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

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

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

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

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

Here I am lobbying Jean Allix on your behalf.

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The post API Blast ends with part 3: euro-API, OTT, DGComp and DGInt appeared first on Tomorrow's Transactions.

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

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

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

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

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

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The post API Blast part 1: PSD, XS2A, TPPs and PSPs appeared first on Tomorrow's Transactions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

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

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

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

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

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

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

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

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

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

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

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

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

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

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

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

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

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

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

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

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

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

[From Push Payments Manifesto | OpenPayee]

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

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

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

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

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

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

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

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

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

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

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

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

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

“Dad, can you lend me a fiver?”

In a world with cash:

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

In a world without cash:

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

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

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

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

PingIt request “can you lend me a fiver?”

Confirm.

Er, that’s it..

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

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

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

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

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

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

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

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

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

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

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

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

[From Tomorrow's Transactions]

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

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

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

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

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

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

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

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

Just because there isn’t any contactless crime does not mean that we should ignore the fears of consumers (or, for that matter, the police). Time for some mass market education on cuddle cards, as I now call them.

Although we don’t focus on it — by and large because it works and has become business as usual — I think that contactless payment technology is fun. I had an enjoyable couple of days trying out my usual panoply of cards, phones, watches and stickers when I was last in Canada and I have to report that the situation was all systems go (except for one of my UK MasterCards that was inexplicably declined) whereas in the US it remains mixed. Meanwhile, it’s going gangbusters down under, as I discovered on my last trip to Australia. I paid with cards everywhere, and almost everywhere I paid I paid with contactless. Like in this taxi, for example.

Unfortunately, the Aussie rousers are less enthusiastic than I am about the amazing technology, the rapidly-evolving Australian retail payment environment, innovation at point of sale and quick and easy transactions for consumers. They claim, in fact, that there is wave, plague and apocalypse of crime that can be directly attributed to the new technology.

“We’re seeing many, many theft of motor cars, handbags and burglaries where people are looking for these cards, are getting hold of them and within hours of getting them, they’re going into stores and using them.

[From Tap-and-go credit cards contributing to increase in crime stats, Victoria Police says - ABC News (Australian Broadcasting Corporation)]

This is, if true, rather interesting. I say “if true”, of course, because I have been unable to uncover any statistics that back up the Victoria police claim. Nor, it seems, have any of their fellow law enforcement agencies.

Police around the country have differing views on the effect the cards are having on burglaries. The NSW Police said it had “not seen a spike in credit card related fraud since the advent of contactless payment technology”.

[From Banks stare down police over tap-and-go]

Still, this tidal wave of contactless crime must surely have shown up in the bank fraud statistics.

One of the major banks said on Thursday it had 30 per cent more ­contactless cards in the market compared with a year ago but card fraud was flat.

[From Banks stare down police over tap-and-go]

Oh well. Let’s just assume for sake of argument that there is a crime wave, plague and apocalypse but only in Victoria and only amongst issuers who do no collect or report card fraud statistics. That still sounds like a bank problem to me, since issuers will bear the losses. If a mugger demands my contactless card then I will give it to him. I couldn’t care less since it’s not my problem: the UK banks have an unequivocal guarantee to refunds unauthorised transitions. Nevertheless, the Melbourne heat seem most upset about contactless in general and especially miffed that they were not one of the stakeholders consulted in the banks’ roll-out.

he said police were not consulted before tap-and-go credit cards were introduced and that he regretted their introduction… “They are chewing up an enormous amount of police resources.

[From Tap-and-go credit cards contributing to increase in crime stats, Victoria Police says - ABC News (Australian Broadcasting Corporation)]

The crime wave, by the way, does not seem to have affected public confidence, since contactless use continues to soar. It is at very high levels in Australia already, with more than two-third of supermarket transactions already tap and go. Use amongst police chiefs, so far as the statistics presented in the article would indicate, seems particularly high.

Mr Lay did admit he used a tap-and-go card all the time.

[From Tap-and-go credit cards contributing to increase in crime stats, Victoria Police says - ABC News (Australian Broadcasting Corporation)]

Aha. I should point out, by the way, that the Victorian peelers objections to contactless go back some time. They’ve always been uncomfortable with contactless.

