Where and how to look for innovation in payments ?

This week I had the pleasure of joining a panel on retail payments innovation as a part of a seminar by van Doorne and Innopay on the Payment Services Directive and the future changes for the payment industry. Panel chair Gijs Boudewijn challenged me to formulate some thoughts on the future direction of retail payments. I answered that the best place to look would be in places and via perspectives that we could be overlooking right now.

1. Is it access to the account or a traceable id that matters?
There is a lot of discussion on the text of the second Payment Services Directive and on the legal and technical mechanisms that are required to make access to the account work. Due to their origin, these discussions are quite bank centric and the implementation issues surrounding this topic will drain a lot of resources of many players involved.

While being busy with this PSD2 issue, we may overlook the fact that all one really needs is a simple chip-id. In the Netherlands for example, one could use the chip-id of public transport ticket issuer TLS as a basis for use in hip and new proprietary retailer/consumer applications. These would combine the chip-id with an intelligent voucher/billing/customer system that utilises SEPA-direct debits in the back-end. It would provide a smooth customer and retailer experience while the bank only sees regular transactions.

My proposition here is that if we're all looking towards access to the account as the hot spot for innovation, we may be looking in the wrong direction. It might be more about the traceable id.

2. The retailers have landed in an interesting position
In his tomorrows transactions blog Dave Birch referred to an analysis by Peter Jones from PSE on the impact of the interchange fee regulation, published in the Journal for Payments Strategy and Systems. The main conclusion of it was that financially the retailers are the winners by getting a cap on their fees. I agree with that and would be inclined to broaden this perspective.

By tradition banks were the players with the monopoly on payments technology and security knowledge. Even in the 1980s, the collective of retailers in the Netherlands had done a feasibility study to set up their own Point of Sale system. This showed they could set it up for € 5 million euro but they didn't want to take the risk of it failing. So they left it to the banks (to complain about high fees later).

Since that time, the knowledge on processing and payments has become available to a wide range of players, to the extend that banks are now lagging in expertise and capability (while being locked into old technology solutions). The consequence is that retailers will be well able to develop or use in-house apps, customer relation services and payment mechanisms that use the bank infrastructure, without being subject to the rules of the Payment Services Directive.

The main development is therefore that the obliged intermediary role of banks in providing payment mechanisms is gone and will erode. Retailers can regain their customer relationship by themselves or in cooperation with any other ICT-provider that allows them to identify the customer and provide a processing infrastructure. Some interesting innovations can therefore be expected at the outer boundaries of the PSD, as a consequence of the possible exemptions.

I expect both physical and e-retailers to use the non-bank, non-payment space that the PSD defines to achieve exactly what they're after: increased customer retention, increased conversion and a smooth payment experience. Bottom line: we might better be looking outside of the PSD to see innovation in action.

3. On ledgers and tokens
As a final thought I would encourage everyone to try a different mindset for the developments that we are witnessing. Because in essence, anything that happens (in payments/retail) boils down to either tokens (coins, notes, points) or ledgers (private or public). Now let's see what happens if we apply this framework.

We might then appreciate the bitcoin emergence as an innovation in the area of collective ledger provision with distributed trust. We could reposition Linked-In as a privately owned, open and self-administered ledger, that logs individuals achievements that are relevant in the work domain. The same would hold for Facebook and many other e-commerce companies. We would call banks the keepers of the trusted and well protected financial ledgers and would also note that in the public domain, a whole range of ledgers are being interconnected for the sake of security, anti-fraud measures etc.

We could also look at the world of tokens, in its many variations. Tokens of shopping behaviour (saving points), tokens of access (tickets), tokens from government (coins and banknotes), tokens of appreciations (awards, prizes) and tokens that prove identity or personal characteristics. Some of those tokens might be valuable and lead to a change of some of the ledgers, while others would have a role in their own right (voucher for a free coffee).

