The US shouldn’t look at Japan as a model for mobile payments, and Europe shouldn’t look at the US.

An interesting discussion about the relationship between age and payment mechanisms in a meeting this week reminded me to look again at Japan to see how the combination of money, technology and an ageing population come together to shape retail payment trends.

The number of prepaid electronic money cards in circulation hit 182.17 million in June, or triple what it was five years ago, a recent Bank of Japan survey said… growing at an annual pace of 15 percent to 20 percent in recent years… The BOJ credited the surge to people in their 30s who were the first to use the technology when it debuted and have since shed their privacy concerns to adopt it.

[From Use of prepaid e-money cards soars | The Japan Times Online]

Edy is by far the most commonly-used e-money service, predominantly on cards although an increasing number of consumers are using it on their phones as well. It remains a fact though — as Dean Bubley observed in a Twitter conversation on such — that most consumers with contactless phones still use their cards rather than the phones. That’s not to say that the use of contactless phones isn’t growing for other purposes. I guess it just means that payments are not as much fun as rice cooking…

Appliance makers in Japan are jumping on the smartphone bandwagon with new appliances that can communicate with smartphones. Panasonic will launch a steam microwave oven and two induction heating rice cookers on 1 June that can communicate with Android-based smartphones. The appliances also use the FeliCa contactless technology.

[From Japan sees rise in smartphone-connected appliances - Telecompaper]

Another little window into the future is the use of NFC to provide a convenient and simple interface between healthcare devices, a crucial segment of the internet of everyone else’s things in an environment evolving to support the elderly.

…healthcare equipment maker Omron has launched the Wellness Link service which allows users with Android and FeliCa-equipped handsets to track their health online with data obtained from the equipment, which includes scales, thermometers and blood pressure gauges…

[From Japan sees rise in smartphone-connected appliances - Telecompaper]

All very interesting. But back to payments. I thought that the most interesting quote in that Japan Times article came at the end.

Yasuhide Yajima, chief economist of NLI Research Institute, said the use of e-money cards will continue to spread because elderly people feel safe using them and they can be handled like cash.

[From Use of prepaid e-money cards soars | The Japan Times Online]

In the UK, we seem to think that the elderly must be supported using cash and cheques because they are incapable of adapting to modern technologies. I suppose that’s just one of the ways that Japanese payments are evolving differently from ours. Another is the central role of the mobile operators in driving interoperability and new services.

Japan’s leading mobile operator and provider of integrated services centered on mobility, and KT Corporation, South Korea’s leading telecom operator, have agreed to develop a cross-border e-money service that would enable DOCOMO customers with compatible smartphones purchased in Japan to use a prepaid e-money service called “Cashbee” in South Korea… Cashbee is available at some 52,000 locations in LOTTE Group department stores, convenience stores and mass transportation facilities such as subways and buses. The service currently has 5 million users.

[From New DoCoMo Fact Book - NFC Deal with KT | Wireless Watch Japan]

DoCoMo are also building interoperability in other directions to make it easy for Japanese consumers to use their phones to pay elsewhere. Telcos in the Europe and the US have not gone down this route because they have adopted the EMV standard that provides interoperability for them, but the DoCoMo route does show how you could use NFC terminals to run non-EMV payment systems.

The collaboration will connect DOCOMO’s domestic payment network to the world, enabling customers using iD mobile credit payments with compatible DOCOMO smartphones to make contactless payments outside of Japan, anywhere MasterCard® PayPass™ is accepted.

[From MasterCard Connects NTT DOCOMO’s Domestic Payment Network to the World | MasterCard Social Media Newsroom]

Now, no-one should imagine that US or European markets are going to evolve mobile contactless like, say, Japanese or Korean markets have done. These are markets with entirely different structures and entirely different market dynamics. As Consult Hyperion has long advised clients, we should look to these markets for inspiration and ideas but not for templates.

So, I think it’s a mistake for anyone really in the U.S. or developed countries to be looking at Japan as a model for mobile payments.

[From The Future of Mobile Payments]

David is right about this. But I’d go even further. Not only is Japan not a model for the US, the US isn’t a model for anywhere else either. Both the US and Japan are special cases. I’m not saying this in hindsight: it’s been part of the Consult Hyperion mobile world view from the earliest days. That’s why the trick in Europe is to look and learn from those markets but not to try and copy them.

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

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The MNOs first thoughts are HCE might have been negative, but they need to rethink. It’s a great opportunity for them if they decide to take it.

The GSMA were kind enough to ask me to give one of the breakfast briefings at the Mobile World Congress in Barcelona this year, so I gave a briefing on HCE. I thought this rather a brave choice, because the MNO’s first reaction to HCE was one of horror, but I decided that as it’s a really hot topic it would be great to tackle it head on and look for ways for MNOs to find new opportunities.

I was trying to encourage operators to see HCE (and to some extent BLE, which I spoke about in the Digital Commerce conference session in the afternoon) as opportunities and not threat. So I used my time to explore three points building on our framework for the five key wallet technologies for 2014 that went into in more detail in that afternoon session..

First, the mobile wallet is being energised by a set of new technologies including proximity and vicinity Interfaces, identification and authentication and APIs. These interfaces enhance the user experience when using the mobile wallet, by providing new ways to link to the local environment. For example, a consumer can walk in to a store, the wallet will recognise the store using its vicinity (e.g., BLE) interfaces and up will pop in store information. The wallet will help the user navigate round the store, allowing them to tap on offers and initiate transactions using proximity (e.g., NFC) interfaces.

Secondly, when it comes to proximity interfaces, HCE is a wallet accelerator that supports business flows that are complementary to the MNO Secure Element (SE). It will accelerate the development of NFC services which will expand the number of services available to the consumer (eg, Small Data) and service providers (eg, Tokenisation), educate the consumer as to NFC’s potential and eventually bring innovative applications to customer’s handsets.

