As my good friend Andrew Curry (@nextwavefutures) says, Apple Pay is a sheepdog, not a wolf. It’s not disrupting or displacing anyone in the payments value chain. But that doesn’t mean that it couldn’t.

I saw a lot of comment on an article in Harvard Business Review that discussed Apple Pay and concluded that it is not a disruptive play.

By launching Apple Pay as a reseller instead of as a disruptor, Apple is helping to perpetuate a credit card payment system that is obsolete, overly expensive, and absolutely unnecessary in the present day.

[From Apple Pay Is Just a Big Giveaway to Credit Card Companies – HBR]

Well, that’s a little harsh and I’m not sure I’d agree that credit cards are obsolete, but you cannot help but agree with the core point about Apple Pay not being a disruptive technology. I’m hardly the only the person that thinks this and it’s not a new perspective. ApplePay is not disruptive because it cements in place the existing rails for retail payments. And there are good reasons for doing that (apart from anything else, they work) and it means that the service has immediate access to a mass market.

But truly disruptive new services don’t just digitize the familiar. They do away with it.

[From What Amazon, iTunes, and Uber teach us about Apple Pay – O’Reilly Radar]

This is a fair point.

In each of these cases, my payment information is simply a stored credential that is already associated with my identity. And that identity is increasingly recognized by means other than an explicit payment process.

[From What Amazon, iTunes, and Uber teach us about Apple Pay – O’Reilly Radar]

The point is, of course, that in time all services like Uber will use ApplePay, because they will want to switch from using stored payment card credentials under “card on file” rules and rates and instead use “cardholder present” rules and rates. This will turn all payments into push payments (which is a good thing) and greatly benefit retailers and consumers alike. What will vanish is the idea of a “point of sale”, since even in-store all payments will be made in-app, just like Uber.

Apple Pay optimizes for how the world does work. The real winner in payments will build for how the world should work.

[From What Amazon, iTunes, and Uber teach us about Apple Pay – O’Reilly Radar]

So how should payments work? Well, that depends on who you are. But if you are a merchant, for example, you want the money to come directly from the customer’s bank and into your bank (forget about what “bank” might mean for the moment) with no-one else in the loop.

Banks don’t orchestrate commerce… they are a dumb pipe payment service that cost far more than the value they provide. The greater they work to control the existing pipes, the greater the business case is for going around them, or regulating them into submission.

[From Money 2020: Tokens and Networks | FinVentures]

Well, Tom’s typically robust approach may aggravate some but there’s no denying that he has an informed perspective. Unless banks find some added value (spoiler alert: I have a feeling that this may be something to do with identity) then they won’t get anything out of this either. Time to start developing a strategic response to the falling net interest income, transaction fees asymptotic to zero, flat trading income future. Time to start growing the “other” piece of the pie shown this breakdown of bank revenues.

European Bank Revenues for 2014 (Source: Deutsche Bank, March 2015).

You don’t need to pay any attention to how I think payments should work. But you should pay attention to how Bill Gates said they should work in his closing address to SIBOS 2014. He said:

What should the marginal cost of a transaction be, if the identities are properly established, it is extremely low.

The banks role is to reduce the marginal cost of everyone else’s transactions as well as their own by delivering the trusted identification with strong authentication (where they could be the sheepdogs) that the new economy demands. This means more transactions, more commerce, more prosperity and it means a decent line of business for the banks themselves.

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 British man, Mr Navinder Singh Sarao has been arrested, and faces extradition to the United States, accused of market manipulation, allegedly causing a 1,000 point drop in the Dow Jones index in 45 minutes and leading to personal enrichment to the tune of $40 million from that and similar incidents. Mr Sarao is a lone trader and was apprehended in his parents’ modest semi-detached house near Heathrow. He lives in a similar house across the street.

The profiteering is supposed to have occurred roughly like this:

1. Multiple sell offers were placed on the futures market, at low prices, which the offerer had no intention (and, in all probability, not the means) of fulfilling.
2. The primary market in the affected stocks, and perhaps others, fell on the flood of offers.
3. The manipulator bought shares at the depressed prices.
4. He withdrew the futures offers.
5. The primary market recovered and the manipulator sold his shares at a profit.

Leaving aside, of course, the question of Mr Sarao’s guilt or innocence, a couple of questions spring to mind:

• When someone in London manipulates a market centred on New York, in what criminal jurisdiction is he acting?
• To what extent does this kind of behaviour occur: is it possible that major market players indulge in such manipulations but at a more discreet level?

I’m not going to speculate further on those. To me, the more interesting questions are:

• How could other market participants be so naive (it’s the politest word I can find) as to fall for such a scam?
• What could be done to reduce the chance of this kind of thing happening again?

I’m by no means an expert in the particular markets involved here. But I do know that if I see my neighbour repeatedly put his house on the market, but never actually sell it, then he’s not exactly serious. If he puts it on the market for a first time, owning a similar property, and as a middle-class Englishman, I’m naturally interested in the price. If that price is wildly high, compared to actual recent deals for similar houses that are recorded on the publically available land registry database, then I’ll conclude that, as for a second marriage, my neighbour is suffering from the triumph of hope over experience. It’s about him, not the property and not the market. Similarly, if the price is unusually low, I’ll conclude that he has fallen upon hard times and is need of ready cash, rather than immediately supposing that conditions are such that there is a surfeit of such sellers that will move the market.

