[Dave Birch] Yesterday morning I heard the first story on the BBC concerning contactless cards in the U.K. because MasterCard officially launched its contactless ‘tap and go’ payments system, PayPass in London. The BBC coverage wasn’t bad — I particularly liked Forum friend (and head of Strategy at MasterCard) Oliver Steeley’s firm comment:

You can’t stand in the way of progress.

but the radio report I heard spent a lot of the coverage on the security issue. Now, I’m not aware of any figures from either the U.S. or Asia-Pacific that show fraud on ‘tap and go’ payment schemes to be any more or any less than on other schemes (if anyone has such figures, please do share them) but that’s not the point: the point is the focus on what could go wrong — despite the explicit statement by MasterCard that customers will not be liable — rather than an exploration of new opportunities.

Technorati Tags: contactless, security

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[Dave Birch] WebMoney is an electronic money and online payment system (transactions are conducted through WebMoney Transfer). WM Transfer Ltd, the owner and administrator of WebMoney Transfer Online Payment System, was founded in 1998 and is a legal corporate entity of Belize, Central America. Originally targeted mainly at Russian clients, it is now used by more than four million customers world-wide. Over on DGC there was a case study on Webmoney that was well worth reading. Their service, WebMoney Transfer, is now a global system, handling billions of Dollars, Euros and of course Rubles. They recently launched a fully-backed gold currency as well, 1 “WMG” equals 1 gram of Gold. Now, as is frequently observed, the difficult part of this kind of system is getting money into it, not moving money around it. Here they have executed a physical strategy that has resulted in 120,000 locations across Russia having electronic kiosks which allow anyone to pay cash and fund a Webmoney Transfer account. More than 25% of the total Webmoney account funding comes from these ‘cash-in’ kiosks.

Technorati Tags: cashless, e-purse, internet, money, p2p

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[Dave Birch] Credit card issuers aren’t very popular in the U.S. and they’re getting a torrid time from some quarters, includingmCongressional hearings this spring held by Senator Carl Levin. According to testimony, one witness exceeded his charge card’s $3,000 limit by $200 — triggering what eventually amounted to $7,500 in penalties and interest. After paying an average of $1,000 a year for six years, the man still owed $4,400. That experience has become all too common as the credit card industry has stealthily adopted methods designed to maximize burdensome penalties and fees, while ratcheting up interest rates as high as 30 percent. Companies bombard unwary consumers with teaser packages that promise very low interest rates to start, while reserving for themselves the right to raise rates whenever they choose. The details are buried in deliberately arcane contracts that run 30 pages long and that even lawyers have trouble understanding. What this means in practice, as with all payment systems, is that the costs fall on the people least able to afford them. One-third of U.S. cardholders are paying interest rates in excess of 20 percent. About a third of credit card accounts with balances pay little or no interest each month, which essentially amounts to a free or very low- cost loan. More than a third (36 percent) of accounts pay the regular interest rate. The final third of accounts — which are presumably the “sub prime” customers — pay interest rates that range from more than 20 percent to as high as 41 percent. What this kinds of press reports seem to show is that neither credit cards nor debit cards (ie, bank accounts) are good solutions for people with little or no money. What they need is cheap, simple, prepaid solutions.

Technorati Tags: credit cards, debit cards, payments, prepaid

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[Dave Birch] Running a retail payment system is pretty easy, which is why new entrants are attracted to it despite the thin margins, as we’ve discussed before. But it isn’t easy when things go wrong. Take a look at what’s been going on in Hong Kong, where there are currently 15 million Octopus cards in circulation and the company handles 10 million transactions totaling more than HK$78 million (about five million quid) every day. Octopus has been found to have takenan average of HK$240 from six cardholders every day for the past seven years (amounting to HK$3.7 million) because of faulty transactions. Octopus are, of course, going to refund the money to the 15,270 people affected going back to 2000. There are no records before 2000, so the additional HK$300K overcharged during that period is going to be donated to charity. The fault meant that about six in every 10,000 top-ups went wrong: the money was deducted from the cardholder’s bank account but not credited to their Octopus account. Octopus Holdings chief executive Prudence Chan Bik-wah said the main cause of the failed transactions was a malfunction of an electronic funds transfer module in the add-value machines at transit stations and that all top-up transactions from the machines will remain suspended until the problem is completely fixed. She also pointed out that since 90% of the customers are anonymous, it’s complicated to sort out refunds so customers are being encouraged to use personalised cards free of charge for the next 12 months.

Technorati Tags: contactless, payments, transit

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[Dave Birch] The arrival of contactless cards in the mass market continues to attract attention. As the first flush of enthusiasm passes, however, the coverage is beginning to fracture into two rather predictable perspectives. On the one hand, speed and convenience. This is particularly attractive to certain merchant categories (eg, fast food) and customers. So, for merchants like Arby’s, where speed is important, the faster transaction time is the dominant factor. American Express say that ExpressPay-enabled transactions can be completed in about one-third the time of a cash transaction and about half the time of a swipe-card transaction, and figures from Visa and MasterCard show similar gains. If anything, the merchants in the U.S.A. are upset that the contactless roll-out is too slow. Less than 2 percent of Visa’s cardholders in the U.S. currently have the technology. MasterCard has distributed 13 million PayPass cards and claims that 46,000 merchants now accept them. The pharmacy chain CVS/Caremark, which has had contactless readers in operation since 2005, says that less than 1 percent of its card transactions are contactless. McDonald’s has been prepared for contactless payment for two years. David Grooms, vice president of IT at McDonald’s USA says

We’re deployed in all of our restaurants in the U.S.

