Tomorrow's Transactions

Thought leadership from Consult Hyperion

Archives for September 2007

ATM access

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[Dave Birch UPDATED] In the U.S. ATM fees are going up, as they should be: the average number of transactions per ATM has fallen by (if my arithmetic is correct) about two-thirds over the last decade. Therefore the cost per transaction should have gone up quite a bit. Bank of America’s decision to raise the cost of an ATM withdrawal to $3 may therefore be well calculated (because they have more deposit accounts and associated ATMs across the nation than others, so they have the strongest potential to gain rather than lose. Meanwhile, in the U.K., where according to VocaLINK the average number of transactions per ATM has fallen by a third in the last five years, there are going to be more “free” ATMs: 600 more, in fact. The government, via the Treasury, has struck a deal with banks and cash machine operators to increase free access to cash. Ed Balls said:

The free cash machines…

I didn’t read any further, because they’re not free, of course. They are paid for by other bank customers. The deal is that to persuade the cash machine operators to set up and maintain cash machines free-of-charge, banks and building societies agreed to pay a ‘financial inclusion premium’. This scheme, which will compensate cash machine operators for the expected lower cash machine-use in these areas, began on 1 March 2007 and will be funded through the transaction fee banks and building societies are charged when their customers use other cash machines.

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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 “P word”

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[Dave Birch] I’m a fan of Privacy Enhancing Technologies (PETs), but I recognise that however much sense they make to individuals, they must make sense to organisations as well. As this points out, they haven’t so far. Many PETs weren’t very practical to use even though they were technically-appealing to people like me. The dedicated, paranoid and perhaps even the criminal can surf anonymously with a little latency but as soon as you want to carry out an online transaction, sign on to a site, make a purchase, or otherwise (as the article nicely phrases it) become engaged online in a sustained way, you end up having to identity yourself. The people who take this seriously are serious about the weakest link: however vigilant you might be most of the time, it only takes one slip to ruin it and then the double-glazing web site has your mobile phone number. Doing anything about this — for most people — need both a lot more knowledge of the technology and the issues and a lot more work. And that has killed it before: online privacy was just too much work. And, anyway, the benefits of online privacy tended to pale in the face of immediate gratification needs, and greater conveniences, personalization, efficiency, and essential connectedness afforded by consent and trust. The privacy emphasis slides inexorably towards holding others accountable for the personal information they must inevitably collect about us, not PETs. This leads to a situation where for those people concerned privacy (which is not actually the majority of the population, whatever they may say in surveys) the realistic way to protect themselves is to essentially withdraw from society: electronic abstinence. I’m looking forward to discussing these issues at the Enterprise Privacy Group next week and will report back with (I’m sure) some new ideas for getting over these barriers.

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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.

Read all abaht it: retailers don’t really like cash

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[Dave Birch] Retailers say that cards are more expensive than cash. Therefore, they can’t help noticing comments such as those by Bank of England supremo — much in the news in the U.K. at the moment Mervyn King. Mervyn reportedly said about having cash in circulation that:

such mutual convenience is a public good, and may not correspond to the private interest of commercial banks.

In other words, everyone else is happy with cash but bankers are consipiring against the general welfare by trying to persuade people to use cards. Now, one might reasonably imagine that part of retailers apparent devotion to cash is as a bargaining chip with banks, but their suspicion is genuine enough: they don’t want to held to ransom over payments (which, for some retail categories are already a significant overhead). But are they right (as in that article) to look at contactless payments as being a wheeze to increase retailers bank charges tenfold? The calculation that they are making here (ie, a small shop with 450 cash transactions per week being replaced by contactless) shows the retailer’s costs rising by £200+ per month compared to the current £20 per month they pay for banking cash. I think there are two issues about this calculation: first of all, retailers are right to ask for differential interchange of offline EMV transactions that are replacing low-value cash, so that means the cost wouldn’t be anything like £200. Maybe £50-£80, something like that. Secondly, I can’t help noticing that the retailers are only calculating the cost: they don’t see any upside. They don’t see any benefits to them in reduced cash handling or shorter queues, they’re not being offered any value-added services. As our good friends at Payments News perceptively noted, this sort of thing is a symptom of an the symptoms of an industry (ie, acquiring) that is competing only on price but that should instead be looking to offer something new.

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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.

Sva cviqve persona

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[Dave Birch] The idea that people might be represented by signs rather than names is actually rather an old one, and I’m not saying this just because I went to see the artist currently known as Prince in London last week. From a technical perspective, I can see the obvious advantages and disadvantages. On the plus side, there are a lot more signs than there are names and they are a help for the illiterate. On the minus side, it makes issuing identity cards a lot more complicated (although a lot more interesting as well). But I also think that signs carrying a meaning that names do not: I quite like the idea of a sign for my individual persona, a sign for my work persona, a sign for my play persona and so forth. This would have the effect of communicating my persona to counterparties in a rich way, like choosing a pseudonym but acting simultaneously as an identity selector and a mask. Who do you want to be today, so to speak. Since I believe firmly that we have to develop a this richer notion of identity before we can make progress digitising it, the connection between signs, logos, masks and pseudonyms is fascinating.

