Outsider ideas in the payment space.... seldom really new..

One week ago Rabobank Nederland announced that it might de-activate the possibility to use their debit-card outside Europe, in an effort to eliminate fraud. And today the Financieele Dagblad has an article in which it becomes clear that an entrepreneur claims that this is actually his idea and not Rabo.

He's written the idea of functional/geographic application controls (including de-activation for certain geography) down as his idea, sent it to the Rabobank. And some time later he even spoke with Rabobank. And now that he discovers that Rabobank will in practice block geographic use, he claims that Rabobank has stolen his idea. It appears that he's in full swing with preparation of a court case.

I think this court case may not be effective. Application and functional controls in the payment area are around since ages. There can be checks and limits on payments via certain channel, with certain amounts, to or from a geographic area, number of times of use, branche-codes and what have you. And we have seen these developing over the years. In a planned talk on this issue in 2004 I already mentioned the user control of these application controls.

In this particular case (blocking a geographic area for card use), it was clear ten years ago that there would come a time that EMV-debit-cards would be blocked for use in countries that hadn't fully migrated to EMV. And that the amount of fraud would essentially determine the timing.

Now I do understand the serendipity-element in this story. It must be frustrating for an outsider to think that he has found the golden idea in payments and observe one bank (that he spoke to) introducing 'his' idea. However, this was certainly not a unique idea, but an inevitable, already foreseen consequence of technology migration and fraud.

Debit card usage influenced by the news...

Today, the Dutch central bank published a report that debit-card usage is affected by news articles on fraud. On average, the number of daily debit card payments drops by a little over 2% on days that newspapers report on POS terminal fraud and by some 3% when skimming at ATMs is in the news. The news has the largest impact when it makes the headlines. Furthermore the news-effect increased after 2007, when fraud incidents more often happened and made it to the headlines.

DNB remarks that other factors also influence the payment intensity. Rainy days create a drop in shopping and thus in transaction traffic. And they also noted that the payment pattern returns to normal after one day, so the news-effect on payments doesn't last long.

Moving to EMV-based ATM and POS-transactions.... it's the small things

It's the small things in which you can see that in the Netherlands we're moving slowly to EMV-based transactions. At the ATM's we now need to press OK after entering the PIN-code. That used to be a quicker interface with merely the pincode and some other buttons. And at the POS the difference is more clear. With some shops, there's a band of plastic on the side of it so that you can't swipe any more. And in the internet-banking domain, we now don't see an amount which is directly debited. No, we can see that the amount paid is reserved, because the basis is now a Maestro payment, developed for the international payments (and thus: first the amount is reserved and later after clearing/settlement it is considered to be finally debited).

All in all I think that January 2012 is the date on which we should have moved over completely to EMV. I'm curious to see how the large retailers deal with that. Because they are the ones that really will see a slowdown in payment, given that the consumer cannot swipe, enter PIN and put his debit-card back in the purse (to finally only press OK somewhere). The consumer now has to press his OK at the end of all counter-calculations, while the card is still in the POS-terminal and that is going to be a different routine.

Bunch of skimmers caught by Amsterdam police

De Telegraaf mentioned last week that Amsterdam police caught abunch of skimmers and dismantled their lab. So despite all moves to EMV the skimming danger is still out there.

MasterCard Europe Announces Maestro SEPA Interchange Rates

MasterCard Europe has today announced SEPA fall-back interchange rates for Maestro® point-of-sale (POS) transactions intended to be effective from 1 January 2008. The Maestro SEPA fall-back rates per transaction type are as follows:
Maestro, Chip & PIN, EUR 0.05 + 0.20%
Secure e&m-commerce, EUR 0.05 + 0.25%
Baseline transaction,EUR 0.05 + 0.30%
Large Merchants, EUR 0.03 + 0.12%

Mastercard states that for cross-border Maestro POS transactions, the fall-back interchange rates are significantly reduced versus current intra-EEA cross-border rates. For a typical transaction of 50 euros, the new Maestro SEPA interchange rates will be between 9 and 20 euro cents – as compared with the current Maestro intra-EEA interchange rates of 25 to 59 euro cents.

