Digital Money Forum 2012... 15th anniversary and lively as ever

The Digital Money Forum is an event that this year reached it's 15th anniversary. And a special event it is. My previous visit to the Forum was probably some ten years ago, when everyone was pretty much into the e-money way of life. But technology, money and society continue to develop and that's where Dave Birch and his team of Consult Hyperion come in. In setting up the forum they provide for a lively and thought-provoking event where money is dealth with from all different angles. And as before, it was a pleasure to participate.

So this years event was special in many ways. We all got a better look at the evolving phone payment landscape, delved into possible future scenario's for the world and money, we spoke about the future and death of cash, about social inclusion and lots, lots more. And, quite fascinating, I got to issue my own currency, PunkMoney, via Twitter, by promising the developer, Eli Gothill, two beers and a financial history tour in Amsterdam.

A bit more on the principles of Punkmoney (as I understand them). If we look at money it is an invention to facilitate transactions in society. But before the official money we had mutual obligations and trust relations in society. I would help my neighbours out with building their house, assuming they would do the same for me, in time. And so on. So there was this web of mutual obligations and promises that cemented the relations in society.

Now what Punkmoney does is to leave all the monetary issues and digital money aside and elegantly replicate this web of promises. With some rules as how to form proper messages, Twitter as the carrier and a software enige that scans twitter for any promises of Punkmoney. And when it finds one, it registers it and there you have it. Not the real money, but something even better: real promises. Just as trustworthy as... yourself.

After Punkmoney, we moved on to another kind of money. Monopoly money, sitting on a Samsung phone (with an application neatly developed by Easan).

Six teams on six tables started playing and as for me personally, I was literally quite lucky. I landed on 3 airports in the beginning of the game, won some lotteries and eventually turned into a big shot property owner. I turned out to be the winner of the competition, with an awesome price: this incredibly beautiful banknote (an official German forgery of a UK 20 pound note; part of the Bernhard operation):

Some more on that will follow on my financial history blog later.

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.

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 ?

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....

SanDisk and Philips join forces on cell phone payment via NFX

Tweakers.net had a post linking to this EETimes.com article that outlines that SanDisk and Philips join forces on cell phone payment:
Flash memory card supplier SanDisk Corp. has struck a deal with Philips Semiconductors to embed the Philips SmartMX smartcard controller chip in certain types of flash memory cards to allow them to be used for near-field communications (NFC) and in particular, when the cards are inserted in mobile phones, to pay for things.

SanDisk (Sunnyvale, Calif.) said the SmartMX would be embedded in TrustedFlash cards allowing consumers to use their phones as bus or train tickets and perform secure “contactless” payments and other contactless transactions by simply waving their phones near a contactless reader in a mass transit turnstile, checkout counters or drive-through windows.

TrustedFlash cards with SmartMX technology for NFC transactions are available to OEM customers in the microSD card format. SanDisk has started pilot programs and expects broader commercial rollout in 2007. The company did not state where the pilot programs are being run.

Answers to MP-questions on liability shift

While in considerable parts of the world chip and pin (and liability shift) is underway, the Dutch developments are a bit slower. Our move to EMV is however well discussed within the National Platform on Payments, in which in 2004 parties concluded that you cannot reasonably do a liability shift if there is no EMV-compliant terminal/infrastructure available.

With some new EMV terminals coming on the market, EMS decided to start moving towards including a liability shift in the retailer contracts (for credit-card payments). And Dutch retailers, that are keen on making every penny possible in negotiations, thought it would be a good idea to whisper some questions into the ears of an MP about how incorrect this liability shift thing is. And that the actual agreement in the National Platform would have been that rather than having a range of EMV-terminals in the market, it would be necessary for more than one terminal-provider to be active in the market. And only then would there be a liability shift.

So this week Minister of Finance answered to these questions by explaining that he had indeed been made aware of the contents of the letters of EMS to the retailers. Yet he did not wish to confirm the retailer interpretation on 'agreements in the national platform on payments'.

The answer of the Minister of Finance is a delicate 'no, you're wrong' to MP Vos. Delicate because Minister Bos is the leader of the Labour Party, while MP Vos is one of the newcomers for that party in Parliament. And 'you're wrong' because there is a free market for EMV-compliant terminals right now (which will be further expanding quickly in the future) and because in today's society retailers and acquirers are free to conclude all kinds of contracts they like.

What he forgot to mention is that also in a formal sense a commitment not to introduce a price structure is impossible, because such an agreement would have constituted a price/cartel agreement. And the National Platform, by its statute, is only there to discuss payment developments and not to do price-bargaining or arrange for price-agreements for any of its members.

