Archive for the ‘Debit cards’ Category
Not often we see a plausible alternative in the payments space from banks, but here is one in the works.
Bundesbank board member Hans Georg Fabritius told the conference that a Visa and MasterCard duopoly is “an unsatisfying vision” for political and economic reasons. However, he warned that while the French and German project, called Monnet, is “promising” it is only a concept and he would want other countries to join in.
President Kohn of the Kansas City Fed speaks at the ECB/De Nederlandsche Bank Conference conference in Frankfurt. He argues for greater control by the Fed over the payments system. While his outline of problems makes sense, they also describe the failure of the current system, and the lack of foresight from the existing controls, and its unclear that the proposed solution from them will have any impact other than exacerbating those problems. The problems he describes are real and more importantly consumer facing. They are also imho problems that large banks could address given their scale and the opportunity for customer loyalty. I am thinking of BofA and Wells specifically, but that is for another post.
The Future of Retail Banking and Payments – President Thomas H. Hoenig
In light of the trend toward greater industry concentration and the existence of important payments system externalities, the Federal Reserve should play a larger and more active role in electronic retail payments if it wants to promote the efficiency and integrity of the payments system.
There are two broad categories of problems that he identifies with the payments networks
- lack of competitiveness: In 2007 81% of the payments volume went over three networks, compared to 46% just few years earlier. In addition the number of networks are down from 43 to 14.
- integrity of the system(s): He sees single point of failure and prominence of non-banks as issues of concern. The variety of systems introduce externalities that undermine the entire system. His example is the continued use of mag stripe and the security implications of not shifting to chip card as the rest of the world has done.
On that last point I would add that the fact of holding on to the mag stripe is influencing the rest of the world with counter productive results. For example in Canada banks are issuing cards with stripe and chip which makes no sense. So long as the stripe exists the flaws associated with strip exist. But the sheer size of the American market pressures the issuers to continue with stripe for the forseeable future.
Then he makes this statement:
Historically, the Federal Reserve’s role in both checks and ACH reflects a preference to operate within the market rather than as a pure regulator. We are well aware that industries can – and do – quickly develop methods to exploit any regulatory loopholes and avoid the intended outcome. By competing with the private sector on a level playing field, the Federal Reserve can encourage efficiency and integrity from an “on the ground” position.
That statement reads to me as rationalisation of inaction and continuation of the status quo. His conclusion is that the best form of regulation and solution to the aforementioned problems is to compete with the other networks.
Thus, in my view, the Federal Reserve’s future role in retail payments should be built around its current position in ACH. For example, in its operator role, the Federal Reserve could augment its ACH products and services, with the aim of enhancing competition and safety within the ACH industry.
… … …
Finally, the Federal Reserve could enhance competition in payment card markets by positioning ACH services as an alternative to debit card payment networks.
It certainly is a strategy and we can debate whether government ought to be engaged in payments systems directly, as regulators, or not at all. All I know is that consumers (and banks) will suffer from the real problems he identified at the outset, and its not at all clear that the Feds 14th network will address those problems at all. This reads as a recipe for disaster in American payments. For example the very issue he outlined of underinvestment in security and integrity will only accentuate as the other 13 networks work to compete with the Fed, and protect profits. Expect continued data leakages, network outages, and identity theft.
Dave writes up the latest on card fraud in Europe and UK and touches on the US. As Simon points out in the comments, its a chilling read, and highlights that the slow and gradual shift to secure cards and terminals is just wrong.
I have similar worries for North America as US sticks to mag stripe, and Canada to chip and mag stripe combined. The opportunities for criminals are simply too great.
I didn’t want to write about fraud yet again, but… | Digital Money Forum
Total card fraud last year was UKP 535 million (about a billion dollars) but the half-yearly figures for 2008 are predicting a full year well in excess of UKP 600 million. The prospects of fraud reducing remain, I think, slightly gloomy.
After the previous post, thought I’d check out Andera, the service provider for those online account openings.
The graphic below from their site is the classic view to which all Banks with an integrated multi channel strategy aspire … ie almost every Bank.
The Andera platform offers financial institutions an end-to-end solution for online account opening and funding.
It got me thinking about whats missing in the picture. This picture [sorry Andera] is what bankers expect to see, but is dead wrong.
Relevance to Bankwatch:
The view above is 100% bank centric. It accurately depicts the activities customers undertake at the Bank, but those activities only account for what … 5% of the customers interactions with their money?
A more complete view would require not just web, branch and call centre, but also:
- debit card purchases
- credit card purchases
- spending pattern analysis and advice
- account alerts to mobile
- messaging between bank and customer
- new service notifications, and sign up or opt out
- bill payment and management
- etc etc
These items and the ones I missed account for the other 95% of a customers mindshare relative to their money. How can your Bank offerring help with that experience?
This got my attention from Morris. I thought that Capone had cancelled their debti card programme, but it turns out they just wanted to re-release as their own service. Now this gets interesting. Not much to judge about the service on the US site linked from Morris’s post, so any additional information welcomed in the comments.
NOW, all bets are off since CapOne has gone national and has tied it to their own reward program.
Potentially millions of consumers who are dissatisfied with their current bank or credit union, for whatever reason, may start using this debit card as their primary financial institution (PFI), since checks are virtually a thing of the past for a vast number of consumers already.
eCom Gal over at “Where are V“, asks a fair question because the US is lagging the rest of the world in debit card adoption/ elimination of cheques. Great question, and the answer isn’t simple.
but seriously, will paper check usage ultimately be replaced by debit cards and online bill pay?