While it is clear that there are quite a few interesting new developments in the ledger-space, could it be that it is the token-domain where the true action is going to be ?

Payments as an afterthought
In sum: the non-bank, identity-based, non-regulated commercial domain might well be the area where we can see innovations that show us how today's technology can be made to work best so that payments become the afterthought that they are.

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.

ING first to announce SEPA strategy for cards/terminals - all brands allowed

Yesterdays Telegraaf contained some interesting news. ING has announced that it will sell POS-terminals and contracts to retailers which accept V-Pay, Maestro and PIN, all for the low price of todays PIN-transaction. Only one condition applies: it should be an EMV compliant terminal.

Well, this is exactly what retailers wished: clarity on future prices and terms and conditions. So one would think that would now be happy.... but are they...?

Well, no of course. The instant that a retailer gets the prices and desires he wants, he assumes that he has insufficiently bargained and that there is more left to bargain for. And he will immediately start negotiating for another round of fee cuts or what have you.

Likewise in the Dutch situation. In their reply to the ING announcement the retailers didn't spend any second complimenting ING on their vision, their fee structure or on fulfilling their previous demand. The next complaint in line is now that they find it intolerable that on the issuing side (which is completely not their concern) the PIN technology is based on magstripe and the other brands on EMV. In their view PIN should move to chip-based PIN as well....

To be continued.... I would say... until banks decide to stop participating in this retailer bargaining game.

van Hove's take on the Commission flawed interchange decision

Amidst all the political noise on the interchange decision of the Commission it is good to also see that some academics still see the whole picture and have the courage to challenge politicians where it hurts. See this article by Leo van Hove and more particularly his closing remark:

So if regulating one payment instrument can have unintended repercussions on substitutes, and a prohibition of interchange fees would be a leap in the dark, what are enlightened policy makers to do? They could simply try to ensure that market forces work, and in particular that merchants cannot be locked in by card networks. To that end, retailers should be allowed to "surcharge" and pass on interchange fees to consumers. Promoting competition among card networks as well as among various payment instruments should also be high on regulators' lists. More generally, we need policy makers who have a comprehensive vision of the future of our payment system -- and who have the political courage to make cash more expensive in order to lower its cost to society.

Commission prohibits MasterCard's intra-EEA Multilateral Interchange Fees

See the press release here to read a landmark decision of the Commission. It's main argument:
The Commission concluded that MasterCard's MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies.

Well, the discussion cannot be solved and Mastercard will not be able to prove it is right. But neither can the Commission. As I pointed out in an earlier post (ultimate paper on interchange fee by Brookings Insitution). So this is a power game, a legal game and a communication game at the same time.

We should note that at present the multi-lateral fall back MIF allows lots of smaller banks and participants to the Mastercard scheme. Those players would otherwise have to negotiate individually with all issuing banks. And that would be so costly that they wouldn't join the system at all. And I fail to see why the Commission isn't able to calculate those costs of negotation (and view the efficiency benefits of having a fallback MIF). Do they now really expect all members of Mastercard to use the next 6 months to agree bilaterally on new fees...?

Paying cash more expensive than using the debit-card

Here's an interesting bit of research done in the Netherlands. All shops, banks and central bank have joined forces to evaluate the cost of payments with cash, when compared to debit-card. The results are that it has taken us in the Netherlands some 15 years to ensure that the full cost of debit-card payments are lower than cash-payments.

The research outlines that:
- full cost of payments in retail are down from 839 million euro in 2001 to 788 million in 2006,
- in 1992 a debit-card payment was triple as costly as a cash payment
- in 1998 the debit-card payment with PIN was roughly twice as costly as a cash payment
- in 2006 the debit-card payment is almost the same price as a cash payment (20-18 cents in retail-environment),
so that now, at the end of 2007 it's safe to state that the full cost of Dutch debit-card payments to merchants are lower than cash payments (on a per transaction basis).