Finally, the core elements in the MNO SE proposition for payment, ticketing and other applications in wallets (including HCE) are the secure services that MNOs are perfectly positioned to provide through common APIs using industry-standard frameworks, supporting not only payment services but also identity. The MNO UICC provides an SE managed on the customers’ behalf, ideally suited to provide secure services to these applications. Service Provides and MNOs can also use the UICC for storage or supplementary services such as Customer Recognition, thereby enhancing the user experience.

In the discussion that followed there were some comments about the extent to which these building blocks are already in place. I tended to the optimistic: I think the operators have many of these blocks already, the GSMA are co-ordinating them through their digital commerce initiatives and there seem to be commercial imperatives for moving forward. This week has in fact already seen a key announcement in just this space.

The Mobile Connect service will simplify consumers’ lives, offering a single, trusted, mobile phone number-based authentication solution that fully respects their online privacy.

[From LEADING MOBILE OPERATORS UNVEIL MOBILE CONNECT INITIATIVE TO PROVIDE CONSISTENT AND INTEROPERABLE APPROACH TO MANAGING DIGITAL IDENTITY | Newsroom]

Look, we all understand that HCE bypasses the SE. But that’s a good thing: it simplifies and enables to deployment of transactional applications through mobile phones. That does not mean that the operators are totally bypassed if they get their acts together. The operators had, in retrospect unwisely, decided to found their NFC framework on the SE. HCE doesn’t mean the SE is toast: it means that operators should use the SE for something that banks and other services providers want to use, and identity may well be it.

The afternoon session that I spoke at was in the Digital Commerce stream. I presented on the five technologies that will change the wallet in 2014 and then took part in an interesting panel discussion with my fellow presenters from Weve, Telecom Italia, BCC Card (Korea), Etisalat and SITA to discuss different aspects of the mobile’s role in digital commerce.

At the end of the day, I feel that overall my prejudices were reinforced. I’m not sure if MNOs should be providing wallets, but there seems to be an opportunity for them to provide wallet infrastructure for other people to use to build wallets. The sky hasn’t fallen in – there is a role for the SE if the telcos decide to make strategic choices around infrastructure and focus on interoperable identification and authentication.

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

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I still think that mobile identity is a real opportunity for mobile operators to provide a valuable service and occupy a key position in the future value network.

At the Mobile Identity event in London last November, where I was the chair for the second day, I was challenging the speakers to identify barriers to the large-scale deployment of identity services that use the mobile phone to provide practical and convenient identity management tools. After all, I’ve been going to conferences where the opportunities for mobile operators in the identity space have been discussed for at least a decade – and the first Consult Hyperion project on mobile identity that I can remember was in the late 1990s – yet when my card issuer suspected fraud recently they still had to call me (despite their having an app on my smart phone). Why not use the obvious characteristics of the phone to make, in this instance, card payments more secure. Actually, there are folks out there working on this sort of thing.

FICO, a leading predictive analytics and decision management software company, announced the availability of a new proximity correlation service for credit and debit card issuers which is aimed at improving the safety of payment card transactions. The new FICO service which several UK banks are planning to deploy has been developed in partnership with ValidSoft.

[From FICO adoption of ValidSoft Technology brings Safety of Payment Card Transactions to UK Banks - MarketWatch]

This is only one use case. Christophe Enzinger from the GSMA Mobile Identity Program made the point that mobile identity is infrastructural and has applications across communications, commerce, health and other sectors. I agree (strongly) with this infrastructural view. So how, in practice, can the mobile operators take advantage of this potential? Christophe’s very good suggestions included making upfront customer propositions around security and previously, making these essential components of the offer from operators to consumers, and Philippe Clement (the Head of Group Identity Marketing at Orange) develop edsome ideas around the practical deployment of such’s services by talking about identity APIs and their use in apps.

The Icelandic case study presented by Haraldur Bjarnson (the CEO of Audkenni) showed one approach. Their bank-owned consortium, which has been delivering identity services using the Icelandic debit card system (the debit cards have a digital ID certificate on them and about 40% of consumers have activated it), is shifting to a mobile electronic identity solution instead. This includes swapping consumers’s SIMs for SIMs with a PKI application on board. This, I think, is an interesting decision. It costs money to send out new SIMs and it’s a hassle for the users, so the operators must be pretty sure that the consumers will want and will use these services.

Rupert Hill from EE extended the discussion beyond personal by talking about the machine-to-machine (M2M) opportunities. As I had only just written something about the missing identity layer in the “Internet of things” I was very interested to see him attaching such a high priority to the Internet of things in the context of identity services.Some of the issues that need to addressed here are really rather complex. How can I delegate authority to my car? How will you know that it is my car? How will my car know that you are really a policeman? Solving these problems could be a huge business for the mobile operators is they could a) solve them and b) turn the solutions into a business.

What business, though? There are, as we have discussed before, different roles for mobile operators in the identity value network. Sergio Cozzolino from Telecom Italia talked about the difference between providing identity infrastructure and providing identity services, and explored the really useful distinction between mobile operators as identity providers and mobile operators and identity brokers. As Sergio noted, these different roles have different liability models and can allow stakeholders to develop the best business solutions choosing the appropriate liabilities. He talked through the use of SIM-based Secure Element (SE) and PKI applications as the mobile operators preferred solution. (He also, to be fair, explained the obstacles to success with this architecture).

I found the day really useful as it was an opportunity to chat with practitioners in order to get an accurate picture of the state of the sector, but afterwards I remember thinking that I was not sure that my initial challenge had been met. I still don’t really understand why the operators don’t get together and do something in this space. It seems completely ridiculous that with a smartphone running my card issuer’s app in front of me, I still have to phone them up, punch in a PAN and try to remember the answer to “security” questions to get anything done. And it’s even more ridiculous that they have to phone me up, and ask me yet more “security” questions when they want to interact with me, despite the phone company knowing perfectly who I am and where I am. Nevertheless, if you look around, you can see signals for change and mobile operators beginning to exploit potential around identity and authentication, so I think that my continued optimism about the potential for mobile operators to provide mobile identity services remains justified.

