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.

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.

Fed-study about mobile payments.... mobile phone heralds the return of the cashiers...

The federal reserve has yesterday issued this study on Consumers and Mobile Financial Services. And it shows that mobiles are a game-changer, due to their ubiquity. The people that have bank account don't use the mobile that much, but those without a bank account (the unbanked) make quite some use of it. So it turns out that in the US you can see a double usage pattern: on the one hand the signs of a developed market, moving slowly. And on the other hand the pattern that we know from countries in Africa, with heavier usage of mobile phones as the main banking/payment infrastructure.

Of course there's much to read in the study but it's interesting to note the banking paradigm that the Fed uses in the study. It sees the mobile phones for unbanked as a possible first step towards a sort of  'true banking', for those customers. That could be a possibility of course. But I think we may wan't to revisit this approach: couldn't we also see the mobile phones as the new digital shape of the former cashiers? And couldn't the cashiers just be the cashiers of any shop as well?

Well, that's my penny's worth of thought this morning and I'll be happy to elaborate a bit more on it at the 15th (!) Digital Money Forum in two weeks time.

New card design by Rabobank marks migration to international POS-scheme

As many of you may know, the Netherlands are now in a final stage of migrating from the Dutch POS-system PIN to the international card scheme Maestro. And as a part of this migration, Rabobank has changed the looks of the card. Given the fact that chip-terminals require a dip of the card, Rabo has moved its cardholder from a landscape to portrait design. In addition it has put the IBAN number on the card, so that customers always have their SEPA-oriented account number nearby.

ING Banking a bit wobbly lately

This sunday I wanted to order a cd and sheet music by Jules de Corte. Whereas usually this is just a matter of seconds, using iDeal, I now had to circumvent it to do electronic credit transfers via e-banking. It was clear that the ING database had some glitches, but after a couple of tries I succeeded in transferring the money.

While I could just repeat the exercise, others couldn't. The glitch turned into a major failure of ING-e-banking in the last couple of days. Today however, everything seems to be up and running again. And ING will once more regret using Oracle as the back-end database of an online payment system.

Fotograph your bill and pay it... new stuff from Denmark

With all the new apps, technology and stuff, you can just build any payment produkt you like. It appears there is a Danish bank that has developed an app that lets you photograph your bill, send it to the bank and they will transfer the money to the proper account. And for those that master the Danish language: see the instructions of the Danske bank here.

I am not entirely sure if this application will really be a killer-app that fullfills its consumers' needs. But it's interesting to see that nowadays the development burden for banks is lower than in the mainframe-days, allowing for test-trials in the field rather than extensive market research.

The euro-note now ten years in circulation...

This new year brings us a bit of a memory: ten years ago we started using the euro bank notes. For many people in the Netherlands, this was a step back in terms of quality and design. And we also notices how prices were quickly moving up. At first all economists and the central bank heavily denied this, but later research (in 2005) showed that in the first year of the euro, inflation was 3,6%, of which 0,5% due to the introduction of the euro.

In their efforts to deny the experience of the public, economists coined the term: 'experienced-inflation' ('gevoelsinflatie') to outline a situation in which the perception of price rises differed from reality. This helped the economists at the ECB discover that price rises in regularly purchased items could lead to a consumer perception of inflation that was higher than their scientifically produced price-index basket. Again a demonstration of the fact that economic models need to incoporate bounded rationality rather than assume a rational consumer.

As for the future of the euro: many experts now predict its demise in 2012 and paint a gloomy picture. When listening to those 'experts' I have the impression that it's increasingly fashionable to doubt the future of the euro. And although the politicians last year didn't do their best to help out, I do think that the future may be less bleak. With the ECB lowering cash reserve ratio, widening it's collateral policy and throwing in almost unlimited amounts of liquidity the bazooka is already out there, but some fail to recognize it as such.

So I think those ugly euro-notes will remain in circulation for quite some time to come.

Looking back on 10 years of blogging.....

These days it's about ten years ago that I started blogging: I set up the blog Retail Betaalgedachten to voice my views on the retail payments issues in the Netherlands. At that point in time a friend of mine had a personal blog, but I started to use blogs for my consultancy work, thus being one of the very early business bloggers in the Netherlands. So here's the bottle to celebrate...:

Blogging has been with me ever since those first days. The Retail-betaalgedachten became: Linkdump on Retailpayments that you are now reading. And of course, when setting up 11a2.nl, a representative organisation for e-money issuers in the Netherlands, I chose the blog as the main landing/reading platform of the website. And in addition I set up a personal blog on jazz in the Netherlands.

