Tomorrow's Transactions

Thought leadership from Consult Hyperion

Archives for September 2008

Paul Smee, Chief Executive, APACS

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[Dave Birch] Paul Smee is the Chief Executive of APACS. He started his working life in the Department of Trade and Industry where he worked from 1978 to 1988. Paul moved on to the London Stock Exchange where he held a number of appointments, including Head of Government Relations. A number of high profile roles followed, including Director General of the Association of Independent Financial Advisers. In January 2005 Paul joined APACS as Chief Executive. In this podcast, he talks about the recently-released National Payments Plan for the U.K. and the trajectories of one of the oldest payment mechanisms here, the cheque, as well as one of the newest, FPS.

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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.

Rolling out ID cards

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[Dave Birch] The British government's plan to roll-out ID cards to people took another step forward today with the release of details on the ID card for foreign nationals:

Home Secretary Jacqui Smith said the cards would allow people to "easily and securely prove their identity".

[From BBC NEWS | Politics | Foreign national ID card unveiled]

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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 non-electronic cash debate

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[Dave Birch] It’s fascinating to me — who couldn’t care less about notes or coins — just how heated the debate can get. Over at Freaknomics, one of my favourite blogs, there’s been yet another discussion about whether the U.S.A. should reform the coinage, abolishing pennies (and perhaps nickels as well) and getting rid of dollar bills. It all kicked off because it turns out that for some unfathomable reason (which means, I’m sure, that Congressmen were some how involved) the U.S. Mint is going to issue for new versions of their “super-duper costs nearly two cents to make” penny.

Imagine my surprise at the recent announcement that the U.S. will be issuing four new versions of the penny, the first of which comes out in February, in honor of Lincoln’s bicentennial. What a waste of resources… It’s time to join the rich world; it’s time to stop wasting resources; and it’s time to stop transferring taxpayer money as subsidies to zinc producers.

[From Pennies: Enough Already! – Freakonomics – Opinion – New York Times Blog]

Surely the U.S. doesn’t more pennies does it, not unless the old ones are disappearing, which under the normal laws of economics you might expect. I imagine they are being smuggled over the border to Mexico because

all pennies up to 1982, which are made of a 95% copper alloy are worth twice as much as scrap metal than as currency.

[From Pennies: Enough Already! – Freakonomics – Opinion – New York Times Blog]

Fascinating. But if you read the comments you can that there’s an element of conservatism about money (and an almost paranoid suspicion of any proposed change) the we e-money persons ignore at our will.

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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.

Coin of the Realm

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[Dave Birch] All of the newspapers, radio and TV are full of the news that 1 in 50 of the £1 coins in circulation in the U.K. are now counterfeit.

The number of fake £1 coins in circulation has doubled in the last five years and now stands at more than 30 million, the BBC has learned.

[From BBC NEWS | UK | Number of fake £1 coins ‘doubles’]

It seems like a reasonable business to be in, if the figures given in respect of the recent arrest of a counterfeiter are correct:

It is thought that at one stage he was making 10,000 to 12,000 coins per day and was paid about £2,000 in cash a week by the two men.

[From BBC NEWS | England | London | Man jailed over 14m fake £1 coins]

I wonder how much it costs the Royal Mint to make a £1 coin? Anyway, the reason why this story is worth mentioning here, is because one of the experts quoted in, Mr. Robert Matthews (until recently the Queen’s “Assay Master”), says that 2% is the threshold at which people become nervous and begin to feel uncomfortable about accepting coins. At this point, Gresham’s Law steps in to drive the good coins out of the marketplace and confidence in the circulating coin of the realm collapses. The Royal Mint rather unhelpfully say that if you find yourself with a counterfeit coin you should not attempt to spend it, but that is of course precisely what any sensible person will do with it, since as a rational economic actor I want to dump bent coins on mug punters at the first opportunity, carefully stashing away the coins that I know to be authentic. Oddly, The Royal Mint also say that this counterfeit incidence is “comparatively low” by global standards, which it may be when compared to some developing countries but it is not when compared to the forgery rate for euro coins, which is down at 0.1%. More to the point, it’s considerably higher than the retail card fraud rates, which are well under 1% (card-not-present fraud is much higher).

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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.

Stoking up the debate on data sharing

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[Dave Birch] At the beginning of the year I proposed Stoke's Law as the back-of-the-envelope law for estimating the amount of new crime enabled by government data collection and sharing:

I propose Stoke's Law, which is that as the amount of data that the government collects grows, so will the number of people who are victims of crimes that were made possible by unauthorised access to government databases.