If another neighbour, who drives a modest car, suddenly auctions Bentleys I’ve never seen on eBay, my suspicions would be aroused. And so on and so on. What’s important in these examples, and applicable to wider markets, is not the absolute knowledge of a person’s identity, but of his standing and track record.

If somebody offers to sell stocks at a future date, he is more credible if it can be demonstrated that he actually owns them; or somewhat more credible if it can be demonstrated he has borrowed them. If neither of those can be demonstrated, then evidence that he owns lots of other stuff, to a much higher value than what he has offered, would be reassuring. Likewise, evidence that a reasonable proportion of his offers has been fulfilled.

How might any of that be achieved? One way would be for exchanges, registrars and so on to maintain central databases of offers, trades and holdings, query-able in realtime by market participants. That would raise a number of difficulties: for example, queries could place a massive strain on centralised systems, which might also present attractive targets to hackers working on behalf of manipulators.

An alternative approach could be to implement distributed ledgers using the blockchain technology that underpins BitCoin, or a variant thereof. There would be no single point of failure, and manipulation of the record is, for all practical purposes, impossible once a chain acquires new links (new offers, new transactions, new holdings, etc) and is widely replicated. For an in-depth view of how the blockchain can provide for efficient and secure financial transactions, beyond crypto-currencies, register for the excellent Payments Forward event on 11th May in London and listen to our very own Steve Pannifer demystify the technology before the panel session featuring Lloyds Banking Group, Eris Industries and others.

To me, it is incredible, and seriously worrying, that major players in the financial markets underpinning our economic system are not alert to basic warning signals that any dealer in second-hand goods would recognise. Indeed, they cannot be, given the current infrastructure. Fortunately, technology is at hand to rectify that. Who will move?

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.

My son and I have been out and about, living the life of normal folk who don’t care about payments. We made a couple of cash payments and we made a couple of non-cash payments. We didn’t, however, make any chip and PIN or contactless or swipe payments.

The Halifax, part of the Lloyds Banking Group, just released some interesting figures about trends in customer use of payments. One of the more noticeable trends is the steady fall in the use of cash, a fact that was picked up on by a a number of news outlets.

Cash withdrawals now account for just £18.33 of every £100 spent, a £1.82 decline since 2013.

[From Finextra: Finextra news: Card is king as cash usage continues to fall – Halifax]

This got me on to BBC Wake Up To Money and subsequently a number of other BBC Radio interviews about the rise of electronic payments and the decline of cash. One of the questions I was asked was about places where you have to use cash. I couldn’t think of one off the top of my head. I was thinking of using the example of giving money to beggar in the street (which I never do, I but I’ve heard of the phenomenon), but then I remembered that beggars are ahead of this particular curve.

A professional beggar who travels hundreds of miles from his home in Lancashire to London’s Mayfair has been using a credit card reader to accept payments from wealthy tourists. Damien Preston-Booth, 37, commutes from his rented home in the north-west, but pretends to be homeless when he asks passers-by for money on the streets of London. As well as taking cash from wealthy tourists in the exclusive Mayfair area, he also has a mobile card reader and accepts payments to his PayPal account.

[From Beggar uses card reader to take donations – Telegraph]

I think this is pretty forward-thinking of him, and despite the underhand nature of his enterprise, applaud his willingness to try exciting new forms of payments at the heart of Europe’s FinTech capital.

The reader is linked by Bluetooth to his smartphone and the donor receives a receipt for the donation via email.

[From Beggar uses card reader to take donations – Telegraph]

If you want to donate to another worthy cause, the Dave Birch Holiday Home in the South of France Emergency Appeal, you can PingIt the money to @dgwbirch and I will, of course, be only to happy to e-mail you a receipt on request. But back to the point. Where do you have to use cash? On one of the shows (I apologise for forgetting which one) someone said that they had to pay cash at they local Chinese restaurant. This made me wonder: why do people go to cash-only restaurants? Apparently I’m not the only person that thinks about this.

Either we didn’t know it was cash-only, and are now furious about this fact for all the reasons examined above; or we did know it was cash-only, and we chose it anyway because it made us feel bohemian, in-the-know, and capital-C Cool.

[From Why the Cash-Only Restaurant Must Die]

Yeah, well. I don’t buy the hipster curve on this. If I am out for lunch and I see a restaurant with “cash only” in big letters on the door then I will walk straight past it. The only reason that I’ll go in is because they don’t tell you they are cash-only until it is too late. I have the same problem with taxis. I suddenly decide to hail a black because I’m in a street full of them and so can’t be bothered to use Hailo or Uber or whatever. So I put my arm out, the cab stops, I jump in and… I see a sign saying “cash only”.

At that point I should of course tell the driver to stop and let me out, but because I’m English I find it very difficult to do that and so instead sit fuming in the back until we approach my destination and then jump out to run to an ATM. It looks as if some other drivers recognise and anticipate that problem too, because it’s presumably a problem for them that the machines often have only £10 and £20 notes in them.