It will be interesting to see the response of Commission and ECB to this publication. Undoubtedly they won't be satisfied (a satisfied regulator/overseer being one if the inherent impossibilities of life)....

First V-pay transaction in Europe

See the Visa press release and read:
The first V PAY transaction in Austria took place on November 15, 2006 at Denkstein in Salzburg's Getreidegasse with the attendance of Annika Karlsson Hill, Vice-President Visa Europe, Jutta Müller-Liefeld, Country Manager Austria, Visa Europe and Hubert Neumayr, CEO hobex AG.

Just one tiny hickup; V-Pay is always PIN - always Chip. So its potential penetration is dependant on the rate with which retailers move to EMV. As opposed to the Maestro brand that allows stripe-PIN transactions and thus may be a better bet for customers/banks/retailers that focus on smooth transitions.

TSYS Certified to Process Prepaid Cards on MasterCard Network

See press release here... to discover that TSYS is now certified to support open-loop prepaid cards in Europe on the MasterCard network. The certification includes capability for chip-and-PIN processing on MasterCard's network.

Most likely this announcement will not be noticed by EU regulators. So while effectively the markets for processing and issuing of cards-transactions opens up with a considerable speed, they are still debating how to make the EU market more open by regulating new entrants in the new payment systems directive.

UK Chip and PIN already obsolete?

A Midcounties CO-OP experimented with a so-called Pay By Touch product, allowing payment with the use of a finger, rather than card (see link). At the checkout the shopper uses a simple finger scan for identification and, in doing so, a payment is made directly from his or her bank account, while members’ Co-op dividend points are automatically awarded.

Research showed that overall, shoppers were very supportive of this new initiative. Over half of those surveyed said they had either already enrolled in the service or intended to do so shortly. Over 75% of shoppers questioned said they would like to see the service available at other local retailers like M&S and Somerfield. When compared to Chip and PIN, 85% of shoppers felt Pay By Touch was more convenient and 76% felt it was more secure.

Undoubtedly there will be more to this than the press release tells us. It just isn't that easy to do the biometric stuff in payments.

ABN AMRO will issue securer debit cards as of June 2006

ABN AMRO announced yesterday that it will start equipping (as the first bank in the Netherlands) its bank debit cards with an EMV chip. Earlier this year, all ABN AMRO's Dutch ATMs were made EMV-compliant.

Dutch slow in migration to EMV, according to terminal supplier CCV

Today one of the most important terminal suppliers and processors in the Netherlands, CCV, briefed the public (see nu.nl) that the Netherlands are getting behind in the migration to EMV. And despite the fact that current fraud cost in the Dutch debit card system are still very low, CCV appears to use fear tactics and points out that we face a possibility that magnetic stripe debit-card fraud will move to the Netherlands.

While at face value there appears to be a bit of self-interest here, with CCV being one of the major terminal suppliers, CCV's self-interest will not be the major issue. No single supplier of goods will be seeking publicity to boost sales if at the same time he has no goods available. And that is the case: CCV has not a single EMV compliant terminal for the Dutch market available.

So what is happening here?

We need to keep in mind that CCV is dependent on Interpay for the certification of its terminals. So my guess is that it's more likely that CCV tries to fire up Interpay to get going with the certification.

First mobile chip terminal approved in Danmark

See the press release from PBS:
Elite 8200 GPRS, which is the name of the approved mobile chip terminal, is sold by LD Betalingssystemer A/S. Using a chip the terminal's transaction time is ten seconds, which is the same level as a magnetic stripe-based transaction.

Actually, those ten seconds is a long wait from a Dutch perspective. In the Netherlands we have an option pre-authorisation meaning that you do the pin-code and stripe thing while the cashier is still checking yout items. So once the amount is known, we only have to key in YES and the transaction is on the way and approved in 2-3 seconds. But for a mobile terminal it's not so bad.

Even Chip and PIN under attack in the retail environment

In the Netherlands, the latest news is that retailer environments are subject to terminal fraud. Whereas the ATM's are now hard to tampr with, the criminals now replace and rigg the pin-terminal at the Point of Sale to collect magstripe data and PIN's. In doing so they act as legitimate technicians.

Ian informs us that the same happened in the UK, but then with chip and pin terminals. That's a bit sooner a fraud on Chip and PIN than most expected I guess.