As a consequence, the retailer representative organisations advise all merchants to use the debit-card rather than cash and to stop old habits that date from earlier days: the surcharging for use of the debit-card. Because other research by the central bank shows that still 20 % of the retailers surchagre an amount of approximately 23 cents for payment wit a debit-card.

So one landmark achievement is that over here in the Netherlands we have started to beat cash in terms of real cost.

Comes with it another interesting development. One fifth of the retailers surcharges 23 cents for a debit-card transaction that costs them 20 cents. Leading to a 3 cent per transaction profit. The bank-side of this equasion is that banks sell their debit-card transaction for 5 cents, while it effectively costs them 13 cents (see McKinsey reports in 2005). Meaning that debit-card payments have turned into a profit maker for retailers and a bleeder for banks.

This makes you wonder why it would make sense for banks to still subsidize debit-card payments to merchants with a one cent per transaction 'efficiency-stimulus' as agreed in the 2005 Covenant.

Single market review forgets better regulation principles

This recent single market review is interesting in many ways. We can see that the Commission is selling Europe to the citizen. And bashing banks is always popular, so we can see that happening now as well. Without awaiting the results of a consultation on a report (that finds no evidence base on the exisence of a switching problem) the Commission wishes switching services to improve. In doing so it jumps to conclusions and forgets it's own better regulation principles.

This is not the best way forward. Let's relook the earlier committments of Commissioner Mccreevy on this matter:
Ladies and Gentleman, this Commission is taking a more variable, more modern approach to regulation. Strict adherence to better regulation principles. Wide consultation. Full impact assessments to ensure that initiatives are fully thought through. Legislation only where clear benefits are apparent.
And let's now proceed to see the real-life case of user mobility in the retail financial services area.

1. In the white paper on financial services, the Commission set up an expert group to discuss user mobility.
2. After one years work, the group concluded that there was no evidence base and no agreement between different stakeholders on the issue: is there a problem or not.
3. Then, the commission sent out a (coloured) consultation on the report, which already had a spin on it; assuming that there was a user mobility problem. But, the positive news still was that the Commission claimed to adhere to better regulation:
In line with Better Regulation principles and as a follow-up to the Group's work, the Commission is opening a public consultation on the Group's report. Stakeholders are invited to comment by 1 September 2007. Comments should also address the impact of the Group's recommendations and suggest any other ways to improve customer mobility in relation to bank accounts.
4. To top it of however, without awaiting the results of the consultation, without doing any impact assessment whatsoever, the single market review heads for a specific direction (asking the industry to do national things on switching services) that should normally be the result of the analysis in the impact assessment.
5. Given that the results of this expert group do not at all come in handy (as it acknowledges the need for a solid evidence base), the work of the expert group is completely left unmentioned.
6. So now the Commission moves ahead, will undoubtedly publish a press release to take things a further step forward ('inviting the industry to come up with national solutions to switching') without due consideration to the real facts and developments in the market.

Interestingly: if the analysis is that switching is not a pan European issue, it's not up to the Commission to act. Similarly, if there is no impact assessment, it's not up to the Commission to do anything else than make one. But then again, the Commission seems to think: a scare tactic always seems to work with banks, so let's see if we can move them in a direction by threatening, even if we put aside our own principles and follow gut-feeling rather than facts and due process.

Unfortunately this fits nicely into an earlier grim picture that I sketched on the true better regulation approach of the Commission. Which essentially was that it is about lipservice more than true service to the citizens of the Community.

Chipknip to disappear from manned-retail locations

Many papers and the national news discussed the ending of the Chipknip in manned retail loactions. Among them also Het Financieele Dagblad. All merchants are advised to just use the debit-card for low value payments, which is by now just as cheap as the e-purse (developed in a time when off-line payments were considered to be a smart way to circumvent the high telecommunication costs).