In a modern city such as London, this is unacceptable. Either ban taxis from cash-only operation or make them paint the cash-only taxis a different colour so that normal law-abiding citizens can avoid hailing them. Anyway: it’s a minor point. Hailo, Uber and whatever mean that none of us will be hailing taxis for very much longer and #appandpay will again triumph over #tapandpay. Meanwhile, still scratching my head about where I might last have used cash, I remembered my day out in Woking last week. I picked up my son from his friend’s house, where he regaled me with (quite unprompted) tales of his night out at Wagamama in Camberley, where he tried out their nearly new QKR! implementation. He loved it, and thought that the #appandpay convenience of the service was an absolute winner. Why wait for a server to come over to the table with a chip and PIN machine when you can just pay via the app and go?

He was telling me this as we were strolling down to check out Woking’s newest wargamesshop, the excellent “ibuywargames”. Having had a look around and decided to buy a couple of things, I noticed a PayPal chip and PIN reader in the store. I took this to mean that they would accept all forms of PayPal so, since I had my phone in my hand but my cards were in my wallet, we both fired up PayPal and I paid in-app. Another #appandpay triumph, but this time over #chipandpay. So, no need for cash there either.

But then I remembered: I did use cash after all that day. We stopped for a burrito at the truly fabulous Aracelis stall in the old Woking market. I was lured there by my son’s tales of their fantastic Mexican food. I am sorry to report that when I got there I found that they were cash-only, so I was about to walk away on principle but my son forced me to suppress my conscience and order. It was amazing. All they need is a contactless reader and I might never leave.

The point here is that one of the key reasons why cash is in decline for retail transactions (as I mentioned on several radio stations) is the rise of the mobile phone as a alternative not only to the card but also to the terminal. As has been observed here many times before, it is the mobile phone (rather than the plastic card) that it is leading down the road to cashlessness, and this is the point I wanted to reinforce. Oh, and that half of the payment experiences I’ve spoken about here were in-app.

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 UK’s new Payment Systems Regulator is now open for business. I imagine that their highest priority work stream will be around access to payment systems, because this is what “challenger” banks need in order to create the more competitive environment that the UK Treasury wants.

The payment systems regulator (PSR) has published their report on a new regularly framework for payment systems in the UK and, as I’m sure many other people did, I spent the weekend reading through it so that our clients can feed it into their product and service roadmaps where appropriate. It’s important to understand the pressures that the new framework will bring to bear and have some realistic ideas about where it will have an impact in the short, medium and long-term. We’ve all understood the big picture for some time. A couple of years ago, I wrote that

The Chancellor’s decision to go down this route clearly re-frames payments as a utility.

[From Consultation on a new payments regulator for the UK]

What most interests me at the moment, however, because of the projects that we happened to be involved in at the moment, is the high level strategic direction of travel. In the report, the regulator outlines three key areas of concern: governance, innovation and access.

• The first of these, governance, has long been a concern and it was clear from the government’s earlier consultations that there was a (perfectly legitimate) requirement to involve more stakeholders in the decisions that need to be made and more transparency around the decisions. I don’t think anyone would disagree with this and the proposed actions (such as publishing the minutes of meetings) seem reasonable. Note as an aside that the reconstitution of the Payments Council as a trade association for the industry is a direct result of the desire to split governance from “implementation”.
• Following the original Treasury consultation (the one where the Treasury essentially ignored all of the actual consultation input, or as our friends at Celent put it at the time “Our understanding is that the Treasury feels that the responses (56 in gave the wrong answer“) it was clear that the issue of the pace of innovation in payment systems was going to be added to the proposed regulators casebook. I have commented a couple of times that is not entirely clear to me how this is to be achieved but that’s not the point of this post.
• The third area of concern, and this is the one where all of the trouble will come, is the ability of new players to get access to the core payment systems. In most of the fora where I hear such talk, access is the nexus between stable, boring and legacy infrastructure and the challenges, up and comers and next big things.

It is this last point about access that is key to achieving the Treasury’s goals for more competition in the banking sector and it is exactly what one of the more interesting (in my opinion) challengers was complaining about in the press this very weekend.

The lender, Fidor Bank, had planned to launch in the UK by the end of March, but has been held up with the country’s difficult payments infrastructure. The big four – Barclays, HSBC, Lloyds and RBS – act as sponsor banks with direct access to payments systems. None has accepted Fidor as a customer.

[From UK launch of digital bank Fidor hamstrung by payments providers – Telegraph]

With respect to this point about the need for “sponsor banks”, who can access the payment system and under what circumstances, the PSR says that they propose an “Access Rule” .

This would require these Operators to have “objective, risk-based and publicly- disclosed Access Requirements, which permit fair and open access”. We proposed requiring these Operators to be compliant with our proposed Access Rule by 30 June 2015. LINK, MasterCard and Visa are already subject to an obligation to provide objective, proportionate and non-discriminatory access under Regulation 97 of the PSRs 2009.

The devil, as it always is with these things, will be in the details. People who want direct access to the payment networks are somewhat suspicious that while the operators will comply with the requirement to publish objective, risk-based and publicly disclosed access requirements, they will insist on non-proportionate countermeasures. The regulator has clearly said (in section 4.14) that their access rule will ensure that operators access requirements are proportionate to the actual risk that will be incurred by adding the new participant. I hope that they are militant in enforcing this because the actual risks, or should I say the marginal increase in actual risks, associated with the addition of direct access by low-value payment systems seems to me to be fairly small.