[From Digital Identity Forum: A new law]

We never really settled on the shape of the Stoke's Law curve, leaving it as a square law (ie, the amount of crime goes up as the square of the amount of data collected) but I'm really beginning to wonder if this is steep enough. This is because, in the U.K. at least, civil servants and management consultants appear obsessed with data sharing, which of course makes the problem much worse. It's no surprise to see stories about the abuse of government databases appearing with apparently increasing frequency. For example, I read only last weekend of a case in which a civil servant was tapping into databases to pass a woman's details on to her violent ex-partner so that he could track her down. This wasn't for money — the civil servant was the new girlfriend of the violent man in question — but could have had a much more serious outcome than the kind of identity crime (ie, credit card fraud) that the government says is a priority with respect to the national ID card scheme.

As someone who believes that cock-up rather than conspiracy is the guiding principle of government IT, I have to say that corrupt civil servants passing on information to criminals is unlikely to be the biggest problem with the joined-up administration imagined by the designers of new public sector infrastructure:

Government records are notoriously inaccurate. If a person is wrongly listed in a database, the problems of that error are now amplified.

[From Concurring Opinions]

When government databases were inaccurate and distinct, the errors were there but it was difficult for them to propagate. Now they will be able to zoom around at the speed of light.

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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.

Remember “off line”?

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[Dave Birch] For reasons not germane to the post, I’m wondering if I can detect the first pangs of crisis in the world of EMV. Have we been rolling out the wrong system? This horrible suspicion obtains vitality from a big picture perspective which says that, in essence, it was mad to start rolling out a system that was designed to allow secure offline payments at the very inflexion point in human history when the whole world went online.

Most consumers still pay offline, like in restaurants or stores. But I have no doubt that in future all these businesses will be connected to the Internet and then, virtually all payments will be made online.

[From Globes [online] – Israel business news – For PayPal, it is only the beginning]

Gulp. We’ve spent billions installing a legacy payment system and it isn’t even finished yet. Everything else is going online, bank-issued cards are going offline.

EMVCo, the EMV standards body owned by JCB International, MasterCard Worldwide and Visa Inc., has today announced plans to broaden industry participation in the development work of the organisation and establish a regular, formal dialogue between EMVCo and the global payments industry, through the launch of a new website subscription programme and annual user meeting.

[From Finextra: EMVCo looks to broaden industry participation]

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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.

Life without cash

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[Dave Birch] I read in The Daily Telegraph the story of James Allan, 25, who has spent the last ten months living in Britain without cash. He’s been cards and cheques only since a drunken bet made in pub last December and has so far encountered on two really difficult problems: the one pound coin needed for a deposit on a supermarket trolley and a cash deposit that he needed to put down to rent a flat (he didn’t say why it had to be in cash). In the latter case, he called his Mum, and she took care of it for him. He says that he is likely to continue living without cash: “It is filthy and dirty and I have really gone off it”. His Mum’s comments on having to ferry a large amount of cash from Oxford to London because of her son’s pointless activities are not recorded.

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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.

Blue on the Danube

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[Dave Birch] PaymentsNews picked up on my podcast with a large Dutch retailer, talking about their experiences with NFC payment.

The trial went beautifully – what’s not to like about 98% positive customer satisfaction? But, the reality is that moving from pilot to production deployment is stalled – because the mobile operators, handset suppliers, and banks can’t agree among themselves how to bring NFC mobile payments to market. Mierlo works for a major retailer who’s itching to deploy NFC – but can’t.

[From Payments News: NFC Mobile Payments – Beautiful Says Dutch Retailer! – September 16, 2008]

Something’s not working properly in the world of NFC. Consumers like it, retailers like it, consultants adore it. Yet nothing much seems to be happening. Why is this? The most common theory is that the NFC value chain is too complex and involves organisations learning to work together anew.

NFC’s prospects have been hampered by conflicts of interest from operators, handset manufacturers and banks and payment processing companies, added Bonny Joy, another analyst in charge of wireless device strategies.

[From NFC needs better industry work, says report]

I’m sure this is true. It’s very frustrating. But what do to? Well, some people are getting so fed up waiting for the operators and handset manufacturers to get their act together that they’re just bypassing them by putting stickers containing NFC chips and antennas on the back of phones. This appears to be an evolving meme: it’s not longer just me who thinks that stickers are going to be big.

Until now most discussions about NFC have revolved around downloadable applications, embedded chips, and carriers. However, the recent buzz is about finding alternatives and the most prominent is the use of an NFC chip that can be affixed to the outside of the handset (i.e. an NFC sticker.)