The answer of the Minister is that given this freedom of contract and all other variables in the credit-card game (retailer segment, segment specific controls etc), it is not by definition the case that retailers will charge the cost of the liability shift to consumers (and I would add that it is similarly unlikely that they will pass on revenues from the liability shift and translate it in a lower price level, due to lower fraud costs...).

So, the one question that remains is: is the retailer strategy to continuously do public price bargaining by asking questions via MP's in parliament an effective one, or does it in the end just demonstrate penny-wisdom?

Students discover software security error in public transport tickets

Interesting news from the Amsterdam University where students in the open source project checked if the disposable contactless public transport ticket (OV Chipkaart) could be used again. And yes, the secutiry was insufficient and it was possible...

The breach was reported to Translink and proved to be valuable. Also the education programme itself proved once again the usefulness of open source and independent public evaluation of software. The research was done in the OS3 programme, where OS3 stands for Open Standards, Open Software (which extends Open Source) and Open Security. Together these three components define Open Technology.

European banks agree crossborder Mastercard rival | Reuters.com

See the article here that outlines that European banks have agreed to link their national debit card systems from September in a bid to break Mastercard's grip on crossborder payments, a German banking official said on Wednesday.

On Sept. 4 banks will launch a scheme, called EAPS, to enable debit cards issued in Germany, Britain, Italy, Spain, Portugal and Austria to work in cash machines and shops in the other countries, Peter Blatsche from German public-sector banking association VOeB said. For debit cards to work outside their country of issue, they currently need to be part of either Mastercard's dominant Maestro scheme or V-Pay operated by Visa Europe.

The pricing of the Euro Alliance of Payment Schemes (EAPS) scheme will be no more than the 0.3 percent rate changed under Germany's Electronic Cash debit card system, Blatsche said.

This will be a sort of 'good news' for the worried central banks (see my earlier post here) who have for unknown reasons decided to find themselves responsible for competition in the market rather than maintaining the European interest rate.

ABN AMRO introduces additional anti-skimming measures

See the ABN AMRO Press Release here.

Currence: Dutch debit card phased out gradually / ECB re-engineers policy history

The Financieele Dagblad reported on a presentation session that occured yesterday as a part of the presentation of the annual report of Currence: scheme owner of Dutch collective payment products PIN (POS-payment), Chipknip (e-purse), direct debit and acceptgiro (bill-payment). Main news is that Currence announces that it seeks to maintain the brand PIN until the future market situation (in particular fees) is clear.

Essentially this is no news, as banks had already outlined that they would not phase out PIN without looking at market developments and consulting retailers. but still this may provide some comfort to Dutch retailers. Interestingly ECB-policy department chief Ruttenberg stated that he noticed a change in banks' behaviour: while they were first eager to phase out the pin-product, they would now seem to think otherwise. He noted a change in attitude there.

Ruttenbergs' statement can be best viewed as a projection in psychological terms. He notcies a change with the banks, which tells us something about what happens to the ECB. Because the real change in attitude is not with banks but with the ECB. In 2004 the ECB had no clue as to the market reality for cards payments. This speech of Tumpell Gugerell essentially discussed anti-fraud measures and standardisation. Then came the rush to implement SEPA. Both ECB and Commission urged the banks to quickly move towards panEuropean products and phase out domestic products by the end of 2010 (see the speech here). At this time the banks strongly complained about this deadline setting by ECB and outlined the business (interchange fees etc) and customer issues (need for a gradual migration rather than big bangs) involved. So the ECB slowly understood that indeed there was something as interchange issues that could stand in the way.

Then, somewhere in 2005 or 2006, having banged the panEuropean quick migration drum for some years now, the ECB changed its mind and did no longer demand changeover to international schemes. Rather it pursued the idea of a third Euro-scheme to compete with the other schemes (needless to say that VISA already transformed their business in Europe into a European scheme; a fact that has apparently went by unnoticed in Frankfurt). So the analysis from the Frankfurt towers is now that there might be a business case for such a card scheme and that banks should not rush into migration towards US dominated international schemes take over.

It is quite interesting to note that a mere change of responsibilities and roles within the ECB also leads to a re-interpretation of reality by the ECB-policy makers. They now re-engineer the policy history as if banks wanted to go quick and they as ECB need to slow them banks down and point out a different policy option (setting up a third scheme) which some years before, was absolutely not the desired goal of the ECB.

Updated June 8: see also the speeches by the ESCB and Commission.

New campaign effort to promote debit-card use for low value payments

Currence today launched a campaign to create awareness with the public that it is fine to use the debit-card for low value payments. The action is the second follow up to the outcome of a McKinsey/DNB study with respect to profits/loss in Dutch payments. The study showed that it would make sense to eliminate surcharging for low value payments. So now, we're gradually moving that way.