One specific “access” where I imagine industry participants were vocal is the case of access to the UK’s Faster Payment Service, FPS, to provide immediate settlement. Faster Payments (the scheme that operates FPS) had already put out a White Paper on their vision for the access model of the future in which they say that their goal is absolutely to provide such access to enable a level playing field for the Payment Service Providers (PSPs) that want to offer such immediate settlement services to their customers through FPS.

To show how this might achieved, they set out an architecture to offer open and fair access on “reasonable commercial terms” to the PSPs through accredited technology vendors. You can see why they want to go down this accreditation route and it makes a lot of sense because none of the participants would want to risk technology problems disrupting the operation of what is, in essence, a piece of critical national infrastructure.

What is also interesting to me about this proposed model is that for organisations that are not eligible for a Bank of England Reserve Account for settlement purposes they propose to provide an alternative to finding a sponsor bank. Organisations (such as for example Google or Tesco or Apple) might want to participate in the scheme and can easily afford to set aside the cash for what is known as “pre-funding” collateral but they might not be able to, or not want to obtain either a banking licence or a Reserve Account. What’s more, sponsor banks may not want to handle the accounts of such organisations for a variety of reasons (one of them being AML regulations) and the organisations might not want to have sponsor banks either.

Right now one of the main complaints (from, e.g., Fidor) about sponsor access is the opacity of the commercial relationships with sponsor banks, which is one of the things that the PSR intends to address. The regulator has also set out some changes on indirect access to make the sponsor banks open up their services by publishing service descriptions, eligibility criteria and costs. So for organisations who want to use sponsor banks, the menu and pricing of the sponsor banks would allow them to quickly choose the right partner and get down to business.

At high level, then, the alternative to using a sponsor bank to gain access to FPS will be to gain access through one of the accredited vendor but with liquidity guaranteed by a sponsor (in return for a fee, obviously). The settlement must be guaranteed in this way otherwise you would have to wait for it to actually occur rather make the funds available immediately. This should be cheaper, quicker and simpler than going through the sponsor.

Faster Payments see a competitive market emerging through the accredited technology venders operating aggregation services to the PSP’s (which I think is probably right) but also say that over the time they intend to work with the Bank of England to identify new models and these could potentially open more participation to non-banks (such as retailers for example). Although they don’t say what these new settlement models will be, it is certainly possible to imagine models that will allow PSPs to offer new products and services to their customers. I’m sure this is one of the areas that the PSR will be looking at in their innovation work stream.

One other point. The White Paper also talks about how the new access model will connect with non-UK markets and I can certainly see that integration into other European immediate settlement services and perhaps even in the longer term interconnection with immediate settlement services in other countries (e.g., Australia) and perhaps one day even the United States will deliver a payments infrastructure that is a world away from the 1960s legacy models that still constrain innovation today.

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.

Biometrics aren’t really futuristic any more, and even in as conservative a sector as banking they are being deployed in the mass market. I’ve helped to organise a CSFI roundtable on the topic to share some practical experiences. (Revised 22nd April 2015 with updated roundtable details.)

Hey, how fun is this! Logging on to things by tapping your contactless bank card to your phone! I remember demonstrating this (using, if I recall correctly) WAP on a Nokia 6131 to some of our clients about six years ago, when they were getting ready to start issuing the first European contactless bank cards for pilots and trials in (I think) the UK and Italy.

Bank customers currently use dedicated passcode generator devices to access their accounts, but the new system will see them authenticating by simply tapping a contactless bank card to their NFC phone,

[From Korea shifts to NFC authentication for mobile banking – BayPay Members Blogs]

Of course, I will never, ever, do this at any time between now and the heat death of the universe because like everyone else on the planet I will use biometrics to authenticate myself to my mobile phone and thereby to service providers of all kinds. We’ve been playing around with biometrics and FIDO in the office on a couple of projects, and I can tell you that the combination works well now and will only get better in the future as the biometric sensors improve and become more sophisticated, as they mobile phone processors become more integrated with the sensors and as people become more intolerant of username and passwords and goodness knows what else.

This is why I was so interested to see USAA Bank (based in San Antonio, Texas), a bank that is well-known for being highly focused on customer service and innovative in the use of new technology to improve the customer experience, roll-out face-recognition for mobile phones using the technology of one of Consult Hyperion’s clients, Daon. Earlier this year, American Banker called their adoption of biometrics a “tipping point”. They use voice, face and (soon) fingerprint biometrics to provide security and convenience across their customer base. You can log in to your account by looking at your mobile phone: perfect for the young who are impateient with PINs and passwords, perfect for the rest of us who can’t remember them anyway.

The San Antonio financial services company has rolled out facial recognition technology across its entire membership base that lets them access its mobile app with a tap of their smartphone camera and a blink when prompted (to prove they’re a live person and not a photo).

