Posts Tagged ‘Payments’
Jack Dorsey and colleagues have announced Square; a mobile payment acquiring terminal that is small enough to fit on a key fob, and works through any mobile phone with an earphone plug. First iteration works with the iphone, but it will work with blackberry and others. The common requirement appears to be a mobile device that accepts 3rd party apps, and has a standard earphone jack. The device and application acquires the data through conversion of sound into data, then transmits.
The device is designed to replace the merchant terminal for small businesses, replace the monthly terminal fee, and replace the merchant acquisition fee. It sounds like they will charge a fee eventually, but its free for now.
Lots of holes to pick in this, but at first glance it has the potential to be disruptive in payments for at least a group of small business. There is also some talk of future enhancement for p2p payments. One question I have is how it will deal with chip cards.
CapGemini have come out with their World Payments Report – 2009 [pdf 60 pages]. Lots of statistics, but the one that leapt out at me is this.
Japan stands out as a growth leader, despite being a mature economy. Certainly their growth potential is large given the traditional consumer cash economy, but I have to look at the North American lowly 5% and wonder that lack of innovation in payments is not a driver. Certainly there remains lots of cash transactions to convert to payments but nominal innovation in the works to migrate to electronic. The report notes that cash in circulation continues to growth in the Eurozone.
There is an interesting section reviewing the payments innovation in Asia, and a chapter devoted to summarising the state of SEPA.
India adopts a new rule for Banks [ht Payments news] that should have been voluntarily adopted years ago by all banks everywhere. I have always been a proponent for online alerts, but it makes eminent sense to make "card not present" alerts mandatory.
The rules require India’s banks to support two basic capabilities:
- A system of providing for additional authentication/validation based on information not visible on the cards for all on-line card not present transactions (e.g., Verified by Visa or MasterCard SecureCode)
- A system that provides "Online Alerts" to the cardholder for all ‘card not present’ transactions of the value of Rs. 5,000 (about US$104) and above
There is an enormous intelligence in this paragraph from Dave. It centres on the reality that with each transaction, a consumer is making a decision about their banking service. That service may be merely a payment card, or it may be a BarclaysBofALloyds Card. it doesn’t matter.
What has really happened is that the product experience has transferred from the old view of product, the bank account, to the new view, which is the experience. The experience occurs at the ATM, the POS terminal, the online banking session, the iphone app (oops you haven’t got that!). The customer experience is in the use of the account, not in the interest rate. That rate stuff is relegated to another mind space that is related to return and investment quality. That other mind space is critical, but not at the point of transactional experience.
United we fall | Digital Money Forum
Retailers don’t want to stop taking cards and go back to cash, but neither would they expect the product to be provided for free. So what is the real dynamic? Many people might sympathise with the retailers’ central complaint, that interchange has not evolved to reflect the modern retail payment environment, while being sceptical that a regulatory transfer of resources from one group (banks) to another group (retailers) will result in any benefit to the consumer. But there is a dynamic, so we cannot be static in response. We as an industry (by which I mean the electronic payments industry) need to demonstrate to retailers that our products are worth paying for. As I’m learning from the Innovation in Payments work over at the CSFI, if we restrict the value proposition to the payment transaction, this is difficult. It’s the value-added services around the payment transaction that create our future proposition.
This is essential stuff to consider in building new services. The traditional view of biulding a bank account goes like this:
- how many free ATM transactions
- how many free debit transactions
- at which balance will interest kick in
These assumptions are negative in nature in a consumers view. How about a value proposition that says ..
- monthly fee = $ XX
- ATM – free
- debit – free
- interest – zero
- savings account – no debit and high rates
Relevance to Bankwatch:
Of course I am simlifying here, but the point is to address the features of the account towards the requirements of the customer. Customers want simplicity, and understandabilty [I know that is not a word]. Take a look at any telco site and do the opposite. Allow customers to understand on the first page, what they are going to get.
This is an unusual but insightful new working paper released today, on what the Bank of Canada refer to, in a somewhat quirky fashion, as “means of payment”. The survey and analysis compares use of cash, debit and credit. What is insightful, is that after establishing the consumer view on the three payment methods it tries to get at why people feel this way. When I asked Dave Birch the other day – what is the right strategy of banks and payments providers to increase their volumes? …. his answer was simple – increase share by taking it from cash. Even in Canada, cash is far and away the largest payment method. Anyhow, here is some analysis of the report, which can be downloaded at the foot of this post or at BofC site. [pdf 27 pages]
The Role of Convenience and Risk in Consumers’ Means of Payment | Bank of Canada
The survey results indicate that Canadians perceive debit cards to be the most convenient payment method: 70 per cent of respondents state that debit cards are very convenient, compared to 62 per cent for cash and 59 per cent for credit cards. Credit cards are seen as the most risky MOP: 36 per cent of respondents perceive credit cards to have high risk, compared to 21 per cent for cash and 19 per cent for debit cards.
The survey also suggests that cash is the most frequently used MOP: 73 per cent use cash at least once a week, compared to 64 per cent for debit cards and 36 per cent for credit cards. While all respondents use cash, 18 per cent of respondents say they never use debit cards and 24 per cent
say they never use credit cards.
There are several conclusions embedded in their summary, although its easy to imply a ‘but …. ‘ after each:
- cash is most used payment method
- debit is most trusted
- debit is most convenient
- credit cards are most risky
Beyond the summary are the demographic, educational and income there are impacts on the conclusions. Incidentally the survey was conducted over a reasonable spectrum of income and demographic Canadians. I won’t post the tables here because they are hard to follow. For the mathematicians, I suggest you download the report.