Payfone will use an AT&T application programming interface (API) toolkit to access network data that adds to Payfone’s existing service. Using the API toolkit, Payfone’s service will allow businesses to confirm that the device being used during a transaction is authenticated on AT&T’s mobile network.

[From Payfone Strikes Deal with AT&T to Verify Mobile Identity | AT&T]

As I have long been enthusiastic about this more infrastructural approach and the use of APIs to “cement” mobile operators into that infrastructure, I’m very keen to learn more about the latest developments in this areas. So the very good news is that I’m going to get the chance to discuss these issues with the operators themselves — and a great many other people  — at the Mobile World Congress in Barcelona. The GSMA have very kindly invited me to chair a session on “Service Opportunities for Mobile Identity” on Thursday 27th February from 11.30 to 13.00 and I’m genuinely looking forward to it. We’ll be in Hall 4, Auditorium 5 and I will have the honour and pleasure of charing Bjørn Hansen (Chief Scientist, Telenor Research), Siim Sikkut (National ICT Policy Advisor, Government Office of Estonia), Robert Blumenthal (EVP Business Development at SecureKey Technologies) and Steve Shoaff (CEO of Unbound ID). I look forward to seeing you all there and joining in the debate.

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

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The British government (inexplicably) want “cheques to have a crucial role in the ongoing success of the UK”. I don’t understand why and I strongly suspect they don’t either.

Cheque fraud in the UK grew 2% last year, although it is still well below its 2008 peak, despite the continued fall in cheque writing. According to the UK Payments Council’s latest statistics for 2013, cheque use is currently falling 12% year-on-year. I can’t remember the last time I wrote a cheque, although I just went and found our household cheque book and I can see that a couple of cheques are missing so we must have written one or two in the last year or so.

Cheque use is falling in the US as well, but according to the American Bankers Association 2013 fraud survey, checks accounted for 37% of the total bank losses to deposit account fraud. The US Association of Finance Professionals 2013 survey says that “checks continue to be the dominant payment form targeted by fraudsters”. It’s surprising to me just how conservative fraudsters can be!

One particular new (and growing) kind of fraud in the US is around remote deposit capture (RDC) and particularly mobile deposit capture (MDC). With MDC, customers use their smart phones to scan a cheque for deposit. The cheque image is fed into the system and the customer can then file or throw away the physical piece of paper. This is very popular with customers.

Mobile check deposit, once a low priority technology for banks, has become one of the most sought out mobile banking app features. But along with popularity and increased use, the potential for fraud is emerging for smartphone check deposits.

[From Mobile Check Deposit Boom Brings Risks - American Banker Article]

When remote deposit was introduced in the United States, I think it was assumed that the stringent legal penalties against check fraud that exist there (for historical reasons) would be a significant deterrent, yet the presentment of duplicate check images to multiple banks is heading toward a billion dollar problem.

Unfortunately, this is just one statistic in a growing wave of duplicate check presentments. In 2006, banks expected five to seven duplicate items per million payments processed. Today, CONIX reports that high-volume banks intercept between 40 to 100 duplicate items per million payments processed, an increase of more than 1100%.

[From New Wrinkle in Remote Deposit Capture: Duplicate Check Presentments]

This is not a counsel of despair. With next-generation fraud detection it should be possible to make mobile deposit very secure: if you authenticate the user, record their location, enter the cheque details in a central register and so forth. In fact, if the mobile deposit system can use new technology to make cheque deposit more secure, they may as well use it in the branches too, because one of the problems in the US is that fraudsters scan a cheque for deposit in one bank then take the physical cheque to another.

Why am I talking about this dated and expensive technology? Well, it’s because the UK government has announced that in 2014 it will begin a consultation on a technological revolution in cheques — well, two technological revolutions in cheques — that it wants the banks to implement to drag the British payments industry kicking and screaming into the seventeenth century. Yes, you read that right: now that Martha Lane Fox has got everyone online and everyone has a smartphone, the government wants investment in cheques instead of letting them wither away. There is a nuclear-powered robot wandering around on Mars, but in Whitehall the exciting vision of the future is that:

• New technology could mean that your cheque is processed in 2 days in future rather than the 6 days it currently takes under the “2-4-6” scheme introduced in 2007. This was part of the Chancellor of the Exchequer’s vision of the future that he set out in a speech back in February 2013, painting a picture of a future Britain forged in the white heat of new technology (etc etc).
• Consumers may also be able to take a picture of their cheque on their smartphone and send it to their bank with Barclays planning to introduce mobile cheque deposit next year.

The BBC asked me to comment on this on the Today programme, which I did in true fox & hedgehog fashion, and this conveniently gave me the opportunity to correct the government speaker who said (at 1:53:20) that introducing mobile deposit capture in the US had meant that “people start using more checks”. He probably hadn’t had the time to review the most recent Federal Reserve Payments Study, released two weeks ago, which says that:

The number of checks paid continues to decline, falling to 18.3 billion, less than half the number a decade earlier (37.3 billion). Checks are increasingly being deposited as images, with 17 percent being deposited as an image at the bank of first deposit versus 13 percent as reported in the 2010 Study.

[From FRB: Press Release--Federal Reserve Payments Study offers expanded view of U.S. noncash payment trends--December 19, 2013]

The figures clearly show that even in the heavily check-centric US, check use is falling and while MDC is appreciated by customers, it won’t make any difference to the long-term decline in check use. So the big question to me is… why bother?