The installation of contactless terminals at merchant is clearly going to grow — and is one of the reasons that the forecasts for mobile payments are so bullish, with Juniper Research predicting that P2P fund transfers and mobile payments in the developing world, together with the commercialisation of NFC based mPayments will generate transactions worth approximately $22bn in 2011 — even in the U.K., where merchants have just been through the process of replacing all of their terminals for chip & PIN. Now, chip & PIN was of course extremely costly to card issuing companies, merchant companies and retail outlets. Indeed, some observers think that the U.S.A. will simply bypass it, moving via contactless to NFC and the next generation of retail payment devices. But even in the U.K., where the roll-out of the first contactless cards is imminent, merchant terminals are appearing. Barclaycard has signed its first 1,000 retail outlets for contactless and will launch its OnePulse combo chip, contactless and Oyster card next month. Elizabeth Chambers, chief marketing officer, Barclaycard, says

Cashless payments are starting to become a reality.

The retail outlets signed for contactless already include Coffee Republic, Threshers, Books Etc, YO! Sushi, Eat and Krispy Kreme. Once again the quick-serve retail (QSR) category is predictably dominant. In the U.S., Arby’s won’t discuss actual numbers, although they do say that the trend is positive, but rather interestingly say that they put the technology in because it was a convenient time to do so, not because it expected to see an immediate benefit. In other words, they were upgrading the company’s in-store point-of-sale (POS) system and decided to add contactless as part of the process. I’m sure this will be the general picture in the mass market outside certain very special cases. U.K. merchant won’t upgrade because of contactless, but when they do upgrade then contactless will be part of the new specification.

Technorati Tags: contactless, EMV, payments, retail, security

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[Dave Birch] I’m going to be chairing the E-Finance & Payments Law & Policy two day E-Finance Intensive on 5th and 6th November 2007 at the Grange City Hotel, 8-14 Coopers Row, London, EC3N 2BD (some of you may remember this as the fine hotel we used for the Digital Money Forum earlier this year). The event will look at the key regulatory, policy and legal challenges facing today’s payment professionals and will focus on all sorts of areas of interest ranging from prepaid and money transfer to SEPA and the PSD. Speakers include Lady Olga Maitland from IAMTN, Robert Caplehorn from PayPal, William Long from Sidley Austin LLP (editor of the fine E-Finance & Payments Law & Policy newsletter), Chris Reddish from Mastercard, Michael Salmony from EQUENS and many more. I’m very much looking forward to it, both because I think it’s useful for technologists and business persons to get a better picture of the regulatory landscape (especially because of SEPA) but also because I want to help the lawyers and regulators to get a better picture of the technological realities in the payments world. See you there.

Technorati Tags: prepaid, regulation, remittances, SEPA

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[Dave Birch] The Quick Serve Retail (QSR) segment represents more than $160 billion in spending, with more than 80 percent of transactions conducted in cash. Increasingly, U.S. customers are cards instead of cash when making these purchases. In the twelve months ending March 31, 2007, the number of Visa card transactions at quick service restaurants increased 31 percent. Debit card usage at quick service restaurants during the same period grew 32 percent over the previous year. I find myself getting annoyed when fast food places don’t take cards, and I’m not a particularly frequent visitor (despite appearances), because I can’t be bothered to go and get cash. Now, obviously, one particular thing that interests me about QSR is its role in the contactless roll-out, both because contactless seems to be a way to encourage QSR outlets to start taking cards and because the fact that they will take cards will encourage people (I imagine) to apply for contactless cards. In London, QSR might well be in the vanguard of the contactless revolution!

Technorati Tags: payments

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[Dave Birch] A splendid evening: free drinks and a lot of old friends getting together at the launch of Forum friend Mike Hendry‘s new book on Multi-application Smart Cards: Technology and Applications. I won’t embarrass either Mike or myself by noting how far we go back together, but it’s quite a way. Mike is one of the people in the industry whose opinions I have always genuinely valued and it was a pleasure to co-author the Financial Times Report on Electronic Payments with him a few years ago. But I will say that his role as Technical & Operations Director at the Project Management Office (PMO) was a significant factor in the success of the chip & PIN roll-out in the U.K.

Technorati Tags: EMV, smart cards

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As a special deal for Digital Identity Forum and Digital Money Forum
readers, Digital Identity Management, edited by Dave Birch, is now
available direct from the publishers. Gower at a 25% discount. Go to the Gower website to find out more about the book and enter code G07CW to receive the discount at checkout.

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.