Tomorrow's Transactions

Thought leadership from Consult Hyperion

Archives for August 2007

A bear market for cash

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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.

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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.

Bordering on crazy?

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[Dave Birch] In a meeting a couple of days, someone said (concerning a proposed new product) that they would like it to be interoperable “just like e-passports are”. As the old saying goes, be careful what you wish for. Germany, for example, has said that it won’t join the e-passport PKI directory, or PKD. Dennis Kügler, of the German Federal Office for Information Security, says the PKD

saves you approximately half a second in the border-control process [but] open a potential security hole.

The hole is that the border control systems have to store certificates (with the public keys that are needed to check the signatures on passports) that are pre-verified, so if the bad guys can get their certificates into the system, their (bent) passports will be accepted as real. There is a proposal floating around to implement a more sophisticated PKD (with cross-certification, so that countries could check the signatures on other country’s certificates) but that means a more complicated structure. I’m not sure this is the kind of interoperability that should be a goal for other sectors.

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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 doors

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[Dave Birch] For people who think I’m always going on about NFC but it’s not really that important, take a look at this news item from Tapei. The Farglory Group, a leading property developer in Taiwan, has announced that the residents of its four new complexes in Taipei County will be the first in the world to open their doors with their cellphones. This seems logical to me: I’d much rather use my own mobile phone for identity management and both logical and physical access control than some additional piece of plastic. The rationale in Taiwan is that since mobiles are a virtual necessity for most people, and since most people have one, then why not use them to replace house keys as well as cameras, music players and just about everything else. Farglory chairman Chao Teng-hsiung says

Instead of flipping through a big bundle of clinking keys, our residents just have to flash their mobile phones in front of a sensor to enter their homes.

The company will give two BenQ T80 handsets — the first NFCs phone made by a Taiwanese company — to each of the 5,990 apartments. There’s a fallback, of course, for people who forget their phones or for the kids in the family who don’t have one of the NFC devices: they can get it using the fingerprint identification system. The access control system will be applied to all of Farglory’s future housing projects as well.

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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 Forum is open for business

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[Dave Birch] Announcing the eighth annual Digital Identity Forum in London on November 20th and 21st 2007. The event, sponsored by CoreStreet and CPP with support from ACI Worldwide, will be held at The Clink in Southwark. This year the Forum will be structured around four main areas:

  1. Who Needs Digital Identity? And what do they need it for? As a first step on the road to safe and effective e-business, e-government, e-health and e-everything else, let’s try and analyse and understand what the “identity problem” actually is so that we can work out what to do about it in at 21st century context.
  2. Understanding Context. What should decision makers look at when surveying the technology landscape? New standards and schemes? New networks and devices? New structures and models? This session will help you to map out that landscape and understand how CardSpace and OpenID, NFC and EMV fit together.
  3. The Identity Utility. The discussions around identity cards, identity for the mass market and the business case for identity are stuck because of limited models and the vision around them. A new vision, however, with some promise can be founded on a utility-based approach which will be explored in this session.
  4. Authentication is the new Content. If digital identity does indeed begin to transform the mass market, then one of the consequences might be that authentication takes are pivotal role in the value network. In which case, it’s good to start planning to take advantage of it now. Who could play in that market?

The Digital ID Forum will continue its tradition of developing the debate around the future of identity by bringing together informed and expert perspectives to stimulate discussion, thinking and ideas. Here’s what people said about it last year…

an exceptionally good conference this week…

the quality of the speakers, the audience and the debate (and the food!) was fantastic…

very stimulating conference yesterday and today – the formal content and the networking were excellent…

a great day as usual…

the key benefits were the networking opportunities which are facilitated by such a wide-ranging programme.

The detailed agenda will be available from the Forum web site at the end of this month. This year we will have representatives from organisations ranging from the Oxford Internet Institute and the Identity and Passport Service to Visa Europe and Garlik, once again ensuring first-class debate, high-speed learning and stimulating new ideas in equal measure.
We’re now taking the early bird bookings for this year’s Digital Identity Forum. If you go to the web site and book before 20th September, you’ll get £50 off, meaning that two full days of discussion and debate at the leading edge of digital identity will cost a mere UKP395 + VAT. Once again, the Forum will be limited to 100 places so book now to avoid disappointment!
We look forward to seeing you at this year’s event.

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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.

Sub-prime

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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.

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

Dave Birch on Digital Identity Management

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[Dave Birch] Not sure how to introduce this week’s podcast! It’s Jane Adams interviewing me about the book Digital Identity Management that was published earlier in the year. Jane is a freelance journalist and consultant. She used to edit World Card Technology and writes regularly for European Card Review as well as for corporate clients. She has written two research reports about smart cards, the Smart Card Reporter for Elsevier and Smart Cards in Healthcare for HBS Consulting. Here she talks to me about the book that I edited, “Digital Identity Management: Technological, Business and Social Implications”. Jane thought it might be good to put me on the other side of the microphone for a change!

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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.

It’s easy running money, isn’t it

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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.

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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.

Contactlessness and confusion

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[Dave Birch] Contactless payment technology faces adoption hurdles caused by consumers (and, I might add journalists) misunderstanding the difference between radio frequency identification (RFID) and contactless smart cards. In fact

Confusion between the two technologies could eventually impede the potential growth of the both the RFID and contactless smart cards markets

says Michelle Foong, an industry analyst at consulting firm Frost & Sullivan. The confusion is causing many consumers to worry about security. And not only consumers, but also lawmakers. Out in California,
legislation to ban RFID is being considered in Sacramento that would ban the use of RFID, including high-security contactless smart cards, in many state government agencies and programs. While the intent is to protect the security and privacy of those who have personal information stored on RFID chips, many provisions in the bills are misguided and ultimately unnecessary. In fact, as the newspaper article correctly points out, if passed in current form the bills would stifle innovation hinder technology development instead of punishing bad behaviour. The source of the problem is of course misconceptions about the technology and its many applications. In particular (my hobby horse) the word “RFID” is used for every short-range wireless technology going yet it is not the “one size fits all” technology that some privacy advocates seem to think. There is a world of difference between a magnetic ink tattoo on a cow and an American Express Expresspay chip, yet they are somehow seen as being the same.

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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.

Social networking good/bad?

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[Dave Birch] Like every other new technology that leaks into mainstream media, the cycle from “hey wow isn’t this amazing” to “this is the end of civilization as we know it” is predictable if shortening in duration. Now it’s social networking’s turn. Anyone who is interested in the future of identity has to be interested in the models being forged in the Reed’s Law furnace of MySpace, Facebook, Bebe and the like, that much is clear. These subnetworks are already vast: Facebook now has more than 3.5 million users in the UK, MySpace has more than 10 million users and Bebo has 4 million unique visitors. Friends Reunited is the champion, though, with 18 million users registered in the UK. But is the sky really falling in? I don’t doubt for a moment that that some people are putting details such as such as date of birth, address, email, job and marital status on their pages and that these are useful to potential fraudsters. A recent snapshot of Facebook turned up some useful statistics about this: more than 40% of Facebook users reveal some “sensitive” personal data and more than 20% gave personal data to a spoof friend request from a plastic frog called Freddi Staur. Of those, four-fifths gave their full date of birth and current address. It seems to me that the real risks are less about identity fraudsters trawling Facebook — when they have much better large scale data sources — than the long-term impact of posting pictures of yourself throwing up after drinking a bottle of cider.

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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.

Contactless update

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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.

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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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