Sajid Javid, the financial secretary to the Treasury: “We want cheques to have a crucial role in the ongoing success of the UK,”

[From BBC News - Cheques to be paid in via smartphones]

They don’t seem to have a crucial role in the ongoing success of, say, Germany, where cheques account for 0.2% of all non-cash transactions compared with 4.6% in the UK. In fact the only European countries who use cheques more are Ireland, Portugal, Cyprus, Malta and… France, where 15% of non-cash transactions are cheque. France’s heavy use of cheques is why its payment system is so inefficient compared to its neighbours.

I just don’t get it. One of the government’s “goals” appears to be to help small businesses, although what would really help small businesses is getting rid of cheques completely, putting an end to the “cheque is in the post” nonsense. Speaking as a small business owner myself, I couldn’t care less if I never saw another cheque again. Apart from anything else, once you’ve paid in a cheque you still have no idea whether it will clear or not. So much better to get a text message from the bank to tell you that money has arrived in your account. 

The British government have a profound (and odd) love of cheques. What our National Payments Plan should really be doing is managing the decline and withdrawal of cheques, but when the UK Payments Council suggested setting an end date for the cheque clearing system, the government went bonkers. Letters to The Telegraph, along the lines of “how will I be able to pay my gardener” were seen as being more important than economic efficiency or any calculations of total social cost. But as I pointed out at the time, mobile payments were just starting in the UK at that time and the Payments Council were talking about a decade into the future, so it seemed to me entirely plausible that we might go the way of Sweden or Finland, where no-one under the age of 30 has ever seen a cheque.

One of my sons, when he received his first pay cheque a few months ago, was genuinely baffled as to why anyone would send money this way, and mildly annoyed that he had to a) go to the bank to deposit the cheque and b) wait six days before he could spend the money. When I told him about the government’s vision of a Dan Dare world of the future, where you could deposit cheques using your mobile phone and wait only two days before you could spend the money… he was still baffled as to why anyone would send money this way. “Why don’t they just send the money by PingIt?” he asked me (since that’s how we transfer money around in our non-Dan Dare world of now). Good question, and I don’t have an answer.

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

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Eric Schmidt, Google’s executive chairman, believes that a third of check-out terminals in retail stores and restaurants will be upgraded to allow wireless “tap and pay” from mobile phones within the next year.

[From Google’s Schmidt predicts widespread “tap and pay” within a year | FT Tech Hub | FTtechhub - Industry analysis – FT.com]

These follow a series of statements by Google executives that, whether they are true or not, seem to have legitimised the technology in the eyes of a broad range of businesses.

She added that there is a ton of activity around NFC in international markets, giving the example of a successful trial of the technology that Starbucks ran in London.

[From Google Commerce Chief: We’re Making A Huge Bet On NFC As A Company]

I’ve never heard of this Starbucks NFC trial, so if anyone can point me in the right direction I’d really like to read up on it. But that’s beside the point. The point is that lots of people are now taking NFC seriously in the retail space and the mobile operators are developing NFC strategies. But what business model will there be for them? And what options do they have?

The question will then be how operators manage to regain relevance for their role in NFC transactions (which will come later, if at all), when the first trillion NFC interactions will have bypassed them.

[From Dean Bubley's Disruptive Wireless: What will be the business model for free NFC-based interactions?]

You can see the problem that he is alluding to, but it may not be immediately obvious why it is such a problem specifically for operators. Look at the issue from a slightly different perspective, one that stems from security. I would argue that there are two different classes of application for NFC in mobile phones. These are, broadly speaking, “open” applications and “closed” applications. They are, broadly speaking, about interaction in the case of open applications and transaction in the case of closed applications. Creating such applications is, broadly speaking, easy to create in the case of open applications and difficult in the case of closed applications.

Why? Well, it’s because the closed applications need security and the open applications don’t. Open applications are things like games and business cards and “friending”, where consumers touch phones to something (which may be another phone) in order to get or exchange some information. These are what Dean means by “interactions”. Closed applications are things like payments and tickets, where real money is involved (other than the service providers own) and the applications must be what security professionals refer to as “tamper resistant”. They must also work, all the time and every time. These are what Dean means by “transactions”.

Working out how to do implement secure electronic transactions is (I’m happy to say, since it’s a big part of Consult Hyperion‘s business) difficult, complicated and interesting. It’s easy to picture how life might be with your credit card inside your mobile phone, but think what has to happen to realise that picture! How will the security keys necessary for the card application be transported across potentially insecure networks into the tamper-resistant chips (the “secure elements”, SEs) in handsets? How does the bank know that your credit card is going in to your phone and not a fraudsters? When you get a new phone, how does your card make its way from your old phone to the new one? How does the wallet application in the phone communicate with the card application in the secure element?

In the architecture developed by the transaction incumbents (by which I mean banks and telcos), the management of the closed applications is undertaken by something called a “trusted services manager”, or “TSM”, an entity that stis between the providers of closed services, such as banks and transit operators, and the mobile operators who connect to the SEs that they, in effect, own and rent out space on. This model may be disrupted, because it was founded on the assumption that the SE would be under the control of the MNO and that the TSM would have to cut a deal with the MNO to rent the SE space (what you’ll often here telco people refer to as the “apartment model”).

In the Google play, the TSM is operated by First Data and the SE is operated by Google (it’s in the Nexus handset, not on the SIM). The operator has no control over the SE and can extract no “rent” for its use. I notice that in the Nilson report (#972, page 7) it says that the Nexus S is the only smartphone in the US market with an SE not controlled by the mobile operators: it might have said that it’s the only smartphone in the US with an SE, full stop. The operators (in the form of Isis) are not yet in the marketplace. Why are Google being so active then? Well, on the Catalyst Code I read a while back.

Google has obviously made a decision that NFC is an opening into something more interesting and lucrative than transforming a phone into a payment card– advertising and marketing opportunities at the point of sale – the physical point of sale. And, it has done a deal with VeriFone that takes the economic sting away from the merchants who need to buy into their vision to make it work – and who have by and large turned their noses up at NFC up to this point. Layer on top of that their Google Checkout asset and their newly launched One-Pass wallet application and you have the makings of an interesting new payments player.

