design kit that means you could in theory stand within a couple of feet of someone at a supermarket checkout and listen in on the communications between their contactless bank card and the supermarket terminal. This is because the cards and the terminals work using the EMV (“chip and PIN”) standard that does not encrypt the data between the card and the terminal. Now, this does not mean that the payment system is compromised! The data that you might be able to obtain in this way (the card number and the expiry date) is printed on the front of the card anyway – if you’re that close to someone you might as well just read it as scan it – and because of the way that the EMV works, you can’t use this data to create a clone card. Just as when we did the original risk analysis on contactless in 2007, the conclusion is that contactless bank cards are fit for purpose.

Summary: we thought that this kind of eavesdropping is not a practical attack on contactless bank cards and the research appears to have confirmed that. Boring, but the truth, and very reassuring to our clients in that space.

There is another point to be made, though, which actually is important. Remember that the research was not specifically about payments but about contactless transactions in general. It stands as a general and timely reminder to the designers of NFC-based systems to carry out proper risk analysis and not to rely on the short range of NFC communications to preserve privacy/confidentiality.

We’re very proud to have been able to support this research. Our clients depend on us exploring the frontiers of knowledge in these areas so that they can be utterly confident in our advice and we will continue to research the field to their benefit. Open discussion of threats, vulnerabilities and countermeasure is the way that the industry works to keep payments safe.

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.

Well, it's Switch Day today, and millions of people will be heading off move their current accounts from one bank to another.

The Payments Council today (16th August) announces the official launch date for the new Current Account Switch Service, designed to make switching current account from one provider to another simpler, reliable and hassle-free.

From Monday 16th September 2013, 33 bank and building societies brands – accounting for virtually 100% of the current account marketplace – will deliver the new switching service for consumers, small charities and small businesses.

[From Payments Council - One month to go until launch of new Current Account Switch Service]

I probably sound a bit of a curmudgeon on this one, but I've never understood why the banks were bullied into wasting the best part of a billion quid on this. It's not as if there was much of a problem to deal with in the first place.

In a Which? survey, 74% of people who had switched account said the process was easy, with 32% finding it very easy.

[From Bank account switching tips - Switching your bank account - Bank accounts - Which? Money]

So three-quarters of the populace were satisfied with the current system? It currently takes two to three weeks to switch bank accounts in the UK, but later this month it will take only a week. Who cares?

Why are we doing this? I have a suspicion that it is because the politicians didn't really understand what is involved. If they did, they might have gone for better solutions. One way to make switching easier, for example, would be to allow people keep their account numbers but simply move them to another bank, much as we do with mobile phone numbers that we shift across networks. Unfortunately, this won't work, now matter how much people would like it to, because

phone numbers and account numbers aren’t quite the same thing

[From Could bank account numbers be portable like mobile numbers?]

Consumer surveys seem to indicate that around half of the British public would switch bank accounts if it could be done within a week. Given the Which? survey and my own anecdotal experiences, I simply don't believe this – this is just what people tell the guy with the clipboard in the street – and I'm certain that no-one will bother any more than they do now. There just isn't enough difference between the main competitors and so the only way to get them to do it will by offering expensive gifts, which won't last. Allowing people to switch from banks to non-banks would be more likely to have an impact on the competition in the sector.

We need more new banks to increase competition and consumer choice, and to fund businesses to stimulate the economy.

[From Time to open banking to new entrants - FT.com]

But do we need more banks, or more bank-like institutions? Non-banks and near-banks might be a better alternative, institutions that can serve transaction-centric niches. One category of organisation that might well step in to provide these kinds of services, given the appropriate regulatory environment, is mobile operators. It's the regulatory environment that is key. In Europe mobile operators can obtain a Payment Institution (PI) licence and an Electronic Money Institution (ELMI) licence. In Canada, Rogers had to go and get a banking licence, but in the U.S. a mobile operator couldn't even go down that route.

In the United States, however, the current laws are designed prevent a Verizon or AT&T from doing what Rogers did in Canada. The Bank Holding Company Act, enacted in the 1950s, prohibits the mingling of banking and commerce and generally limits non-banking institutions from controlling banks.

[From Regulatory Uncertainty Casts Doubts On Legal Status of Mobile Payment Services | BNA]

Not only will this prevent American carriers from acting Canadian, it will also stop them from acting Japanese (where DoCoMo took over Sumitomo Mitsui to offer a credit product) or European (where some carriers have already obtained PI licences).

In conclusion, Summers recommends… the development of a special-purpose bank charter for non-bank providers of specialised payment services.