[From Mobile Banking: Recap from Mobile Commerce Summit – Part 3]

You may remember the Garanti bank case study, where the Turkish bank started issuing stickers after it had already begun issuing contactless cards.

Why did they do this? Well, Mehmet Seazgin, the head of payment systems at Garanti Bank sets the tactic in context: “Since we came up with this sticker idea, which works with all operators and brands of handsets, that gave us a whole new negotiation power with the network operators.” The negotiation that he is referring to is about NFC.

[From Digital Money Forum: Turkish delights]

I expect to see the more banks ordering stickers (we’ve just ordered some for a pilot with one of our bank customers in the Middle East) over the coming months while the operators and handsets manufacturers set their gears to slowly mesh together and start pushing handsets out into the mass market.

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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.

I’m sure banks have a strategy for this kind of thing

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[Dave Birch] Some time ago, I pointed out that sensible retailers would use ID cards to cut payment schemes out of the transaction loop, by using ID cards as payment tokens and using the ACH network rather than Visa or MasterCard. I've just written another piece on this for Electronic Finance & Payments Law & Policy.

As I have long been advising our clients in the payment space, there will be inevitable implications for retail payments businesses once a national ID card is in place.

[From Digital Identity Forum: Paying for identity]

Retailers want business change, not just lower fees. Now, a barrier to their competing with existing card schemes themselves has been the cost of issuing and managing secure smart cards or other tokens. But if the government is going to do it for them, then they may as well exploit it. I can easily imagine taking my ID card and a blank cheque down to Tesco, putting them both into a machine and punching in my PIN. Then, next time I go shopping, I punch my PIN into the keypad at the checkout lane, wave my ID card over a reader and then go on my way. This kind of the service has already begun to spring up in the U.S.A., in response to the issuing of “Real ID”drivers’ licences which have machine readable magnetic stripes that can be read at POS terminals. A company called National Payment Card (NPC) has begun to exploit the opportunity, by getting customers to register their bank details and a PIN against their licence. This means that customers can then pay for fuel by swiping their licenses at petrol stations and entering a PIN. A similar national scheme has just launched in Malaysia, where one of the leading banks has begun installing kiosks where customers can use their bank chip card and the MyKad ID card (without biometric authentication) together to link the ID card with the bank account automatically:

Consumers will have to open either a savings or a current account with EON Bank, which is the only bank providing payment transactions through the MyKad at the moment.

[From Buy fuel with your MyKad]

The scheme is targeting the fuel sector in the first instance and has signed up all Caltex and BHP filling stations, so that customers can fill up and they pay at the pump with their ID card. Since the margins on fuel are thin, the sector has every incentive to cut payment schemes out of the loop and move to direct bank transfer via ACH. I wonder if they even bother to authorise the transactions: after all, if you try to cheat them by presenting the ID card when you have no money in the bank, they have your ID details and I imagine you'll be hotlisted pretty quickly.

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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.

50 not out

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[Dave Birch] Today is a very important day for us payments nerds. It’s the 50th anniversary of the “Fresno Drop”. As the folks at Javelin put it…

On Sept. 18, 1958, Bank of America officially launched its first 60,000 credit cards in Fresno, Calif., setting in motion an experiment that changed the American way of borrowing, paying and budgeting.

[From Javelin Strategy and Research » Our Credit Card Culture Turns 50]

It certainly did that. If you want a good introduction to the history of the credit card, from the Fresno Drop up to the Internet, I’d recommend Joe Nocera’s “A Piece of the Action“, which I read a few years ago and still pick up from time to time. If you want to spend five minutes having a quick look at where the modern credit card business comes from, there’s a nice writeup over at CNN Money:

The most extraordinary episode in credit card history is the great Fresno Drop of 1958. The brainchild of a Bank of America middle manager named Joe Williams, the “drop” (which is marketing-speak for “mass mailing”) was an inventive tactic to give Americans their first highly addictive taste of credit card living. Keep in mind that charge cards in those days–like Diners Club or American Express–were mainly used by jet setters, businessmen on expense accounts, and ladies who lunched… Williams wanted to change that. In September 1958, he mailed out 60,000 credit cards, named BankAmericards, to nearly every household in Fresno. Mind you, these cards arrived in the mailboxes of people who had never seen–let alone applied for–a card like that. But now thousands of ordinary people suddenly found that thousands of dollars in credit had literally dropped into their laps…

[From Just One Word: Plastic How the rise of the credit card changed life for the FORTUNE 500–and for the rest of us. – February 23, 2004]

Go on, go ahead and bore at least one person today with the story of the Fresno Drop. I will.

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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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