[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]

Karen is, as usual, spot on about this. But I’m not so sure about this…

What’s amazing is that Google was the first to connect all of these dots

[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]

This doesn’t seem amazing to me, because I’ve been involved in numerous attempts to develop mobile proximity propositions involving banks and operators and from these experiences have developed (I think) a reasonably accurate map. A month before the Google announcement, I wrote on Quora that “I’m sure [loyalty and rewards] will be Google’s strategy too. Payments are not an interesting enough application to persuade people to go out an get an NFC phone.”

So how come banks and operators didn’t connect the dots, then? Banks and operators have smart people in them, and some of them have smart consultants too. But it is very difficult to make institutional strategies for non-core businesses and have them translated into a practical tactics with appropriate priorities. If you were in a European mobile operator back in 2009 and you had an idea for using NFC to create a new business, where did you go with the idea? I went in to an Orange retail outlet: they are the first operator in the UK to sell a commercial NFC handset with an onboard payment application: not only did the shop not accept NFC payments but they didn’t sell any NFC tchotchkes, such as blank NFC tags. If you’re a smart kid and you get one of these phones, and you have an idea for using tags as tickets for a gig you and your mates are running… well, hard luck. This is problematic, because we need lots of people to be experimenting, developing and playing with the new interface to create the new, open applications.

In April, Nokia’s vice president for industry collaborations, Mark Selby, speaking at the WIMA NFC conference in Monaco, contended that NFC applications not securely stored on SIM cards, embedded chips or other secure elements will account for two-thirds of the revenue that NFC technology will generate through 2013.

[From Nokia Introduces Its Second NFC-enabled Smartphone | NFC Times New – Near Field Communication and all contactless technology.]

I hope Mark won’t mind me mentioning that we discussed this over dinner a couple of weeks ago and, while I agreed with him about the market, I bored him at length with my moaning about the slow development of the ecosystem. Where are the Nokia NFC tags for kids to buy? Where are the NFC USB sticks to connect laptops and phones?

But, looking forward, there’s another issue here. This classification of open/interactive vs. closed/transactional NFC uses is too simplistic, because as the technology spreads in the mainstream, interactions will need to be secure too. When I tap my phone against an advert at the bus stop, I want to find out more about “Kung-Fu Panda 2″ and not get directed to a porn site, a reverse-charge premium rate phone call to Honduras or send a text message to someone who wants to sell my mobile number to commercial organisations. I want my phone to check the digital signature on the tag and make sure that it is valid, and that it is signed by an organisation recognised by UK phone operators, or banks, or the government, or whoever. But signing the tags (which is part of the NFC standards, but no-one uses at the moment) means that someone has to distribute keys, and certificates and all that stuff. None of this exists right now, but in the future it will have to.

So… Not only is there no ecosystem for transactions, there’s no ecosystem for interactions either. Now you can see why the mobile operators are going to have to work so hard to stay in the NFC loop. A couple of years ago they could have started to roll out the handsets for open, interactive purposes and started many communities off on experimenting with the new technology while they developed the necessary infrastructure for both secure transactions and secure interactions, but they didn’t because they couldn’t see a business case. What’s the business case for selling public key certificates so that advertisers can digitally sign tags using their internally-generated private keys?

It’s hard to work out a conventional business case around a business that simply doesn’t exist yet, and I understand that. But I think that even three or four years ago, the consumer response to the early pilots and trials was so positive that it was clear that the technology would make the mainstream. Now that Google’s activities have served, in an odd way, to legitimise both NFC technology and the business models around it, maybe the operators should adopt a more Google-like approach to business model: start building way more cool stuff, monetise what works and then be ruthless in killing off what doesn’t.

My employer, Consult Hyperion, has provided paid professional services to some of the organisations named here in connection with products and services discussed here, but the opinions in this post are my own (I think) and presented solely in my capacity as an interested member of the general public

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 Yet more about NFC and business models appeared first on Tomorrow's Transactions.

Birch lambasted traditional banks and payments providers for their failure to grasp the nature of the opportunities presented by mobile technologies, which has led them to miss the boat. “I’m almost embarrassed to stand before you and say that I thought that banks and mobile operators could work together,” he told the conference. “It was a stupid fantasy for which I apologise.”

[From Identity is the next big thing for payments | Banking Technology magazine]

This isn’t a new rant, but a considered opinion. In fact, I wrote about this last year, round about the time I made some similar remarks at an event at the GSMA, reflecting the fact that I think that mobile operators should have been quicker in to the NFC space and with more open models, and that I think banks should have been quicker to develop and implement mobile approaches other than “windows on to the web” or “cut down ATM” solutions.

All of my experience over the last few years has served to reinforce my opinion from those ancient times that it’s much harder for banks and operators to work together than either of them might think. So perhaps this part of the [Booz Allen Hamilton] 2001 vision for 2010 may never become reality

[From Digital Money: Let's put the future behind us]

The reference to Booz Allen Hamilton, a management consultancy, is because the post was discussing a magazine article by them from a decade ago:  “Why banks and telecoms must merge to surge” from the Booz Allen Hamilton strategy+business magazine that I’d filed away back in 2001. I took some comfort from it, because it meant that I wasn’t the only one who had expected banks and operators to get together, but I was commenting on the cultural factors that meant that it had proved very difficult for them to co-operate effectively.

This has meant that it has taken longer for the infrastructure to develop than he’d predicted, but more importantly, banks are still missing out: only recently, banks in the US had told him that there is no business case for subsidising the installation of contactless readers in retail premises, just as Google was announcing that it will.

[From Identity is the next big thing for payments | Banking Technology magazine]

It is absolutely true that I (as well as number of other consultants) were at an event with US banks earlier in the year where this opinion was expressed. But there was nothing special about it: the banks had said exactly the same thing in public to retailers.