[From Finextra: US payments system failing to meet the needs of the digital economy]

This would, I imagine, be something like Europe's PI licence. In San Francisco last year at Brian Zisk's "Future of Money & Technology Summit", there was a panel session on "The New Value Movement" that I remember being very good. The panel, led by Amy Vanderbilt with Daniel Robles (Ingenisist), Joe Johnston (Connect.me) and Patrick Murck (Engage), was looking at (very broadly speaking) alternative monetary systems. Patrick, the lawyer (who said it was OK to abuse him because he was well paid!) did point toward the PI and ELMI approach as better than the US' stultifying combination of national and state licensing, which I obviously agree with, and observed that the result is limited, closed-loop systems that do not generate as much value as they should.

The financial system is broken. Regulators want change, businesses want new means of financing and consumers want alternatives. The "banks”"of the future will include state-owned entities, and firms that simply don’t use cash: think bartering and community currencies. Digital wallets and mobile banking are opening the door for telcos and software players, while trust is the entry point for retailers and crowdfunding communities.

[From Global trends for 2013: A top ten for business leaders | The Economist]

I think the quotation marks are telling. The Economist is surely right to link the near-banks of the coming generation with the innovative use of new technology to deliver these new services that are distinct from the taking of deposits and the provision of credit, the core banking functions that need to kept within the more tightly-regulated, well, banks. This is the sort of thing the CASS money should have gone on. At a cost heading towards a billion quid, you have to wonder if it wouldn't make more sense, then, to spend the money on helping (for example) credit unions or other community-based providers.

It seems to me to be one of those cases where the government could really think of anything useful to do but wanted to appear to be doing something, and this qualified as something that could be explained in a soundbite.

I've written before about what the industry should have done, which is to create a virtual sort code and account number that customers can switch to wherever they like: that way, they give their employers and whoever else a single sort code and account number which never, ever changes, Then, if they want to switch bank, they re-route the virtual account and there's no need to notify billers, counter parties etc to update their databases. Much simpler. But whatever.

[From E-ASS about face]

I will be genuinely surprised if CASS makes much difference over the long term. There might be a spurt in account switching as people try it out, but I'm sure things will settle down again before too long.

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.

A couple of years ago, back in 2011, I put together a few slides about the key drivers in the European payments industry for something we were doing for one of our clients. I used the breakdown that came from my Centre for the Study of Financial Innovation (CSFI) research work — that was very kindly sponsored by Visa Europe — on innovation in payments. This looked at the drivers across three axes: the technology axis, the business axis and the social axis. This proved be quite helpful way of exploring issues and helping clients to clarify their thinking, so I'm always looking to refine and update the drivers across these axes to support our consulting work across sectors.

I remember seeing a similar breakdown last year, 2012, in the Barclays Equity research note about payments in June. They had come to a very similar breakdown and, I have to say, similar conclusions, which I naturally took to be something of a validation for our approach. On the technology axis they looked at the influence of technology players and forecast more convergence around mobile, on the business axis they predicted localisation rather than globalisation and on the social axis they saw regulatory factors as the most important drivers shaping overall strategy.

So where are we now? Do the assumptions of the last couple of years still hold and what are the mid-2013 drivers? I was thinking about doing some work on revising and checking the drivers when I read an article in the FT from the group chief executive of Standard Chartered bank. This reinforced the point about regulation as the most important driver. This is true in the US as well as in Europe: one of the most interesting projects that Consult Hyperion is currently working on in the US is helping a financial services organisation to integrate Durbin and EMV for its next generation debit products. Anyway, Peter Sands said that:

Regulation is an even more powerful impediment – and not only because “financial innovation” is a four-letter word in banking supervision circles. Technology-driven innovation that leads to big winners and big losers, that replaces established products with flexible service bundles, that overturns established business models and blurs the boundaries of banking, and that sometimes fails to deliver quite what was intended, does not fit well with today’s regulatory zeitgeist.

[From Banking is heading towards its Spotify moment - FT.com]

That's a nice way of putting it. He goes on to say "That is why accelerating technology-driven innovation is a top priority" at his bank. But what does "technology-driven innovation" mean to banking? I'm about to give a seminar on this topic to one of the leading Chinese banks and for that purpose I've been looking at how technology is causing different kinds of disruption to the different functions of retail banking. If we focus on the payment function then, in Europe, we see the regulatory issues channeling the innovation (as I, and indeed Barclays, predicted) so that payment innovators from outside of the banking system can develop new products and services. A good example of this effect is the recent announcement of EE's "Cash on Tap" mobile payments initiative that uses SIM-based NFC in three of their handsets on sale in the UK. The old version of the product was called "QuickTap" (I am a satisfied customer of such) and it centred on a bank-issued EMV application. The new version does away with the bank. The EMV application comes from Prepay Technologies. In the same way, the original Telefonica O2 Money card was issued by a bank. The new one isn't. And Telefonica obtained a Payment Institution licence a few months ago as well.