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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.

Geneva convention

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[Dave Birch] I have to say that I sort of disagree with industry observers who point to NFC security as being the key reason why banks and mobile operators can’t agree on how to secure account and transaction data. The reason why financial institutions have been experimenting with “secure elements” that are separate from the SIM is not because they suspect SIMs to be insecure — apart from anything else the SIMs, secure elements and EMV cards are all using the chips and operating systems — but because they (correctly) suspect SIMs to be under the control of mobile operators. An impasse? No, I don’t think so. A lot has been happening in recent months: I think the mobile operators are being more realistic about the potential business model (ie, not asking for transaction revenues) and banks are being to adjust to the idea of a payment device that the belongs to the customer, not the institution. With services actually launching, it seems to me that the new value network is beginning to co-ordinate ready for 2008. I imagine this is the sort of thing, by the way, that informed people will be discussing at IIR’s Mobile & NFC Payment Strategies conference in Geneva in November.

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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.

More on the cash menace

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[Dave Birch] There was a story in the Wall Street Journal today (no link because registration is required) about money laundering, talking about how Columbian drug dealers employ “smurfs” to go round depositing small amounts (a few thousand here, a few thousand there) of dollars from drug sales into banks in the U.S. so that their Mr. Bigs can then withdraw cash in pesos in Columbia. By coincidence, I happened to be at a World Online Gambling Law seminar today — along with a couple of our clients — and learned a lot about the topic. Not from a “how to” perspective, of course, but more from a “this is why we’re imposing massive costs on the payments industry” point of view. One of the things that I learned was that the money-launderers best friend, the 500 euro note, is increasing in popularity as it strives to replace the $100 bill as the criminals’ store-of-value of choice. Apparently a substantial fraction of the 500 euro notes that have been printed are no longer in circulation in the eurozone, so Latin American drug barons are making substantial interest-free loans to European central banks, just as they have made interest-free loans to Uncle Sam for years. I’m sure that crime, drug dealing, corruption and terrorism have all fallen significantly since the introduction of more stringent anti-money laundering (AML) legislation, although I don’t have any figures to hand…

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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.

Where will the innovation come from?

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[Dave Birch] Having been reading some of James Gardeners insightful reflections on innovation banking, and in particular having been thinking about some of the questions he posed when talking about Xerox and Microsoft, I am forced to ask a tough question: where is the innovation in payments going to come from? Bank’s IT budgets are going to be sucked up by SEPA initiatives for the foreseeable future and those initiatives mean downward pressure on payment income. Insofar as I understand the strategy of banks that we work for, in recent times it has been to change the cost/income ratio by both increasing income (perhaps by making riskier investments!!) and becoming more operationally efficient: factories for money. But I wonder how this works in the longer term?

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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.

More on banks and payment futures

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[Dave Birch] Gartner have published a report agreeing with Aneace that payment schemes need to offer merchants new promotional marketing capabilities at the POS to reduce pressure on interchange. They tend to be thinking about loyalty, receipting and that kind of thing. But I also wonder if one of the most obvious value-added services around payments isn’t, after all, a bank account? Perhaps an way to bring down costs is to provide limited functionality payment account rather than full-blown bank accounts that overshoot the needs of a substantial fraction of the customer base and don’t address the needs of the population of non-consumers of bank services, thereby matching the value offered more closely to the customer needs.

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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.

Cardspace and OpenID experiments

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[Dave Birch] I’ve been playing around with both Cardspace and OpenID just to get a sense of where they are. As I’ve said before, I’m not a management consultant, so I want to know who these things work before I start advising people about them, so I’ve been investing quite a bit of effort into seeing how they are coming together from a user perspective. Having got my OpenID login sorted out, it was time to play with CardSpace. There’s lots happening around CardSpace at the moment (I’m particularly interested in the presentation by our good friends ACI Worldwide at Digital Identity World about using CardSpace with 3D Secure) and it’s cropping up in more corporate strategies. Now that the Windows Live sites support CardSpace login, I’m sure a lot more people will be playing with it and beginning to appreciate how it might work for them.

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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 in the bank

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[Dave Birch] It’s not really about identity, but I was struck by Jerry Fishenden’s point about how banks could be offering more services on the back of their digital infrastructure. He was talking about services such as letting me store key personal information, information that I might then choose to disclose on a selective basis in the same way I can choose to selectively disclose or transfer financial information. Now I definitely agree with Jerry that this presents an opportunity here for banks to become the friend of the consumer in the digital age (I think I’ve called it “becoming the customer’s privacy pal” in a previous presentation). However, given that the Information Commissioner’s report for 2007 identified 12 U.K. high street banks as discarding customers’ personal details in rubbish bins, Jerry may be overestimating consumers’ inclinations toward banks as safe stores (!) but it’s a useful idea to play with. After all, if the bank issues me with an identity, then a bank might be a reasonable place to store data relating to that identity. Which is a small step from the bank as identity manager: why not have your IBAN as one of your OpenIDs (apart from Ben Laurie’s perfectly reasonable concerns about phishing)?

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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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