And now, last year marks the beginning of yet another blog, this time on the financial history of amsterdam/netherlands. It's a spin off of my passion to always take a historical approach towards analyzing todays issues in society and industry. So as of this year, every now and then you can read my views on euro-crisis, financial sector and payments on that blog.

And on that note I wish all the readers a very good new year !!

Six Pack becomes fivepack: T-mobile leaves NFC-consortium of Dutch banks and telcos

Tweakers net today reports that T-mobile is leaving the consortium of banks and telco's in the Netherlands. The sixpack consortium is also delayed in its plans (from mid 2012 to beginning of 2013) given the considerable market share that both the banks and telco's have. So they will go to Brussels to aks for exemption of competition rules.

Costs of fraud by phishing at banks doubles in 2011

The Dutch Bankers Association today starts a campaign to increase awareness of consumers that they shouldn't fall for the numerous phishing mails that flood their inbox. The reason is the fraudnumbers in banking. After the first half year of 2011, the fraud by onlinebanking had already succeeded that fraud over 2010 (9 million euro). And similarly, the number of phishing incidents in this first half year amounted to 2418 while over the whole year 2010 this number was 1383.

The NVB has also renewed the website VeiligBankieren.NL; a website that I personally helped come into existence in 2005, as it was clear that awareness on the risks of e-banking required timely communication. This still is the case and thus the campaign/trailer below was developed. It will air extensively the coming days. The commercial shows the physical equivalent of phishing and warns consumers not to open fake-mail from their bank.

Finnius conference on e-money

As some of you may know, I have had quite an interest in electronic money in the Netherlands in the past. And yesterday I had the pleasure of visiting the conference on e-money by Finnius. The conference was concise and clear with talks by Andries Doets on the regulation and a speech by the supervisor (DNB: De Nederlandsche Bank). This provided a good overview of rules, exemptions and clarified the role of DNB.

After the beautiful and energizing musical break (Duo Sottovoce) Casper Riekerk moderated a discussion that focussed on business models and the difference between paper-based and digital electronic money. The panel and audience agreed that the margins in the e-money/payments business are quite slim, certainly given the rule that the float cannot be used for other purposes (which happened when giftcards where still paper-based).

At the end, following a suggestion by DNB, the thought of setting up a representative organisation for e-money issuers in the Netherlands came up once again. So perhaps we will see a new organisation emerging as a result of this conference. Time will tell.

Personally I couldn't help thinking that quite a lot of effort by the supervisor is spent on values and amounts of e-money that are irrelevant, compared to the busloads of similar-type payments via mobile phones and Ov-chipcard (exempted from regulation). It is clear that both market and supervisors have digested and codified this exemption into their rules/system. So no one questions it (if anyone still remembers the history of this exemption).

But it remains a paradox for someone like me, who witnessed and joined the discussions on e-money dating from the rise of e-cash and Mondex. It was in particular the digital forms of pre-paid e-money that raised the awareness and need for legislation on e-money. Everyone got a head-ache when they thought of a situation in which money (and goods) were digital. Because this would create a situation in which central banks in the end will not know any more how much money is in circulation. And consumers might see their digital cash disappear if it was not secured properly.

So the headache lead to the legislation on e-money. And when introduced, supervisors decided to create an exemption for precisely that form of money that made us develop the legislation in the first place.

As such I think the whole e-money debate is quite an interesting casebook example of the Politics of the European Union.

DNB releases results of survey how Dutch consumers pay...

Today, our central bank, De Nederlandsche Bank (DNB) released survey results on Dutch payments in 2010. It showed that in 2010 consumers in the Netherlands made 4.4 billion cash payments at checkouts (shops, cafés and restaurants, petrol stations and at markets) and some 672 million between persons. So this creates an interesting benchmark for anyone doing studies on payments. If you wish to estimate the number of p2p payments in a country, just take about 16 % of the total cash transactions (but remain aware of cultural differences though...).