Stephanie Martin, associate general counsel for the Federal Reserve Board of Governors, warned members of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit that in the broader regulatory scheme, many mobile systems may not be covered, especially those used by people or organizations that aren't banks.

[From Financial Officials: Regulations May Not Fully Protect Mobile Payments - Josh Smith - NationalJournal.com]

I don't understand this sort of thinking, however well-meaning. It is the payment instrument that should be regulated, not the particular means of executing a transactions. The legal protections afforded to me when buying using a credit card don't change depending on whether I'm buying from Amazon using my mobile phone or buying from the Amazon website on my Mac at home. It's the credit card that is regulated.

As I've said a few times recently, America could do worse than adopt something along the European lines. A regulatory framework that separated systemically risky operations such as banking from systemically unrisky operators such as low-value payments would benefit all concerned. We need competition in the payment space, and competing to provide additional layers on top of the existing retail payment schemes (ie, cards, essentially) probably isn't enough. Sean Park nailed this when he said that

Of course more regulations hurt the large financial institutions, but they hurt new entrants more. And competition is a whole lot scarier than regulation to incumbents.

[From The Park Paradigm - More competition beats more regulation]

So all of this boils down to saying that that the model developed for the CSFI, and the drivers that were predicted for each of the axes, turned out to be pretty much right. Of course – if they had turned out wrong, I wouldn't be writing this blog post!

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.

[Dave Birch] We thought it would be fun to loot the archives of our blogs to see how the world of transactions has developed. So here is another in our “Monday Museum” series, from� 17th August 2006.

[Dave Birch] According to a middle eastern news service, the Saudi Arabian Monetary Agency (SAMA) announced that Saudis had withdrawn SR 68 billion worth of cash through the available ATM networks in the Kingdom through the first half of 2006. According to Al-Yaum newspaper, citing a SAMA report, Saudis had also executed 4,320,474,149 transactions through the available ATM’s networks in the Kingdom through the first half of 2006. The report added that the Saudi banks had issued 359,117,900 ATM cards through the first half of 2006. The total number of the ATM machines in the Kingdom amounted to 5,377 machines. Man, those must be some ATMs: one transaction at every machine every 17 seconds, 24×7.

Hold on, I thought, and did a quick google.

I discovered that there was some scepticism at Bankwatch and I added to it. I knew that according to APACS the UK figures were nothing like that, and with a much higher population. So I checked (about 10 seconds) and found that the total of all withdrawals from ATMs was £172 billion last year, an average of £5,455 per second. There were 2.7 billion ATM withdrawals, an average of 86 withdrawals every second throughout the year. But there are 10 times as many ATMs in the UK (in fact, there were 58,286 cash machines at the end of last year).

But maybe people use cash more in Saudi Arabia, so the figures could still be correct. But wait, I thought, even in the US (according to the Feds August cash study), there were not even 6 billion ATM transactions in the entire USA for the whole of 2004 (this took me another 10 seconds to find out).

So, I thought (for another 10 seconds), maybe the Saudi figures are correct. That would be amazing. So (another 10 seconds) I googled and discovered that SAMA has a very helpful web site where you can even download their figures in Excel format.

And, of course, the figures don’t look anything like the newspaper reports. In fact, they show just over 9 million ATM cards in issue and around 150 million withdrawals in the quarter (ie, about 600 million for the year, not the 17-odd billion implied by the newspaper). My guess is that the journalists have totaled the cumulative quarterly figures for the last N years to come up with a meaningless number that they incorrectly called “the total”.

As they say, when you read about anything you know about in the newspaper, it’s always wrong.

In the last couple of weeks I’ve read in the popular press that chip and PIN cards encrypt your personal information before they send it to the terminals (they don’t), that contactless cards can be read across a train carriage (they can’t) and that Bitcoin is anonymous (it really isn’t as anonymous as journalists think). I wish the newspapers would simply check with me first…

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.

[Julian Niblett] This morning I was in a rush and popped into Gregg’s to buy some breakfast. I had a little time to wait in the queue and I was immediately intrigued by some show material that had the bold headline ‘A fresh way to pay’.