So, since the 10 years of its existence, the merchants didn't pick up the Dutch e-purse, which is partly due to the product characteristics. Consumers don't appear to like loading the card and keeping track of its balance. But then again, the use in parking, vending and catering niches is quite considerable. Th benefits of not having to collect coins at home for use in those machines clearly outlines the hassle of loading a Chipknip. So in these segments the Chipknip will survive.

Yet, we should also not forget the headlines of 10 years ago. Merchant lobby groups at that point of time explicitly stated that they were going to boycot the use of the Chipknip in the stores. Well, they lived up to their promise. It would be interesting to know if Neelie Kroes or any of her staff at DG Competition would also consider such collectively enacted boycots an abuse of dominant market position ?

Mastercard to reconsider ad valorem based fee plan in UK...

See the website of the British Retail Consortium to read that Mastercard planned for a new approach to debit card interchange charging but was stopped by retailers...

In the UK retailers currently pay a fixed fee on debit card transactions regardless of the value of the transaction. Rates range from 6 pence to 18 pence, depending on which card it is and where and how the transaction occurs, but the fee on a £20 transaction is the same as for a £100 transaction.

For this new debit card MasterCard wanted to introduce percentage, or so-called ad valorem, fees. It wanted to charge a fixed fee of 3.5 pence plus 0.15 per cent of the purchase price.

It's intruiging: the attempts of debit card schemes to go for the ad valorem fee structures for payments where actual value (in terms of cost) does not influence the cost of the transaction....

How socialist save the capitalist ABN AMRO for Barclays...:

This week it appears as if everyone understands and has an opinion on mergers and takeovers in the financial markets. Members of provincial representative fora voiced their opinion that they thought ABN AMRO should not be sold to the consortium as that would incur too much risks. And similar tidings/thoughts come from the left-wing socialist party (former mao-ists) that even want to discuss the takeover stuff with the Minister of Finance (before the moment where he provides his statement of no-objection....).

While I myself know that the complexity of such a takeover is so huge, that one wouldn't want to consider meddling with it (let alone voice an opinion) it is intruiging to note in this analysis that left wing socialists now help out Mr Groenink in keeping an executive seat with the Barclays combination. Analyst Jeroen de Boer actually calls this a devils' pact.

It's a bit of media-logics here. A lot of people, representative organisations or politicians seek attention. So they choose a news topic (such as ABN AMRO) and then device an angle to ride-along on the news wave and be connected to the issue. One of the nicest examples in this respect: the organisation for the gay voiced their opinion on the merger and outlined that ABN AMRO should continue their gay-friendly policies. Completely off topic and highly irrelevant to the takeover debate, but absolutely brilliantly done.

PayPal - Pay later in the USA - undoubtedly the plan here in Europe as well...

Paypal announced earlier this month that they would start offering their US merchants the option to allow customers a deferred payment at the check-out. Thus tempting customers to buy even if they don't have the money (yet). In order to allow for this credit-mechanism, Paypal works together with GE-Money.

My guess is that somwhere in the next 12 months we will see this feature popping up in Europe as well. And that may be one of the reasons why Paypal chose to move from an e-money license in the UK to a banking license in Luxembourg. As a bank they can do credit; as an e-money institutions they don't have the same manouvering space (as well as more stringent liquidity rules).

By the way, Papyal has also just opened up a blog to keep in touch with the customers. As such they may be the first official bank to so openly embrace the blogging-concept. It may have it's dangers (particularly if Paypal would too often revert to their cavaet: we may, in our sole discretion, reject and delete any comments without notice if they are abusive, defamatory and offensive or for any other reason we deem appropriate), but on the other hand, better create a central blog-space for your own brand (and explanation) than have those autarkic bloggers and linkdumpers get the upper hand in the dialogue with users.....

Two skimmers arrested in Zandvoort

Trouw outlines that 2 Roemanian skimmers of 16 years old were arested in Zandvoort, as they were carrying an old POS-terminal. The police told the machine was bugged to skim all information but hadn't been used. And the skimming appears to happen more frequently, the police state that there's not really a trend upwards. It's the regular battle against the crooks.

Meanwhile the representative organisations of retailers have a hard time explaining the press why it is that they insisted on being able to use terminals beyond their economic write-off period. Because it's those older terminals that are now hit by criminals and create a situation where the public may want to use cash rather than debit-card.

So now all the previous talks about bad things that might happen when moving magstripe card payments to EMV (including possible liability shifts), keeping terminals long on the counter and so on is sort of gone and the retailers organisations openly call upon the ministry of Justice to quickly catch all skimmers in order to maintain the trust in debit-card payments....

Dutch SEPA website online

This week De Pers points to the Dutch SEPA.NL website, informing the public about SEPA. The site has got a bunch of material and backgrond information. Mostly in Dutch, but there's also a English page with info on the migration to SEPA in the Netherlands.

All on the Visa restructuring.. and the risks.....

This SEC filing contains all you want to know about Visa and its upcoming reforms. My personal favourite by the way is the risk section with main risks such as:
- Interchange fees are subject to significant legal and regulatory scrutiny worldwide, which may have a material adverse impact on our revenue, our prospects for future growth and our overall business
- If Visa U.S.A. or Visa International is found liable in the merchant interchange multidistrict litigation, we may be forced to pay substantial damages
- If Visa U.S.A. or Visa International is found liable in any of the cases brought by American Express or Discover, we may be forced to pay substantial damages.
- If the settlements of Visa U.S.A.’s and Visa International’s currency conversion cases are not ultimately approved and we are unsuccessful in any of the various lawsuits relating to Visa U.S.A.’s and Visa International’s currency conversion practices, our business may be materially and adversely affected.
- If Visa U.S.A. or Visa International is found liable in certain other lawsuits that have been brought against them or if we are found liable in other litigation to which we may become subject in the future, we may be forced to pay substantial damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability.
- Limitations on our business and other penalties resulting from litigation or litigation settlements may materially and adversely affect our revenue and profitability
- The payments industry is the subject of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our customers and lead to increased costs and decreased payments volume and revenues.
- Existing and proposed regulation in the areas of consumer privacy and data use and security could decrease the number of payment cards issued, and could decrease our payments volume and revenues.
- Government actions may prevent us from competing effectively in the domestic payment markets of certain countries, which could impair our ability to maintain or increase our revenues.
- If government regulators determine that we are a systemically important payments system, we may have to change our settlement procedures or other operations, which could make it more costly to operate our business and reduce our operational flexibility.
- We face intense competitive pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Our operating results may suffer because of intense competition worldwide in the global payments industry.
- Our operating revenue would decline significantly if we lose one or more of our largest customers, which could have a material adverse impact on our business.
- Consolidation of the banking industry could result in our losing business and may create pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Merchants are pursuing litigation and supporting regulatory proceedings relating to the costs associated with payment card acceptance and are negotiating incentive arrangements, including pricing discounts, all of which may increase our costs and materially and adversely affect our profitability.
- Certain financial institutions have exclusive, or near exclusive, relationships with our competitors to issue payment cards and these relationships may adversely affect our ability to maintain or increase our revenues.
- We depend significantly on our relationships with our customers and other third parties to deliver services and manage our payments system. If we are unable to maintain those relationships, or if third parties on which we depend fail to deliver services on our behalf, our business may be materially and adversely affected.
- Global economic, political and other conditions may adversely affect trends in consumer spending and cross-border travel, which may materially and adversely impact our revenue and profitability.
- Visa Europe’s payments system operations are becoming increasingly independent from ours and if we are unable to maintain seamless interaction of our respective systems, our business and the global perception of the Visa brand could be impaired.
- As a guarantor of certain obligations of our members, we are exposed to risk of loss or insolvency if any of our members fail to fund their settlement obligations.
- If our transaction processing systems are disrupted or we are unable to process transactions efficiently, our revenue or profitability could be materially reduced.