Representatives of three of the country’s largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group… to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry. “You know what they (banks) told us? There’s just not a business case right now,” Dodd Roberts, head of the merchant group, said last week

[From Digital Money: Inception]

But back to the 2001 article, which agreed with me about one particular strategic element. That is, that while banks had have a strong hold over payment systems, mobile network operators would be challengers.

Today, banks are at another competitive crossroads. This time the new contenders in financial services are telephone companies, specifically wireless telecoms.

[From Why Banks and Telecoms Must Merge to Surge]

The Booz Allen Hamilton article finishes up by saying that it would be logical for “mega players” such as Vodafone and Citi to combine. This hasn’t happened and I can’t help but observe that Vodafone’s most successful mobile payment service, in fact, probably the world’s most successful mobile payment service, M-PESA, doesn’t involve banks at all except as a secure repositories of funds.

So why did my comments about banks and operators working together sound so harsh? It’s because we (Consult Hyperion) have been involved in a number of projects, going all the way back to the Orange/NatWest joint venture, and so have seen at first hand what works and what doesn’t in these relationships. And, yes, things are improving: but it may well be the case that having let a couple of years evolution slip away, the idea of the bank/operator partnership as the central organising principle for mobile payments is over. European operators have started to apply for their own Payment Institution licences, while I expect banks to focus more on developing value-adding services for the retailers and consumers and less on the “bare” retail payments (where the downward pressure on transactional fee income will continue).

Incidentally, I wonder if both the banks and the mobile operators held back because they’d been listening to their customers? If you had done a survey of consumers asking them if they wanted an iPod, the day before hte iPod had been invented, you would never have launched it.

in an interview with the Daily Telegraph in February 2005. The founder of Amstrad said: “Next Christmas the iPod will be dead, finished, gone, kaput.”

[From Bill Gates and Sir Alan Sugar made some of worse technology predictions of all time - Telegraph]

Predictions are difficult, as the saying goes, especially ones about the future. Of course, you do have to understand what it is that you are predicting, and in many cases people don’t really understand the proper context. This is why I read surveys like these with a raised eyebrow.

Just One-in-Five Brits Currently Interested in Paying by Mobile Phone

[From Just One-in-Five Brits Currently Interested in Paying by Mobile Phone]

Now this might be interesting news if I cared what the public think about anything (I don’t), but I wonder if it’s the sort of thing that causes mass market players to slow down? It caught my eye because it tallies with the revealed consumer preferences of Japanese consumers, where mobile proximity payments are mainstream. Indeed, only around one in five or six people in Japan use their proximity handsets for payments. But then only one in five or six people here pay for things using credit cards (debit cards dominate in Europe) and that’s still a business. The headline intends to be negative, but what it says to me is that the potential for mobile payments is such that ten million people could be using them in the UK in the not-too-distant future, if banks and operators (or someone else?) can come up with the right proposition.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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 Harsh, but fair appeared first on Tomorrow's Transactions.

The average value of a contactless transaction is only £4.93.

[From Tap-and-go is on the move to a shop near you | Mail Online]

It’s not always used simply because of the convenience, as one commentator noted in the comments on this story:

I have swtiched to using the contactless payment method to purchase sandwiches at shops such as Pret A Manger and Eat mainly because I am fed up with them ofloading their fake pound coins on me in their change

[From Tap-and-go is on the move to a shop near you | Mail Online]

Bizarrely, I was thinking about this the other day. I parked in Derby, which is in the midlands and when I returned to the car the local council wanted to charge me £11.20. In some kind of hommage to Derby’s past, the machine didn’t take cards or mobile payments, so we were reduced to emptying out our pockets, rummaging in the glove compartment and searching the floor of the car for change. Fortunately, my fellows had plenty of pocket change. But when we started feeding it into the machine, four out of the ten £1 coins we had amassed were repeatedly rejected, presumably because they were fake. I’d never really thought that the avoidance of fake currency would be part of the retailer’s business case, but I need to revise my opinion!

But what is the business case? Is it just about payments? For some kinds of retailers, the convenience of contactless payments makes sense only when it is also part of some bigger model, generally involving value-added propositions such as loyalty. The was recognised by Bling Nation, when they decided to refocus on the loyalty side of things…

John Paul Coupa of Coupa Café has the system in all three of his northern California locations. “It gets used a lot,” says Coupa, “(even) more than American Express.” Coupa recently implemented the FanConnect system.

[From ContactlessNews | Contactless payment scheme enables loyalty via Facebook]

In Northern California, then, things look good. But on the other side of the country, on the apparently more conservative east cost, the results were quite different.

Other merchants have not enjoyed the same level of success. Charles Savas, president of Center Beverage in Stoneham, Mass., got rid of the system after just three months. “They were going to charge me $40 a month,” he says, “and I only had $35 in sales for the first three months.”

[From ContactlessNews | Contactless payment scheme enables loyalty via Facebook]

A mixed picture. But does any of this early experience matter? If contactless is important only as the rails for mobile to run on, then the early feedback from the contactless card deployments doesn’t really matter. It doesn’t tell us anything about the mobile future, does it?

These, and related topics, will be discussed at Contactless Cards and Mobile Payments in London on 20th and 21st June at the Kensington Hilton. I’m chairing the event on 21st and look forward to see you all there. And guess what? The utterly splendid people at SMi have given me a two-day delegate pass worth an astonishing ONE THOUSAND TWO HUNDRED AND NINETY NINE POUNDS to give away on this blog as a competition prize. So if you are going to be in London on those dates and you’d like to come along to learn more about the world of contactless, all you have to do is be the first person to respond to this post with the current maximum payment value for “no PIN” contactless payments in the UK.

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and has been designed to be carbon neutral. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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 Why use contactless? appeared first on Tomorrow's Transactions.