The first thing that happened, as a follow up to the report, was that more simple offerings were developed for all-in-one terminal packages. See the website devoted to this measure: smart POS packages....

The two measures will undoubtedly be reflected in this years data on PIN-payments in the Netherlands.

Interesting practice: rewarding debit card use

See the aticle here to see that El Paso County’s two largest credit unions have joined with a Denver-based company to pay cash rewards for debit card transactions with some merchants:

Ent Federal Credit Union began paying rewards of up to 20 percent Tuesday on debit card transactions with 128 local merchants and about 1,900 others statewide, while Air Academy Federal Credit Union expects to launch its program within three months.

Both credit unions are offering the cash rewards through a partnership with Rainbow Rewards USA Inc., which started the program three years ago. The program also is offered by 16 other Colorado credit unions and a credit card offered through Frontier Airlines.

Some banks began paying rebates and rewards to customers to encourage debit card use about 10 years ago, but the programs are now becoming more widespread, said Larry Martin of Bank Strategies LLC, a Denver-based bank consulting firm.

Shiibashi, champion of Suica contactless product, named visionary of the year

While we in Europe focus quite a bit too much on old style, old world payments, there is more going on in payments. In Europe itself we overlook the huge amount of m-payments. And are slow in adoption of other technologies/solutions, such as the contactless e-money solutions. Meanwhile in Japan the Suica scheme may serve as an example. In this article there is a bit of background information; explaining also why one of Suica's champions, Akio Shiibashi, is named visionary of the year.

Shiibashi, who is director of the Suica System Department for East Japan Railway Co., supervises what has become by most estimates the largest contactless fare-collection scheme in the world–with more than 20 million Suica cards on issue and hundreds of millions of transactions per month. The scheme launched in November of 2001, and he oversaw introduction of an e-money service using the same application on the cards in early 2004. The cards, which run on contactless chips from Japan’s Sony Corp., are accepted at more than 10,000 merchant locations in Tokyo.

While the Suica scheme began service after the pioneering contactless transit ticketing and e-money service Octopus Card in Hong Kong in 1997, much of JR East’s groundwork preceded that of the Octopus project. Suica also has the distinction of offering interoperability with some other large contactless fare schemes in Japan, most notably with its counterpart in the Osaka-Kobe-Kyoto area, since 2004. This year, Suica finally extended interoperability with other transit operators in the Tokyo metropolitan area.

Even as he was preparing to launch the Suica fare cards in 2001, Shiibashi was pushing the idea of putting the ticketing application on contactless mobile phones. After several months of trying, he finally found a receptive ear in Takeshi Natsuno, guru of the successful i-mode, mobile Internet service, at Japan’s largest mobile network operator, NTT DoCoMo. The telco and its competitors have run with the concept and have sold nearly 30 million mobile-wallet phones, “osaifu-keitai,” in Japan.

JR East introduced its Mobile Suica service in January of 2006, allowing subscribers to buy monthly rail passes and reload their e-money accounts over the air. While the service stumbled during its first 10 months, changes, including streamlining of the registration process, has improved demand among subscribers.

It will be interesting to see how Oyster, Visa and Barclays will perform with their efforts to match this development...

Visa further penetrates retail market with Gamma

While retailers representative organisations are trying hard to stop the credit-cards from being used, large building and D-Y-I chain Gamma has introduced a Visa-Gamma card. Providing discounts to the D-Y-I shoppers.

Annual report 2006 of National Forum of Payments sent to Ministry of Finance

Our Dutch central bank (DNB) holds the secretariat of the socalled National Forum on Payment Systems. Basically a forum where representative groups of providers and customers of payment services meet and discuss relevant developments such as SEPA, safety of payment systems, how to improve efficiency and ergonomic accessibility and regional availability of payments services.

Today DNB sent out the annual report over 2006 of the Forum which contained an 1 MB update on:
- SEPA: it's coming but a lot of details are not clear yet; the work in 2007 will focus on a transition plan for the Netherlands,
- availability of payment services (see also this log-entry): no indications that there are serious problems; just some minor issues that all involved players agreed to solve,
- further improvement of efficiency: smart pinpackages should help out small retailers by providing low cost easy-to-use POS-terminals and fee deals,
- the publication of future reports on fraud characteristics of credit-cards, accessibility guidelines for POS-terminals, further research into cost/benefits of payments.

Retailers continue gallery play for low bank fees while overcharging consumers themselves

Last week I noted that members of Dutch parliament (quite obviously prompted by retailer-lobby organisations) started asking questions in parliament on the competition in payments and on the possibilities of price increase as a result of SEPA. Which showed that retailers succeeded quite easily in (hijacking and) narrowing down complex policy discussions about European payments markets into an ordinary Dutch price-rebate discussion for merchants.