- If we are not able to keep pace with the rapid technological developments in our industry to provide members, merchants and cardholders with new and innovative payment programs and services, the use of our cards could decline, which would reduce our revenue and income.
- Account data breaches involving card data stored by us or third parties could adversely affect our reputation and revenue.
- An increase in fraudulent and other illegal activity involving our cards could lead to reputational damage to our brands and could reduce the use and acceptance of our cards.
- Adverse currency fluctuations could decrease revenues and increase expenses
- Some of our financial incentives to customers are recorded using estimates of our customers’ performance. Material changes in our customers’ performance compared to our estimates could have a material adverse impact on our results of operations
- We have significant contingent liabilities for settlement payment of all issued and outstanding travelers cheques.
- Our brand and reputation are key assets of our business and may be affected by how we are perceived in the marketplace
- Our retrospective responsibility plan depends on several related mechanisms to address potential liabilities arising from the covered litigation, some of which are unique and complex, and if we are prevented from using one or more of these mechanisms, it may be difficult for us to fund the payment of a settlement or final judgment against us, which could have a material adverse effect on our financial condition.
- The shares of class B common stock that are held by members of Visa U.S.A. following the restructuring will be subject to dilution as a result of any follow-on offerings of our class A shares, the proceeds of which will be used to fund additional amounts into the escrow account necessary to resolve the covered litigation.
- Our governance structure after the restructuring could have a material adverse effect on our business relationships with our members.
- Following the restructuring, our relationship with Visa Europe will be governed by our framework agreement. This agreement gives Visa Europe very broad rights to operate the Visa business in Visa Europe’s region, and we have limited ability to control their operations and limited recourse in the event of a breach by Visa Europe.
- Our framework agreement with Visa Europe requires us to indemnify Visa Europe for losses resulting from any claims brought outside of Visa Europe’s region arising from either party’s activities that relate to our payments business or the payments business of Visa Europe, and this indemnification obligation could expose us to significant liabilities.
- We have granted to Visa Europe the right to require us to purchase all of the outstanding shares of Visa Europe’s capital stock. If Visa Europe exercises this option, we could incur a substantial financial liability and face operational challenges in integrating Visa Europe into our business.
- Our management team will be new and will not have had a history of working together.
- The restructuring is expensive and will require us to make significant changes to our culture and business operations and if we fail to make this transition successfully, our business could be materially and adversely affected.
- There is no existing market for our regional classes of common stock or for class B common stock and class C common stock into which the regional classes of common stock will be converted prior to our planned initial public offering, and thus we do not expect these shares to provide you with liquidity.
- The voting power represented by shares of our common stock may be limited because ownership of a significant percentage of our common stock will be concentrated in a few of our largest members.
- The U.S. Internal Revenue Service may treat a portion of our common stock received by a member of Visa International or Visa U.S.A. as taxable income.
- Members may incur tax liabilities in jurisdictions outside the United States, as well as in United States state and local jurisdictions, in connection with the restructuring and the true-up.
- The consideration that will initially be issued to members upon the closing of the restructuring is subject to reallocation and conversion.
- Anti-takeover provisions in our governing documents and Delaware law could delay or prevent entirely a takeover attempt or a change in control.
- U.S. federal and state banking regulations may impact our members’ ownership of our common stock.

Most interesting risk of course for us in Europe is to note the risk that Visa Europe becomes too independent. It's quite interesting that right now the fears that retailers try to increase among public policy makers, is that future Eu card schemes might become American owned.....

Yes, there is an interbank compensation mechanism (interchange fee) for POS in the Netherlands

For some unknown reason, I noticed that quite some websurfers seem to be interested in the question whether or not an interchange fee (for POS) exists in the Dutch retail payment systems. Well, the answer is that there are interchange fees for:
- direct debits
- bill payments (acceptgiro)
- interbank usage of ATM's
- and an interbank compensation mechanism (not a literal fee) for POS.