There are two different classes of application for NFC in mobile phones. These are, broadly speaking, “open” applications and “closed” applications. They are, broadly speaking, about interaction in the case of open applications and transaction in the case of closed applications. Creating such applications is, broadly speaking, easy to create in the case of open applications and difficult in the case of closed applications.

Why? Well, it’s because the closed applications need security and the open applications don’t. Open applications are things like games and business cards and “friending”, where consumers touch phones to something (which may be another phone) in order to get or exchange some information. Closed applications are things like payments and tickets, where real money is involved (other than the service providers own) and the applications must be what security professionals refer to as “tamper resistant”. They must also work, all the time and every time. Working out how to do this is (I’m happy to say, since it’s a big part of Consult Hyperion‘s business) difficult, complicated and interesting. It’s easy to picture how life might be with your credit card inside your mobile phone, but think what has to happen to realise that picture! How will the security keys necessary for the card application be transported across potentially insecure networks into the tamper-resistant chips (the “secure elements”, SEs) in handsets? How does the bank know that your credit card is going in to your phone and not a fraudsters? When you get a new phone, how does your card make its way from your old phone to the new one? How does the wallet application in the phone communicate with the card application in the secure element?

In the architecture developed by the transaction incumbents (by which I mean banks and telcos), the management of the closed applications is undertaken by something called a “trusted services manager”, or “TSM”, an entity that stis between the providers of closed services, such as banks and transit operators, and the mobile operators who connect to the SEs that they, in effect, own and rent out space on. This model may be disrupted, because it was founded on the assumption that the SE would be under the control of the MNO and that the TSM would have to cut a deal with the MNO to rent the SE space (what you’ll often here telco people refer to as the “apartment model”).

In the Google play, the TSM is operated by First Data and the SE is operated by Google (it’s in the Galaxy S2 handset, not on the SIM).

So, for example, on the Catalyst Code, I read a while back.

Google has obviously made a decision that NFC is an opening into something more interesting and lucrative than transforming a phone into a payment card– advertising and marketing opportunities at the point of sale – the physical point of sale. And, it has done a deal with VeriFone that takes the economic sting away from the merchants who need to buy into their vision to make it work – and who have by and large turned their noses up at NFC up to this point. Layer on top of that their Google Checkout asset and their newly launched One-Pass wallet application and you have the makings of an interesting new payments player.

[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]

Karen is, as usual, spot on about this. But I’m not so sure about this…

What’s amazing is that Google was the first to connect all of these dots

[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]

This doesn’t seem amazing to me, because I’ve been involved in numerous attempts to develop mobile proximity propositions involving banks and operators. A month before the Google announcement, I wrote on Quora that “I’m sure [loyalty and rewards] will be Google’s strategy too. Payments are not an interesting enough application to persuade people to go out an get an NFC phone.” Banks and operators have smart people them, and some of them have smart consultants too. But it is very difficult to make institutional strategies for non-core businesses and have them translated into a practical tactics with appropriate priorities. If you were in a European mobile operator back in 2009 and you had an idea for using NFC to create a new business, where did you go with the idea? I went in to an Orange retail outlet: they are the first operator in the UK to sell a commercial NFC handset with an onboard payment application: not only did the shop not accept NFC payments (come on guys – you have to eat your own dogfood, as our transatlantic cousins are wont to say) but they don’t sell (for example) NFC tags. If you’re a smart kid and you get one of these phones, and you have an idea for using tags as tickets to a gig you and your mates are running… well, hard luck.

My employer, Consult Hyperion, has provided paid professional services to organisations named here in connection with products and services mentioned here, but the opinions in this post are my own (I think) and presented solely in my capacity as an interested member of the general public

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 Yet more about NFC and business models appeared first on Tomorrow's Transactions.

Representatives of three of the country’s largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group… to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry.

“You know what they (banks) told us? There’s just not a business case right now,” Dodd Roberts, head of the merchant group, said last week

[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]

That’s a shame, because it’s a fun technology that consumers like. Never mind. Of course, not everyone thinks that banks can’t make a go of it, and going back a couple of years we can find some positive projections.

Celent estimates that a 30% cash displacement ratio, or an incremental US$151 per card account, per year is reasonable, with an average revenue increase of US$1.83 per debit card account per year.

[From The View from the Mobile NFC Finish Line: Bank Economics in a Mature Mobile NFC Payments World]

Anyway, a month after the US banks told the Merchant Advisory Group that there was no business case, we learned that…

France-based POS device manufacturer Ingenico has confirmed that it is working with Google on the development of NFC-based services for retailers

[From Confirmed: Google developing NFC solutions for retailers • NFC World]

Was this an “Inception“-style paradox? A fault line between two sets of dreams that don’t quite connect? A glitch in the matrix that could be eliminated if we all take the bank’s blue pill? Because now someone is offering red pills…

The first NFC service launched by Google for its Nexus S phone is an enhancement to its Google Places service. Customers tap the phone against NFC tags embedded in stickers or decals that merchants affix to their storefronts to access information about the local business, including phone numbers, hours of operation, payment types, reviews and recommendations.

[From Checking in with NFC–Some Social-Networking Start-ups to Use NFC | NFC Times – Near Field Communication and all contactless technology.]

Aha! So now we can see how to resolve the paradox. There’s no business case if you only think about transaction revenues (the bank model) but there is a business case if you “ignore” payments and focus on value-added services that retailers will pay for (the Google model). This has got the mobile operators interested enough to start upping the orders.

Such Android handset makers as Samsung, HTC and likely LG and Motorola are preparing for NFC, based on keen interest or orders from mobile operators, including South Korean telcos, SK Telecom and KT; China Mobile; as well as American and European carriers, NFC Times has learned.

[From ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]

But is Google’s interest enough to create the contactless rails for these mobile devices to run on, as we keep talking about? Chris Skinner made a very accurate post about this recently.