The short answer is, no… although debit card will grow rapidly, as retail consumers shift quickly to debit. Why – business cheque use persists.
These are old stats from Canada, and followed by more recent ones. Whats interesting to me, is that cheques dropped but not by much. The generally accepted explanation is that business cheque writing has no diminished as much as expected in Canada at least. This would be the next big shift -B2B payments, to eliminate those cheques.
Finally some stats from a Celent 2003 report showing propensity for GenY to use electronic transactions.
Dave discusses an Alliance & Leicester Commercial Banks Cash Survey published recently. Boots have given up on cheque’s, which is significant. In Canada cheque’s were killed off in most retailers a long time ago, but in the US are still accepted.
According to The Daily Telegraph, Boots is going to stop accepting cheque’s as they now account for only 2 in every 1,000 transactions. For our overseas readers, I should point out that Boots is a British institution, a high-street pharacy-cum-drugstore. I’m not sure, but I think the key statistic is that two-thirds of the UK population visit a branch of Boots every month. So when they say that cheques are history, others will surely follow (Shell petrol stations no longer take cheques either, so it’s not just Boots). That I can understand.
The only people I write cheques to are the kids schools, for trips and dinner money and that sort of thing (why they can’t get a Paypal account I’ve no idea) and our gardener.
In Canada debit is prevalent, but just getting going in the US. Interestingly the retailers in the survey prefer cash, then credit then debit, which sounds counter intuitive.
But why do retailers think that cash is cheaper? I wonder about these figures: it must cost Boots more than zero to count, bag, deposit, guard, store and transport cash. Perhaps it’s a function of size: the SME’s quoted in the Alliance & Leicester survey may regard administration and bookkeeping an unnecessary overhead when applied to cash and may perhaps sometimes skimp on the record-keeping, whereas Boots do not.
Another small stat … I haven’t seen this in writing, but apparently the largest user of cash in Canada is Tim Hortons coffee shops. Their use exceeds all vendors, and banks. Even if its not entirely true, its indicative of the development of a two tier system, and banks will not necessarily be synonymous with cash.
Relevance to Bankwatch:
This survey is typical (imho) of the noise to be expected while we go through the dissonance of change. I see a cashless society being inevitable, for certain customer segments. With products such as Cardis gaining mass acceptance, and those areas that debit is already embedded, its a simple shfit, much as credit is the premier payment vehicle for a certain affluent segment today. A
two tier system could exist for some time though, but the players representing the tiers may not be as obvious.
Aneace correctly points out a consequential trend in card fraud, that is going to impact travellers plans. Chip card implementation is complex, and the fact that cards will be combo, chip and mag stripe merely increases the complexity.
The explosion in ATM/debit card fraud shows how fraud can move to the US from other parts of the world, like the UK, where card issuers are adopting the more secure EMV chip card standard. Some US banks have responded by putting a temporary hold on all ATM transactions in the UK, leaving some customers stranded. Cardholders are advised to alert their bank when they plan to travel, and to carry multiple cards for multiple accounts and extra travellers’ cheques, just in case. Wow. Blast to the past. Back to the good old days of travellers’ cheques and envelopes filled with cash.
Already we are seeing consumer trends such as:
- carry four separate cards with $5K limit, versus 1 card of $20K
- keep one card with less than 1K limit for internet purchases
- request bank maintain cards separately from other accounts
- hold credit card with another bank, that keeps the card separate from main accounts
- chip card with no mag stripe
- maintain low limit mag stripe card for travel, or non home bank, domestic use
Relevance to Bankwatch:
Card use is not simple nor are behaviours understood. Chip will reduce some fraud generally, but introduce a high level of complexity in consumers minds that drives aberrant card behaviour.
Now that UK has moved to pin/ debit, this security expert points out that the opportunities for fraud are expanded because of the variety of security in existence at the point of sale endpoints that now require PIN. This has always been the case in Canada, and its known that POS terminals are one of the weak links in the network infrastrucuture.
Today, however, consumers must enter their PINs at any point-of-sale terminal, which makes it much easier for criminals to obtain the data, Bond says. “Now there are hundreds and hundreds of thousands of devices, with a lot more variety in the levels of security as well,” he points out.
Technorati Tags: PIN_fraud
There is much talk about the importance of Web 2.0 and a new sub thread is evolving on the use of such tools within the enterprise, so lets look at Wiki’s in particular.
Andrew speaks eloquently here but I fear this school of thought is getting too caught up in the technology, and generalising about the tools. Typical Web 2.0 tools are quoted as Wikipedia, Flickr, MySpace, YouTube, del.icio.us, Digg, and I would agree on most of what is discussed on the utility of those tools, particularly with the inclusion of blogging. I think the customer interface and connection with the average user for these tools will need to be improved to be useful for everyone, but the basics are there. Tagging is a great example with del.isio.us leading that charge, but their interface is horrible. Nonetheless I remain convinced tagging will be core to online banking in the near future.
The exception could be wiki’s – useful as Wikipedia is, wiki’s are at best clunky and awkward for the average person. These statistics quoted on the Church of the Customer bear that out. Only 1-2% of wiki users actually contribute. This is not a bad thing, but it suggests Wiki’s are good for sharing evolutionary thoughts on an interest, authored by a few core leaders, and read by many. Wiki’s are not a tool for work sharing and interaction, which assumes equal participation.
Relevance to Bankwatch:
Many powerful tools are appearing, and they will change online banking. In particular, three tools to watch that smart Banks will lever are: