Tomorrow's Transactions

Thought leadership from Consult Hyperion

Archives for December 2008

Defending cash

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[Dave Birch] I was listening to a recent episode of Skepticality, about the TV show “Numb3rs”. The presenters were interviewing one of the writers about the making the show and they made a comment that caught my money-obsessed ear. The writers said that they had been researching a show about counterfeiting and during the course of this research they had copied a $20 bill on a photocopier to see how well it came out. Shortly thereafter they got a phone call from the US Treasury! The photocopier was online, and phones home when someone tries to copy money! (Incidentally, the Treasury guys weren’t very happy to hear the proposed plotline about the FBI investigating some counterfeiters because it’s the Secret Service — until 2002 part of the Treasury — who take care of that.) I thought they might be exaggerating, but it turns out that not only do some photocopiers have this feature built in to them, there are many printer drivers that won’t print scanned bills!!. Ever-vigilant for the cause of monetary trivia, I tried it out myself. I scanned a fiver and tried to print it, and I got this error message.

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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 always, always the same

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[Dave Birch] One of the reasons why a digital identity infrastructure ought to be more than just building a big database of everyone and then letting everyone have access to it is that the infrastructure will inevitably be abused by those on the inside, no matter how much effort goes into keeping out the bad guys on the outside.

Missouri Citibank employee Brandon Wyatt… accused of tapping Citibank's computers for customer information, then using it to set up checking accounts online with competing banks, including Bank of America, Washington Mutual and AmTrust. Wyatt allegedly wire transferred customer funds from Citibank to the new accounts, then cashed them out with additional transfers, checks, debit card purchases and ATM withdrawals. His take, according to federal prosecutors in St. Louis, was at least $380,000.

[From Fed Blotter: Citibank Worker Allegedly Plunders Customer Accounts | Threat Level from Wired.com]

It's hard to see how you can stop this from happening completely in an economic way, but what you can do is make sure that there is an audit trail so that someone how decides to have a go at this kind of fraud has a reasonable expectation of being caught. Although I have to say that armed bank robbers have a reasonable expectation of being caught (and a reasonable expectation of a long sentence if they are caught) but they still do it. Anyway, my point is that if you take people personal data and put it in a honeypot, there is only one outcome. A database is not an infrastructure.

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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 Christmas

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[Dave Birch] Hhhmmm. Only a couple more shopping days left until Xmas, time for a real man to start thinking about presents. What would make a good present for a Digital Money Denizen this year?

The disgruntled commuter, the perpetual pessimist, the misanthrope, the ironist [which covers a large percentage of the people we know!]: Whether you find in your daily commute something soul-sucking or rather darkly comedic, Bad Oyster knows that public transit ain’t all a pleasure cruise. Its Sardines, Roulette and Mind the Gap (‘between your expectations and the service provided’) wallets (£2.99) are like a miniature dose of defensive humour for your harried journey.

[From Londonist: Santa’s Lap: Designer Oyster Card Holders]

Not bad. But these are about accessorising (is that the word? My spell check is unconvinced) the payment instrument rather than the payment instrument itself. Meanwhile, over in Hong Kong, they’re showing what can be done with a bit of imagination.

This premium and stylish Octopus series offers four adorable animal designs for customers to choose from, each gorgeously adorned with colourful crystals. Each Octopus Ornament also comes with a beautiful charm and chain which can be easily attached to a handbag, mobile phone or MP3 player, or worn on the wrist as an accessory, adding a touch of dazzling glamour! Each Octopus Ornament design is beautifully packed in an exquisite gift box, making it a perfect treat for family and loved ones.

Combining sparkling glamour and payment convenience, Octopus Ornaments are for sale at only HK$328 each (not including any deposit or initial stored value) at 7-Eleven outlets in Central, Admiralty, Wan Chai, Causeway Bay, Tsim Sha Tsui, Mong Kok and Sha Tin starting tomorrow (4 December 2008). Only a limited quantity is available.

Like all Octopus products, Octopus Ornaments can be used on public transport and at more than 5,000 retail outlets across Hong Kong.

[From Octopus Holdings Limited – Press Releases]

I still have the same boring old Oyster card I bought years ago, although I rarely use it anymore because of my splendid Barclays OnePulse card. It sits at the bottom of my rucksack, only used to help friends or family members who have forgotten theirs. But if I could get a Hello Kitty Oyster tag for my bag, I would. In fact, I’d probably get several, so that I could pay in the most appropriately fashionable way.

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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.

That’ll do nicely

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[Dave Birch] Some time ago, I pointed out that aggressive retailers might 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 and I subsequently wrote a piece on this for Electronic Finance & Payments Law & Policy. Having been thinking about this and other implications of the introduction of a national ID card scheme, I was surprised to hear from a bank that I was talking to that they had no strategy on the UK ID card (despite the fact that the first cards have already been issued) and no plans to develop a strategy. Now, on the one hand this is understandable, since the UK cards don't do much and there are no readers for them anyway, but on the other hand it may be unwise if other people are developing strategies that may impact banking.

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, and has been discussed over on Digital Money, retailers may well be the key stakeholder group when it comes to developing new payment schemes for use at retail POS. 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.

Movers and shakers

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[Dave Birch] Earlier in the year, Jacqueline Chilton from Glenbrook had a nice write up from CTIA and I remember making a note of it because of one particular point that she made. She reported on a mobile payments panel session, saying that:

In the end, there was general agreement that someone would make a big bet investment and turn the tide.

[From Glenbrook Partners: Report from CTIA – Mobile Payments Eventually]

I’m sure she’s right, because that’s the way of these things. Someone needs to be the American Express, the Apple or the Walmart that animates the new business models made possible by the new technologies. But who? If I actually knew, naturally, I wouldn’t be doing this job, but I think that some of our recent experiences might allow us to do better than random guesses or non-commital management consultancy blandishments. So here’s a bit of informed speculation. If it’s going to be a big bet investment, then it has to be a game changer, not simply the shift of some existing payment instruments over the handset.

Could banks themselves be the game changers? Other people are starting to wonder what the world might look like if banks started breaking off from the international payment scheme networks and becoming their own networks. Banks like HSBC, Citi, Bank of America could simply operate their own payment schemes: they have enough customers. If WalMart took Citi cards, that’s a lot of volume. But it’s also a different basis for competition. As the literature tell us, “two-sided” payment networks have to balance the interests of customers, retailers and banks to work. In practice, this means that the banks (who owned the networks) structure the business. One of the effects of this has been to send a portion of the merchant service charge (MSC) levied on retailers back to the issuers in the form of interchange. Banks then use some of this interchange to incentivise customers (I’m happy to say: my Barclaycard Paypass card is currently giving me 2% cashback on petrol and supermarket transactions). This is the source of a great deal of friction between retailers and issuing banks (not to mention legal action and regulation around the world).

But if a network isn’t competing to sign up issuer banks, perhaps the incentives change. This might lead to the development of real value-added services for merchants (data mining, e.g.) or to more meaningful product differentiation (not just variations in rewards programs) for consumers. In short, shaking up the structure of the payments field might encourage payment companies to do a little more thinking outside the box.

[From Credit Slips: The Visa IPO]

It seems to me, though, that banks have a quite enough on their plates at present and this kind of big strategic decision must be hovering around bottom of the list of strategic decisions that need to be made real soon now. So who else could be the game changer?

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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.

Vote “no” to yesterday’s technology

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[Dave Birch] The recent Pew report on the Future of the Internet makes the same point that I have been droning on about for ages. Looking at PCs and the web doesn’t tell you anything about the future, because the future is mobile.

“Clearly, in the long run, mobile wins,” says Consult Hyperion’s Birch. “For most people, in most of the world, most of the time, the mobile phone is the most important device.”

[From FST]

Now, in some advanced countries, it is seen as natural to being to transfer applications that hinge on identity over to the most personal interweb interface, the mobile phone. An interesting case study is Estonia. We’ve looked before at Estonia’s use of new technology and they are back at the forefront this month:

Lawmakers approved a measure Thursday allowing citizens to vote by mobile phone in the next parliamentary elections in 2011… The mobile-voting system, which has already been tested, requires that voters obtain free, authorized chips for their phones, said Raul Kaidro, spokesman of the SK Certification Center, which issues personal ID cards in Estonia.

[From Estonia to vote by mobile phone in 2011 – International Herald Tribune]

This is a similar architecture to that being deployed in Turkey, where the key pair at the heart of scheme is stored in the SIM and the on-board application uses it for digital signatures.

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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 front line

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[Dave Birch] You may have noticed the announcement of a new contactless purse/loyalty scheme in the UK.

UK coffee chain Coffee Republic has teamed up with electronic money operator sQuidcard to launch the Coffee Republic contactless prepaid ‘Payment and Loyalty’ card.

[From The Paypers. Insights in payments.]

I asked Forum friend Adam Smith at sQuidcard for a card and he was kind enough to send me one. I logged on to their web site, registered, loaded a tenner and looked forward to my first contactless loyalty experience.

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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.