[From Biometric Tipping Point: USAA Deploys Face, Voice Recognition|American Banker Article]

In a stroke of astonishing good luck, Rick Swenson from USAA (who is the Strategic Initiatives Executive quoted in this American Banker article) is going to be in London in May and has kindly agreed to join a lunchtime roundtable organised by the Centre for the Study of Financial Innovation at SWIFT on 11th May. Joining Rick will be a couple other speakers adding to your knowledge of the practical use of biometrics in mass-market retail financial services and, of course, me. So the full lunchtime line up will be:

• Rick Swenson, the USAA Executive responsible for Fraud Operational Excellence and Strategic Initiative who will share USAA’s experiences and explain why their approach has been so successful.
• Oran Cummings from MasterCard, who will give an international perspective on the use of biometrics in the financial sector.
• Keith Gold, IBM Banking and Financial Services Europe (retired), who has been helping the CSFI to understand the requirements of an ageing population, will talk about the importance of biometrics in the useability toolkit needed to this key segment of bank customers (or, why looking at a mobile phone is easier than remember a PIN for most of us!).

The usual well-informed and wide-ranging discussion will ensue, with wine and sandwiches for all. Don’t miss this opportunity to learn from Rick while he is visiting the UK. There may be a few places left so if you’re interested in seeing how the biometric state of the art is advancing in banking, do come along. Contact anna@csfi.org for further details and to reserve your place at this excellent (free) event. A couple of years ago, some people might have thought statements like this were speculative:

Within 10 years. “The economic payments system will begin to ‘know us,’ either through biometrics, optical sensor or facial recognition,” says Joshua Siegel, managing principal of StoneCastle Partners, a New York-based asset management firm that invests in banks.

[From Here’s What Banking And Money Will Be Like 30 Years From Now – Business Insider]

Who now seriously thinks that this isn’t true?

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 UK’s new Payment System Regulator has just published its policy statement and it contains references to Account Number Portability. I hope they go down the sensible path of virtual account numbers and “paynames” because, as I’ve been banging on about for years, bank account numbers and mobile phone numbers are not the same thing.

The Economic Secretary to the Treasury, Andrea Leadsom, has been consistent in calling for bank account portability as a way to do something about increasing competition.

Wouldn’t it be great if you could change your bank account from one bank to another at the touch of a button? So if you were fed up with the service your bank was providing or you wanted to take advantage of a great offer at another bank you would be able to switch without having to worry about changing all your direct debits, standing orders, cheque books, cards, account number etc.

Ever since I was first elected I have been campaigning to ensure customers can change their bank accounts as easily as a customer can change their mobile phone provider.

[From Andrea Leadsom | Working For You | Andrea’s Blog]

I asked Andrea about this when she was kind enough to drop in to techUK recently. With my chair-of-the-payments-group hat on, I thanked her for her plain speaking on the waste of money that was the Current Account Switching System (CASS) and enquired as to why account switching was still below it’s peak. I’m paraphrasing greatly, but she said that in essence it wasn’t worth switching because the banks are all the same. Other people have made the same point.

Customers may also not be able to make meaningful (to them) distinctions between financial services brands

[From New banks fight giants, but public still not switching]

However, there is a strand of thinking that says that switching might be reinvigorated through a solution with no impact on employers, utilities, friends, charities and so, and that is Account Number Portability (ANP) for UK banks. I notice that ANP has shown up in the new UK Financial Conduct Authority’s Payment System Regulator’s policy statement “A new regulatory framework for payment systems in the UK” (March 2015). The regulator says it will look at “current developments and innovations in the sector such as Account Number Portability”. Personally, I don’t think it’s a current development (there are no plans even for plans for ANP), but it could be an innovation to make Andrea proud. But how?

Well, as I mentioned to Andrea at techUK (I was the nutter at back who kept going on about “7-0” solutions, Angela) the best way to do this is with virtual account numbers (VANs) and virtual payment names (“paynames”). What’s more, an odd quirk of British numbering systems suggests a fun way to do this.

All mobile phone numbers in the UK begin with a “7”. Well, what if all VANs in the UK began with “70”? How cool would this be? The two main portable numbers that a consumer needs would both begin with a “7”.

[From Guest post: One virtual account number to rule them all | FT Alphaville]

I made this point in public three years ago when I was explaining why the Current Account Switching Service (CASS) would be a waste of money. I said at the time

In the general case, payers should enter the payee’s “Pay Name” (e.g., £dgwbirch or £chip.com or £donations@oxfam or whatever) rather than a mobile phone number…

[From E-ASS about face]

Square have just introduced the “cashtag”, which is basically this idea except doing something about it rather than just blogging about it. I’ve already bagged my cashtag. It is, as you might expect, $dgwbirch. The idea of the cashtag is so good and so obvious, even at the time of CASS planning, that, as my good friend Carol Benson observed… why isn’t my bank doing this?

Well, why indeed? I have no idea why they set about building CASS instead of developing the VAN idea, because it’s obviously a better use of industry money and a more effective long-term solution. The cashtag shows just where the VAN could go in terms of consumer convenience. I’ve been testing mine by inviting people to send money to the Dave Birch Holiday Home in the South of France Emergency Appeal Fund and so far I’ve got $4. So I can tell you unequivocally that it works, and that it is better than giving out bank account name, bank account number and bank sort code. And, of course, it’s portable. Right now it’s linked to my Simple account, but I can change it at any time to link to a different account.

Incidentally, I even explained how to fund the scheme, something I hope that the PSR’s management consultants will find when googling around for ideas in the coming months.