And here’s the rub: we need more terminals. Maybe they could learn something from Zapa in Ireland, where AIB Merchant Services has worked closely with them to rollout terminals that can use the tags. Half of all AIB’s merchant terminals are now Zapa ready: that’s 40,000 of their 90,000 terminals, with over 1.5 million contactless transactions in the year to September 2010. Compare that with Barclaycard, which has rolled out just 42,500 merchant terminals to date and is processing just over a million transactions by November 2010, and you can see the challenging dimensions they face.

[From BAI | Banking Strategies | Distribution Channels | Mobile | Why Mobile is Critical to Banking]

A characteristically well-informed comment from Steve Mott delves further into resolving the paradox. Perhaps payments are losing their strategic appeal for banks because they are becoming commoditised, utility businesses that just won’t generate the cash that they did in the past.

Consultant Steve Mott, CEO of BetterBuyDesign, who also attended the Merchant Advisory Group meeting, told me the U.S. banks do see the advantages of mobile to increase transactions. But mobile confronts them with an unfamiliar payments landscape at the same time they are being squeezed by regulators with the Durbin amendment,

[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]

Banks aren’t stupid. They know that NFC is coming, that consumers and merchants like it, that it means disruption. But it is very difficult to change core businesses, especially at a time of great regulatory uncertainty. In the meantime, the non-payment use of NFC will lead it into the mass market. But will the new technology pull in the customers? Sam Shrauger, VP Global Product and Experience at PayPal, puts it succinctly:

People couldn’t care less which technology a hardware or software manufacturer would like to sell them. They couldn’t care less which technology merchants may or may not put in their stores. Ultimately, they just want something that makes their life better when it comes to buying and paying.

[From Why the Mobile Payment Debate Is Headed in the Wrong Direction [OPINION]]

Now, as it happens, I was chatting with Sam last month and I agree with him about many things, but I think that in this particular case he may be underestimating the impact of “tap and go” technology. The point is that tapping is so much simpler, so much quicker, so much more convenient for consumers that it will make a difference to them. People will start looking for the phones that you can tap together to become Facebook friends, or whatever, because that experience blows away bumping, or texting or QR codes or whatever.

This, I think, means risky time for bank payments. Once people are using their non-bank wallets on mobile phones to execute retail transactions, initially using bank-provided payment schemes, it will be a small step to get them to move to non-bank payment schemes inside those wallets. Banks need more active responses to the changing environment and I hope I won’t be offending anyone to say that I know from personal experience with recent projects that banks are losing opportunities right now because they are not able to deliver products in the timescales demanded by other industries.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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 Inception appeared first on Tomorrow's Transactions.

Orange last week unveiled its Quick Tap service, while rival O2 says it is lining up for a major launch in the autumn. Meanwhile, Google this week launched Google Wallet for Android phones which might soon make the traditional wallet stuffed with cards, notes and coins a thing of the past.

[From Mobile phones bring the cashless society closer | Money | The Guardian]

In the UK, Orange and Barclaycard put the first NFC handset with SWP and SIM-based SE EMV payment application on sale. And to prove it works, here I am using it to pay for my son’s haircut!

In the US, the news has centred on Google since Isis’ announcement that their wallet would be open to Visa and MasterCard applications as well, and the Google announcement of their wallet running on just one handset has caused intense interest and comment. Setting aside the wallet play, and just looking at the payment application, a very significant aspect of the Google announcement (at least to people like me) was the location of the application.

Moreover, no mobile operator is believed to be directly involved in the project to put a Citi-issued PayPass application on the Nexus S.

[From Citi and MasterCard to Launch NFC Payment on Google’s Nexus S | NFC Times – Near Field Communication and all contactless technology.]

This sharpens the focus of the operators, I think. They’ve been slow to get NFC out into the market and spent a couple of years developing the operator-centric model. If other people are going to put out NFC with secure elements that are not under operator control, then that operator-centric model may not support a business model. In which case, what can the operators do to stay in the payment loop. Well, one way, that I have written about before several times, is (in Europe at least) to find ways to make payments part of the “smart pipe” proposition and stop depending on third-parties (eg, banks) with expensive infrastructure.

French-headquartered IT services group Atos Origin has formed a joint venture with the country’s three MNOs, Orange, SFR and Bouygues Telecom, to develop an internet payment platform to take on PayPal, Google and Apple,

[From French operators, Atos form Buyster e-payment venture - Telecompaper]

As I’ve been pointing out for some time, the natural way to proceed is to use the PSD to obtain a PI licence, and perhaps obtain an ELMI licence as well. This is exactly what the French operators have chosen to do, and I absolutely predict that as soon as they get the licence they will join one of the international schemes so that they can issue “cards”.

The new company will apply with the central bank to become a registered payment service provider and aims to launch commercially before the summer.

[From French operators, Atos form Buyster e-payment venture - Telecompaper]

Now, this would give the operators something to offer RIM, Google and Apple other than the raw bits and a secure element that they don’t want.

Our sources say there is a lot of internal debate at Google about its payment strategy, with some folks wanting to appease the carriers and have them become the payment options. Others disagree and are insistent that Google develop its own payment system – and rightfully so.

[From Et Tu Bedier? Why PayPal Is Suing Google, Execs Tech News and Analysis]

You can see why people think like this. The existing mass market payment schemes were never designed for the online world and the mobile operators (aside from the odd exception that proves the rule, like M-PESA) have been slow to seize the opportunity. Therefore, the argument goes, why wouldn’t Google just do something themselves and stuff everyone else. Well, yes and no: running payment systems isn’t quite as easy as it seems, and I genuinely think that if the operators develop new mobile-centric solutions then they can provide real competition to both the existing systems, the legacy infrastructure and the startups. In the long view, the operators can still succeed.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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 long view appeared first on Tomorrow's Transactions.