The study (only available in Dutch: here) also reveals that most Dutch consumers pay with the payment product that they prefer. So it appears as if everyone in the Netherlands is quite happy with the way we pay. Yet we should note that the scope of the study was limited to the classical payment products. Consumers weren't asked about their preference for strippenkaart, the payment means for public transport:

I would bet that when asked, many would prefer to continue using the strippenkaart over the OV-chipcard with its cumbersome operational flaws and failures. But as of today consumers have no choice, because the strippenkaart has been taken out of circulation. Paper tickets are now only available in trains but the National Railways are planning to scrap these at the end of 2012.

The cultural side of payments: Hofstede provides an interesting picture

One month ago I had a meeting with two American visitors that wished to know more about the history of payments here in the Netherlands. And as they had just arrived and had no time for the Walking tour on the history of Dutch payments we discussed those topics over a cup of coffee and lunch. And of course we came to discuss the Why-question. Why is it that the Dutch seem to be more keen on cooperating in the area of payments than other countries?

Of course there are a number of historical reasons. And one might argue that the Dutch are of a more cooperative nature given that they have to battle the water cooperatively, but it's hard to substantiate this. But then I realized that Geert Hofstede had done quite some work differences between cultures. And the funny thing is: if you chart his data, you can indeed see that the Dutch score high on uncertainty avoidance, long term orientation and low on masculinity and power distance.

So there you have it. The reflection of our cultural mindset that stimulates us to choose cooperative solutions when developing and organizing payment methods and systems. This is not to say that everything is and was collective here in the Netherlands. But in the long run there is a strong tendency to cooperate on standards.

Interesting paper on best practices for Payment Regulation

As I browsed through the programme and speakers of the E-MA conference on e-money I noticed that Rhys Bollen would present on regulatory issues. And upon googling I discovered his dissertation on best practices for Payment Regulation. Although I haven't finished reading it yet, I think it's quite a good read that deserves further attention.

E-money: an innovation revisited...

I think it is fair to say that technology and payment innovation occurs in several 'rounds'. It's sort of a boxing game where enterprises seek their niche in terms of consumer/company services but also in terms of regulatory niches. This holds true in particular for the domain of e-money.

Some fifteen years ago (I feel quite old when writing this) the buzz was all about Mondex and e-cash: two new e-money schemes. The development of these schemes coincided with the increased use of the Internet as well as the use of mobile phones. And there was a lot of debate on which rules to apply. Should e-money issues become banks or not. I remember setting up a specific branche-organisation (11a2: here's the old website) and conference on that specific issue.

While in this first round it appeared to be the case that anyone using digital coins for consumer payments needed to be regulated similarly, it turned out in a later round of regulation that some industries, notably telco's and transport companies, succeeded in convincing the regulator that their consumer money was not the same as the consumer money in banks. And this lead to a reshuffle of all kinds of regulations to allow for this.

The regulatory developments of 2011 essentially mark the conclusion of this second reshuffling round of regulation on e-money. And the industry has adapted in the meantime and is now looking forward to the new challenges, as we see the further development of mobile phone's, tablets and many other exciting new opportunities for e-money.

Should anyone be interested in the current state of affairs of the European e-money market or regulation I would warmly advise to sign up for the e-money conference of the Electronic Money Association (EMA). All players are there and all topics are on the table.

And there goes Bitcoin sinking...

These days reports are out about the sinking value of Bitcoins and we see users worried about it. And so we see yet another social/payment experiment forget that it takes quite a robust design to get a payment system going. Enthousiasm and technology are important, but no enough.

See also my previous post here.

NFC project by Dutch banks and telcos: six pack

Since some time, work is on the way between the three big banks and telco's in the Netherlands on payments with NFC. See the report in the NFC as of July and as of September. The project is named six pack by the way and time will tell if it really deserves that name...

From NFC:
The banks have agreed to put the NFC payment applications onto SIM cards the telcos will issue, so they likely have agreed to some type of model in which banks would rent space for their payment applications on the telcos' SIMs. Bol declined to discuss models. ING has been designated to speak for the rest of the partners, a bank spokeswoman said.

There are still many unanswered questions for the project, however, especially how the parties will jump-start contactless payment, since a contactless-payment infrastructure is almost nonexistent in the Netherlands. Much of the discussions among the banks and telcos the past 12 months have concerned how to get contactless terminals rolled out, NFC Times has learned. Bol said the rollout of EMV payment in the Netherlands means merchants will have newer point-of-sale terminals installed, which can more easily be upgraded to accept contactless.