Commercial activities

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[Dave Birch] Identity management technologies have to get into the consumer space and go with the grain of what companies and their customers want to do. Clearly we can’t just start from scratch and redesign all commercial interactions on top of a (currently non-existent) identity infrastructure. Yet the technology that we need to improve the customer-business interaction is coming together, so it would be a good idea to try and figure how it can be made useful or attractive.

The good news is that these problems are already being addressed. Technology now makes possible an identity infrastructure that simultaneously addresses the security and public service needs of government as well as those of private sector organisations and the privacy needs of individuals. Privacy-enhancing security technologies now exist that enable the secure sharing of identity-related information in a way that ensures privacy for all parties involved in the data flow.

[From IdentityBlog – Digital Identity, Privacy, and the Internet’s Missing Identity Layer]

The (albeit limited) marketplace concept of identity management as a way making logging in to web sites and filling out online forms less painful is there, so it would be a good place to start.

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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.

And there’s always the free superpower, of course

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[Dave Birch] The “jam jar” theory of prepaid is well-known, if not well-understood. The basic concept is that consumers seem comfortable with, in fact some show show a preference for, partitioning money into separate “jam jars” for separate purposes: the phone money, the holiday money, the going out money, that kind of thing. Apart from other reasons, this is why prepaid products can be so popular when properly targeted. My kids have closed-loop prepaid cards issued by their school for storing lunch money. They have prepaid mobile phones. Until recently, one of them had a prepaid open-loop card as well but it was a rubbish product, but my point is that although I have only one debit card and a couple of credit cards, I am the potential purchaser of several prepaid cards.

What’s true in physical commerce is also true in virtual commerce. My younger son has a prepaid card for World of Warcraft, for example, and soon he will want his own prepaid open loop card so that he can buy things on the Internet. So if I gave him an open loop card, would that mean that all of the closed loop cards would become redundant? Or suppose a closed loop card for all games came along?

People have said to us “what happens if some universal gaming card puts you out of business?” and we say there’s already a universal gaming card — it’s called a pre-paid Visa. If people really want to get their cash onto the web you can buy a pre-paid Visa at millions of outlets across the country.

What we have seen — not only from our digital and retail partner side but from our consumer side — is that the individual cards are very positively received, even just down to consumers enjoying the collectability of them, because we refresh the art periodically. In addition, we have the ability to do a lot more when the cards are individual — for example, with Zwinky, when you bought a card you also received your choice of a free super power. That’s the kind of value you can add when you’re doing a specific unique branded card, rather than when you have a card that merely acts as a payment method.

[From Worlds In Motion – Interview: GMG Entertainment On Pre-paid Cards’ Potential In Retail]

I couldn’t comment on the use of free superpowers as promotional devices, but you can see the point here. If a closed loop card is just a payment mechanism, then what’s the point? A key reason for using closed loop cards is to provide specific value-added services around the payment transaction.

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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.

Back to Brussels

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[Dave Birch] Payments isn’t the only driver, or in fact even the main driver, of transactions in the mobile commerce world. It’s natural that this blog tends to look at the mobile payments space, but in order to understand that space properly it’s important to see the context for payment transactions as transactions of many kinds. As in the case of contactless card rollout in London, the future trajectory of cash replacement is intimately linked to the future trajectory of ticket replacement. Transport operators only provide ticketing systems because the payments industry does not provide any suitable payment products, so if it were to start providing suitable payment products then it would have an enormous market ripe and ready to generate initial volumes for the new products.

Over 400 million subscribers will use mobile ticketing systems by 2013, contributing to gross transactions of $92bn (£53.8bn), according to recent research by mobile analyst firm Juniper Research.

[From Mobile ticketing still facing barriers – vnunet.com]

If this number seems high, you need to see it in the context of the mobile commerce that is already being carried out in markets around the world. In Japan — everyone’s favourite example, of course — there is already a $100 billion+ m-commerce market and it’s still growing strongly.

The country’s Ministry of Internal Affairs and Communications says business carried out through cell phones in Japan was worth $106 billion in 2007 (up 23% from 2006), with m-commerce accounting for $67 billion and the mobile content market for $39 billion. Just one example: Cell phone owners downloaded music worth $10.2 billion, 42% more than in 2006.

[From Japan’s super-advanced mobile web: Too unique to serve as a global blueprint?]

The reason why I tend to focus on mobile a lot with various clients at the moment is because I think we’re at an interesting point in the evolution of digital financial services as we begin to realise that mobile is not the niche, but the maintstream.

Mobile services today are about where the Internet was in 1996. And globally, mobile banking and payments will be even more important that online banking and payments.

[From Why New Financial Technology Remains Important (NetBanker)]

I couldn’t agree more. We have to stop thinking of m-financial services (including m-payments) as being the same as Internet financial services but with a small screen.

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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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