Police want to ban banks’ tap and go technology after vowing to take on big business over sloppy work practices. The force said it is sick of “mopping up” for “totally slack” initiatives that it states encourage crime.

[From Police want ban on tap and go technology, saying sloppy practices can promote crime | Herald Sun]

We have to address real issues, of course, but the fact is that public perception around contactless is not always rational. That Australian story was widely reported in the British press, fuelling public concerns (I have made a fascinating podcast with Karen Williams from Spectrum Insight on this topic). The British press have, it seems to me, always been rather keen on these scare stories. See this hilarious comment on a Daily Mail story about contactless.

It is well known that in America, thieves carry tablets and electronic readers in bags, walk around railway stations and shopping malls and scoop up all data automatically from these cards.

[From Customers charged twice for items because contactless cards were activated from their pockets | Mail Online]

Really? “Well-known”? If anyone can point to me a single reputable report of this ever happening, I would be grateful as I would like to link to it and continue the investigation. Far from being “well-known” I frankly doubt that it has ever happened at all. If you jammed an electronic reader up against my arse on the Tube, and kept it there undetected long enough to scan my card (I only have one in London wallet – haven’t you ever heard of card clash) then you would not get my name or the CVV for the card, so it’s not much of master crime. You can’t use the data to make a clone card and you can’t use it to buy online. Neverthess, as the analysis of contactless sentiment I discussed earlier in the week show, just because something doesn’t happen does not mean can ignore it. If consumer believe it, then we must deal with it.

I think we as an industry should probably be reacting to the “fear” area with some pretty clear messaging around how the technology works, how liabilities are distributed and the consumer protection that the combination provides.

[From Contactless sentiment - Tomorrow's Transactions]

The traditional way of educating the mass market in the UK about anything is to pester the BBC to include it as an EastEnders story line. I shall come back with some ideas soon, but since I haven’t watched EastEnders for at least a decade, it may take some research to get a viable narrative.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The post Crime and contactless appeared first on Tomorrow's Transactions.

We used to talk about the “Scandinavian model” when talking about the mixed economy and welfare state. But I’m interested in the other Scandinavian model.

In the UK we love a good episode of The Killing or The Bridge. I’m a big fan. (Wallander not so much.) One thing I kept thinking when watching The Bridge recently was how the mobile phone had been integrated into the crime drama. The mobile phone changed crime drama for good. Now you have to have complicated plot devices around why someone doesn’t have a phone, or a signal, or has two phones, or can’t be tracked or whatever. Then it occurred to me that when the Scandinavians get rid of cash, they will have to rewrite the crime drama again.

Get rid of cash? Yes. Look at how things are developing over there. In Sweden for example. In the old days, there were domestic debit cards in Sweden: BankKort and Sparbankskort. These were free to customers, who mainly used them to get cash from ATMs. Credit card volumes were low. By comparison with their Nordic neighbours, the Swedes were heavy users of cash (and hence saw far more armed robberies than their neighbours.

In 1995, the Swedes decided to ditch the domestic debit cards and replace them with scheme cards. So Visa Sweden and EuroPay Sweden sprang up — with a system of bilateral interchange fees (there are now 29 issuers and 10 acquirers who have these agreements, which are not seen — as I understand it — by Visa or MasterCard) — and began to market cards as an alternative to cash. And they had success. Today, there are no paper cheques and debit card transactions dominate at point of sale.

If you look at Swedbank as an example, they have seen debit card transactions go from 12m in 1995 to one billion today while ATM transactions have grown only from 50m to 85m. A pretty successful effort by any measure. More than 97% of Swedes have debit cards (these are issued to citizens from the age of seven years up, with parental permission) and more than 99% of merchants accept cards, with the consequence that 80%+ of retail transactions are card (it’s about half in the UK and about two-thirds in the US).

The Swedish Central Bank’s goal has begun to be achieved, in that Sweden is one of the few countries in the world where the cash “in circulation” is actually falling. However, as the Riksbanken said back in 2012, the use of cash even in Sweden is still far too high compared to where it should be on the basis of social costs (because debit cards have the lowest total social costs. They want to drive cash usage down still further.