The Payments Council should sell vanity Pay Names to fund the development of the system and to keep it free to users. I’m sure some far eastern oligarch will cheerfully stump up a million or two to own £007 and I’m sure that even in these straightened times the forward-thinking finance director of Consult Hyperion could be persuaded to spend a few quid on £chyp.com and so on.

[From E-ASS about face]

So there you go, PSR, sorted. One less thing for your team to deal with. I’ll ask the team down at CHYP End to deal with your “Identity Assurance” thing next…

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.

In Europe the banks are being forced to open up APIs for third-party access to bank accounts. Obviously, this will cost money and entails risks. But from the work that Consult Hyperion has already done for banks in this area, I think I can see at least one way to build a positive business model around them.

As you may recall, the UK Government has for a while been looking at APIs in banking…

The UK Government is to launch a ‘Call for Evidence’ on how APIs could be used in banking to improve transparency and help customers compare financial services providers.

[From Finextra: UK Government issues call to action on bank APIs]

As you may further recall, I’ve commented that this is a fairly trivial use of APIs (you don’t need an API to download a statement as a CSV file and then upload it to a comparison site), but I suppose the government are looking at them in competition terms, rather than in strategic terms, and I don’t think they have any considered view of what the point of them might be. Anyway, I though you might be interested to know that while we were discussing APIs at the 18th Tomorrow’s Transaction Forum, the Chancellor’s Budget statement popped up with this snippet:

2.220 Application Programming Interfaces (APIs) in banking – The government has today confirmed its commitment to deliver an open API standard in UK banking and, working with the banking and FinTech industries, set out a detailed framework for its design by the end of 2015. This will enable FinTech firms to make use of bank data on behalf of customers in a variety of helpful and creative ways, and ensure the UK remains at the forefront of developments in financial technology and innovation.

This ought to be quite a scary snippet for banks, who are going to have to develop a strategic response to this very, very important structural change in the financial services sector. In my presentation to the Payments International 2015 pre-conference Mobile Payments Summit, I suggested that banks could begin to think about the impending API revolution by setting the goal to reinvent themselves as “amazonized” (Ie, API-based) businesses. But what shared framework could the banks and the government use to evolve their thinking? Well, one candidate has been put together by the Euro Banking Association.

As for a model for discussion purposes, the ABE-EBA “Digital Customer Services Infrastructure” (DCSI) vision for European banks is quite attractive. It envisages using three different kinds of APIs to give commerce direct access to pan-European payments infrastructure:

1. The “regulated payment APIs” as set out in PSD2.
2. The “non-regulated payment APIs” that PSPs define and agree themselves.
3. The non-payment APIs agreed between the PSDs and other stakeholders. A prime example of such a non-payment APIs would be digital identity services, ranging from authentication to age verification.

While identity is the common thread that runs through all of these APIs, in my own talk at the Forum I suggested that banks focus on this third category as the way to stay in the game and I thought again about this when Heather Schlegel was giving her excellent keynote on supporting the sharing economy. Krzysztof Korus of Prudentiz also touched on this in the session on “Access to the Account” (or “XS2A” as it is rather oddly known in European circles – surely it should be AXS2A?) that he ran at the EPCA Payment Summit 2015 in Brussels.

Banks will have to develop strong, convenient and modern identity and authentication services to make all of this would. But let’s imagine that they do. So how would all this DCSI work in practice? Well, I imagine it would be something along these lines.

1. I run my Amazon app and it asks me if it can have access to my bank account.
2. I consent, so I get bounced to my bank app and am required to authenticate to it.
3. I am returned to Amazon. Now when I check out, the default payment option will be “Amazon Super Debit Plus” (or whatever brand they use for direct access to the account).
4. In the settings for my bank app, Amazon now shows up as having direct access to my account, a setting that I can turn off at any time.

OK, quite an appealing model. But how is a bank going to make any money out of this? Providing these APIs isn’t going to be free and they have ongoing maintenance and support costs too. I spotted an article that had a useful categorisation of options for monetising APIs a while ago.

But our analysis indicates that APIs are generating revenues in one of three ways for the companies that choose to contribute their data

[FromMonetizing mobile apps: Striking the right balance | McKinsey & Company]

The three models that McKinsey identify are pay-per-use, subscription and revenue-sharing.

• Under the pay-per-use model, a company makes its transactional data available to third party apps that, for example, compare prices or analyze customer behavior. This accounts for around 40% of the APIs they looked at.
• Subscription models are similar, but fees accrue during a subscription period rather than per use. These were also around 40% of the APIs studied.
• The remaining fifth of the APIs looked used resource-usage and revenue-sharing models typically generate sales of a company’s own products (for example, on an online storefront), from which the app developer too gets a cut.

Whether you think this breakdown is right or not, it does illustrate that there are possibilities for banks to obtain revenues from providing decent identity-based services across the DCSI. These may, however, be constrained. In their report for the Treasury on “Data Sharing and Open Data for Banks” (September 2014), the Open Data Institute (ODI) and Fingleton Associates note that as PSD2 stands

banks would have to allow third parties, via an interface (an API), to initiate payments from bank accounts. That access must be given on the same basis as if to account owner, i.e., if the owner can initiate a payment at zero cost, then so must a third party.

The ODI/Fingleton report (I made a podcast about it with Andy Reiss from Fingleton if you are interested in learning more) says that APIs offer practical, immediate and valuable applications for banks, and it specifically goes on to say:

More generally, banks are in a strong position to “verify attributes” on behalf of others, or to become a trusted identity provider. They could sell this service.

If the commercial model ends up as no charge for regulated payment APIs, regulated charges for the non-regulated payments APIs but market pricing for the non-regulated,non-payment APIs (since it is unlikely that banks will be given free rein here), then some of the most valuable services might be these attribute services (IS_OVER_18, IS_UK_RESIDENT, IS_NOT_OVERDRAWN and so forth). It’s just a suggestion, but banks thinking about a strategy around identity might do worse than make attribute provision a focus.

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 wonderful people at the Emperia group kindly invited me to chair some sessions at last weeks MPE conference in Berlin, and an excellent conference it was too. One of the sessions I chaired was on “New technologies on merchant payments and POS”, which featured some super presentations and panel discussions on Bitcoin and mPOS. One of the comments that stood out for me during the mPOS discussion was when Nigel Dean, Marketing Director of Spire Payments, stated that “mPOS is changing POS forever.” Quite a bold statement, and one that I find myself in agreement with.

So after three days of travelling and conferencing, it was nice to get back to the New Forest and a bit of cycling, fresh air, stunning scenery and much needed exercise. Of course when my friends and I go cycling, it normally (err, always) involves a stop for a bit of cake and coffee. One of our frequent haunts is Braxton Gardens, which has been run by Sarah & Si for the last 3 or 4 years. Si looks after the gardens and Sarah looks after the cakes (all homemade).

This time there was a difference, rather than using a calculator to tot up the coffees and cakes Sarah was using an iPad. Working at CHYP, changes like this need a bit of further investigation, and Sarah was only too happy to talk about her new app. “It’s my iZettle!”, “I absolutely love it!”

Doesn’t it just make the adding up a bit easier, you might think? Well, no. Sarah told that in the short time she has been using the iZettle app it has made a significant impact on how she runs her business. Yes, it provides a nice menu for entering products, and so does make the adding up easier, but the main advantage is when she gets home in the evening.

“I log into the web and can see all the statistics. I know what my best sellers are, what sells when and what’s not selling.”

This was quite an enlightening conversation. The data that the app was providing was changing the way Sarah was running her business. She now knows which cakes to make more of, which to make less of, when her busy and quiet times are, etc. Her parting comment on it was interesting too and will be of great interest to blog readers..

“Oh it also connects to my card thing so I can take card payments too.”

Not everyone thinks the payment is the most important thing in the world! To Sarah, iZettle is the app and the data, not the card reader / PIN entry device.

There’s a useful lesson here. The value to the small merchant is not simply that they can now take cards, but that the data that the app provides can help them to understand their business better. This leads me back to Nigel’s comment, as more merchants at the lower end of the card acceptance spectrum start to see what mPOS and its associated capabilities provide over their traditional biscuit tin for cash, it’s pretty clear that there will be considerable electronic payment growth in the small- and micro-enterprise market.

As an aside, if you’d like to learn more about the possibilities in this sector, I will be taking part in the expert panel on mPOS at Consult Hyperion’s 18th annual Tomorrow’s Transactions Forum with STS, Miura and Worldpay. You’d be mad to miss it, so check out #ttforum15 and see how it is coming along.

Thanks to the incredible generosity of our sponsors (Worldpay, Visa Europe, Vocalink, NCR Alaric and Olswang) to tickets are virtually free at £550 + VAT. The Forum is limited to 100 delegates as always, so run (don’t walk) over to https://payprocess.chyp.com/ttforum/ to secure your place right away. And yes, I will take Bitcoin if you don’t want your spouse to see it on a credit card statement at the end of the month.

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.

Some fascinating debates around identity in my Twitterverse last week, considering the issue of the extent to which digital identity of one form or another can contribute to financial inclusion (and, by extension, social inclusion).

Well, to be honest, I think I’ve nailed my colours to the mast on this one.

I think that identity is crucial to the financial inclusion effort, and I’m not saying it just because Bill does…

Naturally, I couldn’t help but notice [Bill Gates] emphasis on digital identity as being equally as important as digital money in transforming the lives of the least well-off.

[From Bill Gates and I both talked about identity problems at SIBOS]

It seems to me that he was entirely right to point out that the issues of social and financial inclusion are linked and that the lack of identity infrastructure is a barrier to financial services for billions of people. And please also note that I’m fully aware that the issue of exclusion does not solely apply to developing countries. Even in developed countries, there are people who need but cannot obtain access to financial services.

When it comes to financial inclusion, one of the central issues is identity. And while the popular image of those excluded from the global economy are of those struggling in developing or impoverished economies—say the migratory sherpa lacking a home address—the way our current system is set up means that financial exclusion can strike anyone.

[From On the Road at G20: the Role of Identity in Financial Inclusion | Ripple]

The question is, as always, what we mean by “identity”. Do we mean a government-issued, single-source-of-truth identity like the Aadhar in India? Such a top-down approach is appealing to politicians but it is expensive and, as I wrote last year, vulnerable. It is possible that for emerging markets, a bottom-up approach is more practical. If we can find ways to effectively “crowdsource” identity we might end up with identities that are cheaper to deliver and harder to forge, identities that are suited to the risk-based approach of the FATF at lower values but that can be bound to more traditional, top-down identities at higher values. There are a great many circumstances where I might be prepared to engage in transactions with someone based on what the crowd thinks rather than what the government thinks anyway.