As for the latter mechanism, the NVB explains in its reply to the competition report of the Commission:
From an outside view it may seem that the Dutch POS scheme PIN indeed operated or operates without an interchange fee mechanism. But this was and is not the case. In fact there has always been an “implicit” interchange fee till March 2004. Card issuers received the net financial result from the acquiring operation of the only acquirer Interpay/BeaNet, to cover costs on the issuer’s side. From the moment on that the sole acquiring by Interpay/BeaNet ended (March 2004) and individual banks became acquirers for POS transactions, an explicit cost based interchange fee from acquirer to issuer was introduced that forms part of the cost base for acquirers. The underlying interbank agreement was notified to the Netherlands Competition Authority (NMa). The NMa however doubted the necessity of a multilateral interchange fee mechanism. Therefore the interchange fee structure will most likely be redesigned and be replaced by a system of bilateral interchange fees. The discussions with the NMa on this topic are ongoing.

Now, why would this be interesting to the readers?

I guess that it boils down to the current hefty ideological debates on whether or not interchange fees would be necessary in payment systems. While the answer is a clear yes (most certainly to get separate initiatives all aligned to become interoperable and standardized) the regulators seem to forget about the evolution of payment systems. And wish to abandon interchange fees to the past. So they keep on continuing the myth that it is possible to do payments without compensation mechanisms and keep referring to the Dutch situation as an example.

Although every regulator might learn from studying and trying to understand the industry, they also do have a fundamental right not to take things for granted and the right to climb the learning curve from scratch by themselves. In that spirit, I would encourage those interested to start studying the situation in payments via the phone in the Netherlands. At present we have a number of initiatives going. Some use the phone and a voice-mail application, others such as Payter use NFC. And Minitix is a combination of both, while a number of trials is pending.

While the newspapers this week all announced that in the future we would pay with our mobile rather than with e-purse, let's imagine what will happens if all these initiatives grow. Suppose we end up with 3 types of schemes. The consumer and retailer lobby organisations will then say it is too messy and unorderly. You can't expect shop owners to accept all those schemes: they need to be interoperable. And consumers would also benefit from one m-payment technology rather than having to choose from three.

What will happen then is that the initiatives will work out some interoperability agreement allowing one application/device to accept all 3 schemes. But then there is the question: which scheme had the relation with the retailer and which with the customer. And how are the schemes going to be compensated for their efforts in building their customer base (which will now be accessible to all involved). Particularly if the market coverage of the schemes is different:
Scheme A: 30 % consumers ; 30 % merchants
Scheme B: 10 % consumers ; 60 % merchants
Scheme C: 60 % consumers ; 10 % merchants

The answer to this economic puzzle is of course an interchange agreement. Yet, if regulators would insist on forbidding it, they force the market into a situation where no single technology will serve the whole market in an interoperable way. Which is beautiful from a competition perspective, because there is lots to choose for all. But perhaps it may be less convenient from a customer and efficiency-perspective.

So if we would call interchange fees a 'hidden tax' the alternative is an 'open and visual tax' consisting of the burden for merchants and consumers to have a higher number of different, not-interoperable payment instruments in their wallets, on their phone's and on their pc, in order to be able to pay for all the purchases they'd like to do (and to be able to accept all the payments from consumers). That is in my view the bottom-line policy choice in the interchange debate.

And if it's the hidden cash we're after, why not start eliminating the hidden tax (or stealth tax that Dave Birch calls it) that is out there for cash?

Interchange complaints are just a call for lower merchant fees..?

Here's an interesting article on the Javelin Strategy and Research site. It ends with the open remark that all the fuss about interchange payments, made by retailers could be merely those groups posturing for lower fees by whining about high charges for merchants and disruptive interbank agreements.