According to the ordered probit analysis shown in Table 2, consumers with higher education and income perceive significantly higher levels of convenience for debit and credit cards. Older consumers tend to find debit cards less convenient and credit cards more convenient. Men perceive cash to be more convenient than do women, and perceive debit and credit cards to be less convenient. As confirmed by a joint test of significance, there are no significant differences across demographic groups when it comes to the convenience of cash, aside from gender.
Relevance to Bankwatch:
While noting that more detailed and granular work is required, the study concludes that perceived risk is a strong driver of consumer decisions in payment methods choice. While there are variances by income and age, the importance of risk and convenience remains. There are embedded risk issues that are common to all demographic types. Finally the use of cash remains high largely because of convenience.
There are two aspects for payments to address and encroach on cash usage – convenience and risk. What I take away from this paper is that both must be addressed to be successful.
Today I had the pleasure of a chat with Dave while he visited Toronto on business. Inevitably the conversation weaved in and around banks, payments, and what is wrong with both. As we chatted it is evident there is much change going on in the world of financial services, and that change may or may not be as expected. It appears banks are not innovating much anywhere at the moment as predicted, while on the payments front there is a host of activity and very different activity in many parts of the world.
This fits with my general theme of these times that innovation in banking will come from outside banks, and that banks will generally (not all) be relegated to a role of financial utilities. We spoke about the enormous challenge banks have to digest the mergers and takeovers which resulted from the banking crisis. The combination of mergers, new regulation, and concern for conservation of capital leads many banks down this path. Euro banks have the additional challenge of absorbing SEPA and the associated changes there which are neither easy nor cheap.
Innovation will come from non-banks, from payments providers, even credit card companies, and Dave was kind enough to provide some insight there, and show me some pretty cool stuff coming later this year.
Back to the topic of banks the one thing they generally appear to have grasped is the importance of mobile; they remain unsure how or what to implement, but mobile is important, so we can expect to see more work in that area.
Now off to read my newly autographed copy of the 2009 Digital Money Reader!
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.
Banks continue to be challenged by disintermediation from telco’s and here is another example, this time in Japan. The service will launch 21st July, and allow sending up to $200 with only the payee’s phone number being required.
An interesting tweak is the ability to have the money deposited with DOCOMO under the guise of a credit to your account, however this is deposit taking by another name.
Customers of DOCOMO’s i-mode™ mobile Internet service on the FOMA™ 3G network will be able to remit up to 20,000 yen (about 208 U.S. dollars) per transfer, basically just by inputting the payee’s mobile phone number. The payee receives a mail notification via their DOCOMO mobile phone and is given the option of depositing the money in a domestic bank account or having the amount credited to their monthly DOCOMO phone bill. The payee can receive remittances totaling up to 200,000 yen (about 2,080 U.S. dollars) per month.
It is a lucrative service with charges to payor and payee.
The charges per payment (including consumption tax) will be 105 yen for the payer and 65 yen for the payee.
Researched by Nobuyo Henderson
We were just hit today with a case of fraud that affected my family personally, and it just validates my view that the security of our payments networks is a problem being swept under the carpet. Every day, all banks contact thousands of customers to cancel their debit card because it was or may have been compromised. This is a well kept secret, and has not made mainstream press yet.
In our situation we actually were the card compromised, and I know enough about the card usage to narrow down the location of the compromise which is why this one worrys me. The compromise took place at a merchant, either a restaurant or a sporting goods store. No ATM was involved so the compromise had to be a parasite POS terminal.
In our case the criminals used an ATM to withdraw cash shortly afterwards. Incidentally thanks to our Bank for picking up on this event within a few hours and dealing with it.
Chip migration offers hope but only after mag stripe is eliminated, and that is another 6 years off, even though chip cards are now being isued in 2009. The entire POS terminal fleet in Canada could be replaced quickly if their was a will to do so.
Chip Migration plans | EMV Canada
Interac Association has established migration dates for cards and terminals. Complete card and ABM conversion is required by the end of 2012; complete point of sale (POS) conversion is required by the end of 2015. After 2015, Interac debit magnetic stripe transactions will no longer be accepted at devices in Canada.
and this from Interac
Every Acquirer (or payment service provider) has its own timetable in place for providing chip terminals. In order to ensure a smooth transition, Interac Association has implemented final conversion deadlines that work within merchants’ normal business cycles, so that merchants will be able to transition to chip within the set timeline and with minimum impact.
- Interac chip cards and terminals are already being rolled out across Canada.
- Complete migration to chip technology will take several years and the timetable for the introduction of chip will vary from one financial institution, and one service provider to another.
- All Automated Banking Machines (ABM), point-of-sale (POS) terminals and banking cards across Canada will be upgraded.
- Magnetic stripe debit card transactions will no longer be accepted at ABMs after December 31, 2012.
- Magnetic stripe transactions will no longer be accepted at POS after December 31, 2015.
- Chip cards will continue to carry the magnetic stripe, not only to facilitate the chip transition period, but also to allow cardholders to use their debit cards in other countries that do not use chip technology.
Relevance to Bankwatch:
Chip cards are coming, but the timeline is unacceptably long, out of desire to keep merchants, acquirors and issuers costs down.
In Japan, debit has never taken off. On the other hand Suica and Pasmo are very popular, and gaining outside the original use of train service only into convenience stores and other small purchase locations. That includes beer, other alcohol, magazines and movie rentals.
The idea of leaving thousands of dollars in full view with a 4 digit number as the only key is insanity.
Suica is successful because its handy being a wireless swipe, and low risk with small amounts stored.
Chip will introduce the security of a non copyable card (we hope), but the 6 year wait in Canada is going to be an unfortunate inconvenience for the thousands that are compromised and have to replace their cards.
Reaearch by Nobuyo Henderson