Cyber ID data (CID) provides a digital footprint from sources, such as social networks, ad networks, mobile and ecommerce sites, which can be used to address the very basic question, “Is this person who he claims to be?”
CID has the power to radically impact financial access for unbanked citizens

[From NextBillion.net | Unlocking the Unbanked]

As Consult Hyperion’s recent report for FSD Africa on the Somali remittance corridor’s problems (and potential solutions to those problems) make clear, it’s all about identity. Although… it depends what you mean by identity. Which is just the sort of thing, I imagine, that will be discussed in the “deep dive” session on financial inclusion at Consult Hyperion’s 18th annual Tomorrow’s Transactions Forum, which will be held in London on 18th-19th March. The session is chaired by Paul and features a keynote from Kosta Peric of the Bill and Melinda Gates Foundation and presentations by Millicom, GRM International, FSD Africa, Bitpesa, Western Union and others. You’d be mad to miss it, so nip over to Twitter and start checking out #ttforum15 right away.

Thanks to the incredible generosity of our sponsors (Worldpay, Visa Europe, Vocalink, NCR Alaric and Olswang) the tickets are virtually free at £550 + VAT. The Forum is limited to 100 delegates as always, so run (don’t walk) over to https://payprocess.chyp.com/ to secure your place right away. And yes, I will take Bitcoin if you don’t want your spouse to see it on a credit card statement at the end of the month.

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.

There’s been a lot of buzz around Bill Gates’ challenge to bank the unbanked, set out in this excellent Verge article. Naturally I agree with the sentiments, but the use of the word “unbanked” bothers me.

There are billions of people around the world who have no access to financial services and are thus prevented from taking steps to move them out of poverty. This is a real problem. But if we call these people “unbanked”, we set up a mental framework in which the goal is to get them them banked. But I don’t think this necessarily makes sense for them or the banks. I’ll use the example of India to explain why. In India, there is a massive push on right now to bank the population.

The prime minister, Narendra Modi, launched the initiative at the end of August, setting a target of 75m new accounts by Republic Day, January 26th. The scheme’s initial goal has been surpassed: 120m accounts have been opened.

[From Banking in India: Downwardly mobile | The Economist]

Whether these are accounts are, or will ever, be used is a different issue. I strongly suspect that many of the accounts will be used only to withdraw the balances from ATMs. This makes them an expensive proposition for banks.

Although two-thirds of the new accounts are empty, Mr Jaitley says 330 billion rupees in transfer payments and wages from a rural employment scheme will soon flow into them.

[From Banking in India: Downwardly mobile | The Economist]

As in the case of the “basic bank account” in the UK, this amounts to bullying banks into providing a money-losing account to people who don’t want it. The legacy infrastructure, regulatory burden and customer service requirements around banks mean that the cost model just does not make sense.

Banks have been told to cap the charge for withdrawals related to transfer payments at 1%, up to a maximum of 10 rupees. But research suggests a charge of 2-3% is required to cover the cost of managing cash.

[From Banking in India: Downwardly mobile | The Economist]

And that figure does not take into account the losses to the poor trapped in a cash economy. So how do we get around this? Well, I’ve written at length before about why India has been such an interesting case study as the regulations have been progressively relaxed to build the mobile payments base. India recently made a very important change to the regulatory environment by allowing non-banks to get involved.

Indian telecom groups such as Bharti Airtel and Vodafone are set to be given greater freedom to take on the country’s banks by offering enhanced mobile payment services, as part of forthcoming rule changes from the Reserve Bank of India.

[From Reserve Bank of India moves to enhance mobile payments market – FT.com]

Gates highlights the role of M-PESA is creating the new “mobile money” world, but in my opinion one of the key reasons for M-PESA’s success is that it isn’t run by a bank. Banks use it (and there are far more banked people in Kenya today than before M-PESA) but it isn’t a bank product. I think this regulatory light touch has been of great benefit to the population.

My point, really, is that calling people “unbanked” frames the problem incorrectly. It rather suggests that banks are the solution but providing money-losing services to people who don’t want them is a lose-lose. The first step on the ladder to financial inclusion is what we might alternatively term a transaction account. This could be a basic bank account, or it could be any other form of pre-paid account (e.g., M-PESA) or even an interest-bearing pre-paid account as with Tigo Pay in Tanzania.

Tigo, a unit of emerging markets telecom group Millicom Cellular International , has started a mobile money service that pays interest on balances, tapping into an underdeveloped market for financial services in Tanzania.

[From Tanzania’s Tigo launches interest-earning mobile money service | Reuters]

It took a year to get central bank approvals for this service, yet within a few months it had millions of customers. As of today, they have 3.7 active million users and have been paying approximately 10% interest on balances. And, again, it’s not a bank.

The problem is not that people are unbanked but that they are excluded and new technology is giving us many different options for including them. In different countries and different circumstances, different options might be best. But it is really not clear to me that banks are the best option, even for the banks themselves.

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.