Datamonitor - EMV Migration in Europe - Market Analysis Report

This report compares the EMV introduction in Europe.

Three of the big five European countries distinguished themselves by their leisurely approach to EMV:
? Zero per cent EMV conversion for EFTPOS terminals
and ATMs in the Netherlands
? Migration speed is down to the business case

More specifically the report states:
Despite the lack of motivation, the Netherlands will still have to be compliant with the SEPA Cards Framework. This means that, with the exception of POS terminals, multi-purpose payment cards and ATMs in the Dutch market should be fully EMV-compliant by 2010.

The report is of course extremely expensive, but from the table of content we can read:
The Netherlands: A classic story of a weak business case
? But there is a business case for credit cards
? However, with the exception of POS terminals,
payment cards and ATMs will have to be
EMV-compliant by 2010 in the context of SEPA Cards
Framework

EMV: the end of credit-card as we know it

Belgium shows the first signs that introduction of EMV for credit-cards (which includes use of another PIN) leads to a reduced use of the credit-card. The situation is similar to that in the Netherlands where purse-scheme Chipper demanded a different second pin-code.

The Belgium rollout of PIN-based EMV credit cards has now fuelled an unexpected increase in debit card use, as consumers prefer to use the PIN for their debit cards. Issuers in the UK had expressed concerns that UK consumers would reduce their credit card use when PINs were introduced, but so far a significant drop has not been documented.

Belgium’s e-purse cards are predicted to benefit from the country’s EMV migration as debit cards will carry an EMV chip that can support e-purse and check guarantee functions. Until EMV cards were issued, Proton was the only financial smart card in Belgium, but the gains it achieved in the post-euro currency environment have caused speculation that Proton will be used for more small-value purchases once it is bundled on chip-based debit cards. Ultimately, Proton is predicted to take market share from debit cards, given the recent increases in the average amount per transaction on its cards.

ABN AMRO is the first bank in the Netherlands to introduce a credit card with chip and PIN

See this link. The card is actually a rounded card.
.

Payments and Settlements News - P+S-N

Payments and Settlements News - No. 15. contains:
-TARGET2 progress report
-European Parliament’s response to the European Commission’s second communication on clearing and settlement
-MasterCard launches SMS fraud alert system
-United Kingdom – Chip and PIN changeover sees mixed results
-Simpay announces first launch dates and countries for mobile payment services
-Philippine tax collectors try out prepaid m-commerce
-Phone shell for contactless payments
-Mobile gaming boom may force changes to mobile payments
-United States – Reporting system for phishing attempts

Articles, speeches and reports
-Ireland – Financial Stability Report published by the Central Bank and Financial Services Authority of Ireland in 2004
-United Kingdom – Bank of England publishes its first annual Payment Systems Oversight Report
-ECB Working Paper No. 427, “Interlinking securities settlement systems: a strategic commitment?”
-Beyond EMV: next-generation fraud in Europe
-Bank of Finland Discussion Paper 30/2004, “Central counterparty clearing: constructing a framework for evaluation of risks and benefits”
-Bank of Finland Discussion Paper 27/2004, “Less cash on the counter – Forecasting Finnish payment preferences”
-Bank of Finland Discussion Paper 25/2004, “Multi-homing in the market for payment media: evidence from young Finnish consumers”
-Thailand – Working Paper 2004-01, “The use of cash, cheque and electronic payment services in Thailand: changes and challenges for efficiency enhancement”

Chip and Pin cards winning acceptance

See: http://www.thisismoney.co.uk/news/article.html?in_article_id=397806&in_page_id=2

Chip and Pin cards came into force on 1 January and require shoppers to type in their personal number rather than just writing their signature. According to Retail Decisions only 34% of users had had all their cards replaced with chip and Pin.

Initial fears that retailers would refuse to accept non-chip and Pin cards from shoppers have proved misguided. Some visually-impaired customers have told This is Money of problems they’ve experienced in getting chip and signature cards. But, for the most part, the banks say the experience for disabled customers has been positive.

Chip and PIN seen through a glass darkly

http://scotlandonsunday.scotsman.com/business.cfm?id=165212005