Now, if indeed all this hidden tax for merchants, interbank agreements and huge profit would be so terrible to retailers, why dont't they set up a retailer based card scheme....? Because in the end accepting payment with cards in a shop is a make or buy decision.

If you don't like the brands and fees out there, just do it better yourself. And then, when the argument comes that it would be impossible to reach all consumers with your single retailer card, or that it would become a messy world if each retailer would issue its own card: well, that would make one really understand what it is exactly that you as a retailer are paying for, when you decide to go along with bank issued cards.

Banks have solved a complex cooperation, coordination and reachability problem in the cards-space and do not just use their expertise for themselves (by limiting the interbank card usage to ATM withdrawals) but also allow their consumers/merchants the benefit of using that same card for paying in the shop. But then, when push comes to shove, all the users can do is be unhappy with the pricing (as if anything in the world would need to be provided for free).

So indeed, I would agree with the Javelin remark. It is high time for either a retailer based third card scheme in Europe or a more modest and less agressive approach by retailer lobby organisations.

Payter™: another nfc-phone payment pilot aiming to become a product

See the Payter™ website to find out that:
- Payter is a new pre-paid nfc-phone payment application,
- which will start as a pilot in Rotterdam,
- where pilot-participants use a special Nokia phone that they get on loan during the trial,
- and surfers can preview a slick demo,
- but currently no one can apply, due to massive sign-up (as it says on the website).

So, we have a C1000 trial being postponed as well as this pilot not marching on. And Rabo's minitix being also able to do NFC-payments. So these are definitely interesting times for innovation.

If we realize that there were some 6 years between the first trial with an IC-e-purse (Woerden, 1990) and the first product (Chipknip,1996) my guess is that we will be well beyond 2012 before we will have a standardized nfc-phone payment system in the Netherlands. That is, unless retailers will want to boycot this product as well...

PSP Global Collect sold for € 200 million

See the (paid access) FD-article. Global Collect is a Payment Service Provider, born out of the need to collect magazine subscription fees worldwide. This service used to be an inhouse service for TNT Post. But is was spun off and sold for € 14 million two years ago. And now it's been sold again for € 200 million to private equity firm General Atlantic.

GlobalCollect processes and reconciles payments for KPN, Skype, Nike, HP, Apple and so on. It's turnover was € 23 million in 2005 and € 37 million in 2006. And its net result last year was € 5 million. Lehman Brothers advised during the sale of GlobalCollect.

I'm curious if they would ever imagined this price to be paid....

Old pin-terminals to be replaced to prevent further debit-card fraud

Parool has the news that criminals have now succeeded in manipulating a specific kind of terminal in order to skim all the data. It's an older breed of terminals and Currence, scheme-owner for PIN, has issued further guidelines and encourages shop owners to quickly replace the terminals.

The news comes at interesting times. Retailers are not keen on replacing terminals. They wish to use them as long as possible. And all kinds of replacements come with a lot of fuss, such as they kicked a couple of weeks ago on the liability shift that comes with EMV-compliant terminals. Due to previous political fuss, banks in the Netherlands even promised their retailers that they would not be unduly forced to replace terminals; thus extending the end date for full EMV-migration to 2013.

Now, what would be better for the Dutch society: retailers that keep on being pennywise and use terminals well beyond their life-span (with higher chances of skimming fraud and all involved inconvenience to their customers) or a more quick replacement of terminals by retailers, helping out in preventing fraud?

Trial with phone payments delayed

See this article in Eindhovens Dagblad to find out that a trial to pay with mobile phone at C1000 super market has been delayed. The technology is not entirely ready and the partners in the trial (NXP Semiconductors, Rabobank, KPN, RFID Platform Nederland en LogicaCMG) have not agreed to their cooperation and contributions. The main idea would be that the phone would be used intead of swiping the stripe. Also the revenue of savings coupons and empty bottles should be saved on the contactless application.