This week the retailers continue their battle in the Financieele Dagblad. Mr van der Broek, chairman of all retailers in the Netherlands explained in an interview that the retailer representative organisations withdrew from some subgroups of the socalled National forum on payment systems that dealt with SEPA. The reason for doing so was that the retailers found it unacceptable that the banks did not collectively wish to give a low price guarantee for future fees of payments authorisation. Not receiving any affirmative response, they concluded that it was most likely that further price hikes were upcoming and that in the end there would only be two acquirers in Europe: Visa and Mastercard; which would have to mean higher fees for everyone.

This oversimplification of reality did not go by without a comment of the Dutch banks. On their website they have provided a somewhat cool reply. In this news posting (in Dutch) they point out that the claim and fear for a duopoly in the cards market rests on the misunderstanding that retailers have direct contracts with scheme-owners rather than with all the players (banks and non-banks alike) in the acquiring market. So the duopoly is nowhere near in sight and will never become a reality.

They further continue - as a part of their explanation of the six most common misunderstandings about POS-authorisation fees- that already at this very moment retailers can choose from a wide number of banks and acquirers for pos-authorisation processing. And research by the Dutch competition authority demonstrates that this competition works and leads to lower fees.

In their statement the banks also politely hint at the oddness of the retailers price guarantee question, by explaining that it is forbidden as a collective of banks to do joint price setting. And that it is not proper conduct to asks banks to committ to such behaviour nor to draw conclusions from the fact that banks do not answer to this question that shouldn't even be asked in the first place. They point out that it even more incorrect to assume that the silence in reply to this question thus means that fees will become higher.

My personal viewpoint is less polite. Some 5 years ago, the retailers were among the loudest bunch in the audience to want the existing price-cartel/monopoly of banks (for authorisation of PIN-transactions) to be eliminated. And they were right in doing so. They got exactly what they wanted: banks were fined and all contracts now need to be bargained by retailers at individual banks. Retailers even got one cent discount as a part of a separate agreement with banks to set the past aside and work towards efficient payments in the future. So they dismantled the existing monopoly in exhange for competition. But instead of competition the retailers now appear to want a Dutch domestic bank monopoly back to fix or set some even lower prices for the future.

On their website, the Dutch banks once more outline that SEPA is not a banking party but the result of political pressure on banks (Lissabon agreement in 2000), leading to standardisation by the European Payment Council on the one hand and to legislation (Payment Service Directive) on the other hand. So the banks reject the retailer suggestions that SEPA is brought on the public because the banks want this so much. The banks also ask retailers to join in and do their bit: accept all panEuropean payment brands so that all Europeans may be able to pay efficiently at the point of sale.

And finally the banks point out that irrelevance of the whole issue brought forward by the retailers. They clarify that in the Netherlands it is possible to surcharge at the point of sale. So the retailer can choose to ask a fee from the consumer if a certain payment brand (or cash !) is a bit costly. Which would solve the whole problem of bank fees in the first place.

And with that last explanation comes another fine example of interesting retailer behaviour. The banks outline that 25 % of the Dutch retailers ask a 25 eurocent fee from the consumer if he chooses to use the direct debit card over other payment instruments for low value payments. While the bank fee for this transaction is only 5 cents, this does raise an additional question as to why retailers so heavily overcharge the consumer. It can't really all be 20 cents for terminal or telecommunication cost...

House Financial Services Committee hearing on credit-card practices

See the website of the House Financial Services Committee to view a webcast on the hearing on credit card practices. The chair of the committee announced that a second hearing will be held (first week in June) with all bunch of regulators. Late May the FED will publish a revision of disclosure rules for credit-cards (I think its reg E).

Keyware partners with RBS to increase acquiring competition in Belgium

See the article here to find out that Keyware acquired BRV NV in a move to expand its processing of card transactions from retailer cards (Aurora and PASS for Cetelem), Diners card to Visa and Mastercard. It will use BRV's Visa and Mastercard license. And is bound to also compete for the debit-card transactions. Leaving the Belgium market of currenly 716 million transactions in the hands of players such as the Bank Card Company, euroConex, Europabank, Keyware and First Data.

Unisys introduces new Open Payments Platform for banks: cooperates with Clear2Pay

Unisys issued a press release, outlining that they've developed a service oriented architecture to help banks migrate their current processing to a new platform. It should work fine with all kinds of technologies and database platforms. Interesting part is that Unisys has also decided to become value-added reseller for Clear2Pay. This confirms Clear2Pays prominent position.

While the news may appear to be a bit techy, the consequences are clear. We're heading towards an open panEuropean market, with open technology solutions that help achieve low costs for banks. Quite a bit different from the old days where IBM was the main provider of integrated proprietary hard/software.