Having spent the day yesterday talking to a group of tier 1 retailers about the future of payment and the cost of transactions, I am always looking at how each retailer approaches payment. I read the rest of the sign with interest and then spent the rest of my time in the store feeling very confused and then confusing the poor lady who was trying to serve me. So here you are waiting for this new innovation to see how Greggs are pushing the payment envelope – what is this fresh way to pay? Well let me tell you that the ‘fresh way to pay’ is that ‘you can now pay by card when you spend £3 or more’.  

Having worked in retail for many years and having personally rolled out contactless to a major retailer, then you have to wonder if it is too early in the morning when you see this sign and contactless payment in the same place. How is this a fresh way to pay and how does this make any sense?

At least Subway (I really do eat better than this) have a sign which allows you to pay by contactless for any value but has a minimum spend for credit and debit. Somebody there has at least done some maths and realised that they ought to use the nice new kit they have installed.

I tried to pay by contactless but I was told that my porridge was £1 so I couldn’t use my card and had to pay by cash. I tried explaining that my £1 porridge would only cost 1p in card fees as I had a contactless card and that the next customer using a debit card to spend £3 would cost them 8p! In the same scenario, contactless for £3 would cost half that. By now, I was holding up the fresh way to pay for other customers and was rather confusing the poor lady serving me so I bade my farewell after handing over my £1 coin.

My learning from this experience and from my presentation to UK retailers the previous day is this – people don’t know how much cards cost. So take my advice, have a look at the rates for contactless and go and re-work your card signs for minimum spends for cards and join us, Greggs, in the 21^st century where there are truly fresh ways to pay for porridge.

This article was written by Julian Niblett, a Consult Hyperion associate. If you'd like to find out about becoming an associate, please email Lindi Friel at lindi.friel@chyp.com

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.

[Anthony Pickup] It’s no secret that not everyone in the US is convinced about the benefits of the move to EMV. The costs outweigh the fraud savings, some retailers say. Others question its use if signatures are still accepted at the POS.

Those points are valid (as, by the way, is Richard Sullivan of the Kansas City Fed’s point that the US lacks the type of fraud collecting and reporting tools that could help the US get the best out of EMV).

You could however even say that those criticisms don’t go far enough. You might also add that contact EMV is slower at the point of sale than magstripe, something else that is likely to cost rather than save retailers money.

 In fact, why aren’t retailers pushing for EMV contactless instead rather than just playing catch-up with the rest of the world?  A key benefit of contactless EMV is faster read times and greater read reliability of EMV data compared to contact cards. Ultimately, the business case for contactless depends on the retailer (speed is vital in supermarkets, less so in high end boutiques) but this speed increase coupled with the protection from card counterfeiting should help create more positive retailer business cases.  And after all it will be the retailers and their support for the new payments technology that will provide the acceptance infrastructure and the staff training to help customers to support any change in payment technology at the till (payment) point.   

That would mean that issuers could provide dual interface cards for travellers (the only people in the US who really need contact EMV) and domestic customers and schemes could have lower cost contactless only cards and devices.  This would give mobile NFC applications an acceptance infrastructure in the US, leaving US retailers able to benefit from the growth in mobile payments more quickly and easily than those in other countries.

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.

[Dave Birch] After the article in the FT about Vocalink’s proposed “Zapp” service, I had quite a few e-mails from people asking for clarification because they couldn’t quite understand what was being proposed. They e-mailed me because I was quoted in the piece, not because I know anything about Zapp, and they probably should have e-mailed Vocalink’s PR folk instead, but anyway I thought I would pick out a few key points from the article and, using my skills and judgement with respect to the e-mails that I got, point out a few interesting aspects of what has been publicly stated.

Vocalink, which runs the UK’s payment infrastructure, said on Monday that customers would be able to pay at the till without a credit or debit card, by loading a mobile app and then scanning a barcode, or tapping a reader, with their phones. The service, called Zapp, is scheduled to launch in mid-2014 at a development cost of £100m.

[From Vocalink to launch Zapp mobile payments scheme - FT.com]

At first glance, readers might think this uninteresting, since it sounds exactly like LevelUp. But there’s a crucial difference here, which is that (much as MCX wants to do), the underlying payment mechanism will be direct bank account to bank account transfer. In the UK, unlike the US, there is a suitable credit push mechanism for this, the Faster Payment Service (FPS). So, the experience is likely to be that you do your shopping, you use your Zapp app to pay and there is an immediate FPS push from your bank account to the retailer’s bank account or (more likely in my opinion) an FPS push is issued and the “confirmation” given to the retailer immediately so that the goods can be released. If it takes a bit of time for the FPS push to reach the retailer bank account, it doesn’t matter (I stress that I know nothing about Zapp at all, this is merely informed speculation by an interested member of the general public).