Niklas Arvidsson at the KTH Royal Institute of Technology in Sweden predicts that paper money and coins will disappear from Swedish society – “but probably not before 2030,” he says.

[From The cashless society is closer than you think | ScienceNordic]

Cards will not, of course, be the final nail in the coffin for Swedish cash. That honour will go to the mobile phone. But there is still work to be one.

“It would also have to meet several requirements, such as good emergency backups. People would need to be able to pay even during power cuts, or when electronic systems crashed or were hacked. Currently cash payment is the only system that never fails, so it’s difficult to see how we could go totally cashless.”

[From The cashless society is closer than you think | ScienceNordic]

As I’ve mentioned before on the blog, the reason why I am curious about the Swedish situation is that in Sweden the anti-cash alliance is a broad church, embracing not only banks and law enforcement but the trade unions and the retailers.

Swedbank is piloting the use of mobile couponing with merchants in Uppsala, the country’s fourth-largest city which is bidding to eradicate cash as part of a local crime-fighting initiative.

[From Finextra: Swedbank pilots mobile couponing in cashless utopia Uppsala]

Not everyone is heading down this same path, though. While most of the bank branches in Sweden are now “cashless”, there are still reactionary forces at large.

In fact, for three of the four major Swedish banks combined, 530 of their 780 office no longer accept or pay out cash. In the case of the Nordea Bank, 200 of its 300 branches are now cashless, and three-quarters of Swedbank’s branches no longer handle cash… Fewer then 10 of Handelsbanken’s 461 branches currently do not handle cash and the bank’s goal is to have cash in every branch by the first quarter of 2013.

[From Sweden’s War on Cash Runs Into a Wall–and a Heroic Bank :: The Circle Bastiat]

Hurrah for competition. So long as the three major bank’s electronic payments are not cross-subsidising Handelsbanken’s cash then no problem. When I say that the anti-cash movement is broadly-based, by the way, I really mean it. And they have a great figurehead too: Bjorn from ABBA. I loved the interview with him in the “Digital Values” magazine, where he comments that Sweden, Denmark and Norway would be the ideal countries to go cashless first (of course, I’m hoping Scotland will beat them to it after hearing my talk to the FS Club in Edinburgh back in April). But listen to him: he is spot on!

• Go Bjorn! “It is completely incomprehensible why Sweden’s central bank is to issue a new series of notes from 2015”
• Go Bjorn! “Who needs 500 Kroner or 1000 Kroner notes?” (and as far I as understand the situation, the Swedish banks have said essentially the same thing to the central bank).
• Go Bjorn! “The problem of begging isn’t a problem of payments or payments technology”

What a guy. He’s even made the ABBA museum cashless! And when asked about that, he said “some people asked did we want to frighten away the Russians with their bundles of notes”, which might well be a more general comment about activities in a number of European capitals. Incidentally, in the same magazine, Professor Kai Olsen notes that, of course, going cashless wouldn’t eliminate crime but goes on to say that if the Nordics went cashless they would at least export some of their Eastern European criminals (“Digital Values”, p.44). Which brings me to a serious point, that I raised following a super presentation by Kurt Gjesten from the Pan-Nordic Card Association at the PayComm MEETS 2014 event. Why aren’t the general public more outraged about the use of cash to support — indeed, subsidise — a variety of nefarious activities?

Like many other Greeks, Mr. Mantzouranis said, Mr. Kantas would bring bundles of cash to his banker, who would fly to Switzerland to make the deposits when enough cash had accumulated to make the trip worthwhile.

[From So Many Bribes, a Greek Official Can’t Recall Them All - NYTimes.com]

I spoke to Kurt later in the day and we concluded that we (ie, the payments industry) need to become considerably more effective at communicating these issues to the general public. We can’t blame them for remaining ignorant about the pernicious and revolting impact of cash on our civilised society if don’t make an effort to explain them. I intend to start right away.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The post Scandinavian models and Russian cash appeared first on Tomorrow's Transactions.