“The zeitgeist is that the world is exploring ways of going straight to the bank account,” said Dave Birch, a consultant at Consult Hyperion. “In the US, the drive is by the retailers, whereas here it’s Vocalink . . . The most important thing is that payments are interesting again.”

[From Vocalink to launch Zapp mobile payments scheme - FT.com]

I did indeed say both of these things, and great many more beside. In particular, I said that while the retailers (and others) are trying to bypass the international card schemes and go straight to the bank account, the international card schemes are not stupid and can read the newspapers just as well as I can. Hence they are developing a spectrum of value-added propositions to make the retailers want to use them when they no longer have to use them. This is going to drive a lot of innovation, which is why payments are getting so interesting. Hence Zapp will have to develop similar value-added propositions and simply undercutting existing credit and debit card fees may not be enough to “win”.

Lloyds Banking Group and HSBC told the Financial Times that they were considering joining the scheme. But Barclays, HSBC, Lloyds, RBS and Santander have all signed up to a separate initiative, also to be powered by Vocalink, whereby individuals will be able to make payments to other people using their phone numbers.

[From Vocalink to launch Zapp mobile payments scheme - FT.com]

This is a misunderstanding which I saw in several reports. The journalists are getting confused between the mobile front-end to the FPS system, which is essentially the same as Barclays existing PingIt service, and the retail proposition that will run on the same FPS rails. There is a logic to this: with the banks having invested so much in creating the FPS service, it makes sense to use it for as many new services as they can. And for a variety of reasons too boring to go into, there are non-technical reasons for the stakeholders to prefer a credit push solution over a debit pull solution.

Unlike some mobile payment services, Zapp is not seeking to cut out acquirers such as Visa and MasterCard.

[From Vocalink to launch Zapp mobile payments scheme - FT.com]

Visa and MasterCard are not, of course, acquirers. I think what the journalist may have been told is that Zapp hopes to work with acquirers to persuade them to handle Zapp payments alongside their existing payment schemes such as Visa and MasterCard. Now, none of their existing infrastructure supports Zapp so they will have to spend money on adapting it (which they may well be persuaded to do) but it’s not a simple add-on.

The way that the app works is likely to vary according to the way retailers choose to use it. Marks and Spencer, for example, uses contactless terminals, based on near-field communication.

[From Vocalink to launch Zapp mobile payments scheme - FT.com]

This is, I imagine, true. However, it’s also complicated. I’m sure that what the Zapp guys are thinking is that NFC is much easier and more appealing for customers than QR codes, so the Zapp app will be indifferent: if the POS has an NFC interface then the customer can tap, if not they can scan (or use Bluetooth or whatever). The Samsung owners can smugly tap and go, the Apple owners can pfaff about scanning. Again, though, not that simple. The NFC interfaces on the existing terminals are used for EMV (ie, NFC card emulation mode), which is why they will need upgrading to do cool stuff with Zapp (hence the appeal to acquirers).

As I mentioned when I was talking about PayPal Here recently, adding NFC would make it rock. To make Zapp rock, it could exploit the NFC interface in the phone connecting with an NFC interface in the terminal for high-speed data exchange (so they could dispense with paper receipt printing, for example). I’m sure they are working on the roadmap for this right now. This could be an excellent customer experience: terminal displays total just as it does now and the customer can tap with card and wait for a paper receipt to print out or they can tap with a phone and have the coupons, vouchers and ID go to the terminal, the payment request come back and get authorised by a PIN (or a fingerprint or whatever) and then have the receipt plus other “small data” (who knows: pictures of the goods , warranties) loaded to the handset instantly. With a bit of jiggery-pokery around digital signatures to make it all secure, could work rather well. I wouldn’t use it, naturally, because I get frequent-flyer miles with my BA Amex card, but I’m sure the predominantly debit card-using public probably would. Why would they care if the money is debited from their account by a Visa/MC debit transaction or a Zapp FPS transaction?

However, that technology has not always worked smoothly, with customers complaining they have been charged twice when more than one of their cards has entered the terminal’s range.

[From Vocalink to launch Zapp mobile payments scheme - FT.com]

This has got nothing to do with Zapp and, as I bored everyone to tears with before, is to do with ergonomics rather than than the specific configuration of the short-range proximity technology used. It doesn’t matter whether the contactless interface is being used for EMV, a future version of PingIt or Zapp, there will still be a story in the newspapers about fraudsters accessing your card / phone / chip implant from outer space.

When it comes down to it, I’m a competition-over-regulation kind of guy, so I’m really looking forward to seeing what the Vocalink boffins will unleash next year. I hope it will be a new round of innovation in the retail payments space.

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.