But the banks and telcos still have to convince merchants to accept contactless and, according to Bol, the banks have no plans for a separate contactless-card rollout that could use the same terminals. Banks may issue contactless cards separately, however, and ABN Amro is trialing cards.

Financial History of Payments... separate log

A couple of months ago, I opened a new weblog, dedicated to the financial history of payments, banking and Amsterdam. So for those interested in the old times, do have a look at my weblog on financial history here.

Latest oversight framework of the ECB: the institutional drift continues and the blind spot for outside-payments increases

Today, the ECB published updated standards for oversight of payment and settlement systems. And once more I found it quite interesting to observe this big institution increase its span of control and policy-reach in a process which is called institutional drift. Which is a scientific term for: just grab something that is within reach of what you're doing and see if anyone can stop you. If not, you just expanded succesfully your territory. Which is the fuel and drive for any organisation or institution of course.

The distinctive example of institutional drift, worthy of further scientific exploration (if ever a political scientist would wish to do so), regards the vague term: 'oversight' on payment systems. And in this blog I am giving some clues as to a possible lines of reasoning and research.

1. In general it is of course a good thing that central banks, in their role as an important local government institution keep an eye on the developments in the payments and securities sector in their country. Some central banks at some point in time called this: 'oversight'.

2. And should anyone wonder if this is the same as supervision: it is not. Supervision is formally described and delegated in general laws and supervision law. Oversight on the other hand is a self-invented word of central banks. Yet there are always some generic words in the central bank law that vaguely refer to the job of central banks to promote smooth payment systems.

3. This promotion of smooth payment is of course relevant given the role of a central bank as the settlement bank for active banks in its country. But in time, central banks have started using the terminology and words in bank law to increase their action radius. So they started becoming involved with national retail payments, not being a real supervisor, but sort of acting as such and using complicated terminology as oversight to disguise (in some countries) the lack of a strong legal basis. So we have a mixed bag of central banks in the EU, all claiming to also do oversight, with some of them having a real legal basis, and others not having it really.

4. Enter the European central bank, more than ten years ago. In a quest for a bigger role in the universe, they found the oversight function to be of relevance and started drawing in this territory. Which brought them in conflict with some local central banks that said: 'Hey, ECB, hands off our local retail payment systems and oversight, that is a local matter, not a European matter'. But then again, over time such a stance can't be uphold, due to the centralizing powers of any power centre. So the ECB's role in retail payments oversight got bigger and bigger.

5. So over time we could witness the Dutch local central bank publish and use 'oversight'-standards. The ECB got involved in cards-standards. Which was a strange move, upon which the Dutch Bankers Association also commented:
1 The Articles 105(2) of the Treaty and Articles 3 and 22 of the Statute of the European System of Central Banks and of the European Central Bank (ECB) at best provide a legal basis to publish or enact regulations with respect to gross-settlement systems that are directly relevant for the functioning of the money market. We note that the scope of the proposed oversight framework for CPS extends beyond this domain. While we recognize that analytically the proposed framework (or any other payments oversight regulation and measures of the ESCB) may perhaps be considered ‘in line’ with the statutory tasks of the ESCB, we are of the opinion that such an extension lacks the required legal basis. Additionally we note that it is only remotely related to the primary tasks of maintaining price stability.

6. Still, this verbal slap on the hand by the NVB made no impression whatsoever, and so we can witness the European central bank pursuing the quest for retail payment oversight. There is a catch however. The ECB conforms to the definition of payment instruments in the Payment Systems Directive and thus leaves a whole range of thirdparty instruments as OV-chipcards or e-money on mobile phones out of their scope. So here is an interesting blind spot.

7. If we take the spirit of the ECB document as a guidance, aren't mobile phone money and pre-paid cards (and possibly all other new kinds of payment mechanisms) effectively the instruments that most require some form of oversight? And aren't those the systems (rather than the ones of banks) that have the best record in making the money of consumers effectively disappear? Contactless card may be more prone top operational errors (the Dutch system is) and money on mobile phone is notoriously gone due to unrequested reverse billing via sms and what have you.

8. So what I find intriguing is the mixed message the ECB is thus sending. On the one hand they wish to increase their hand/policy area to fit all the world of payments into their remit. So with an not-legally based word as oversight they conquer the retail payments world. Yet, they carefully seek to steer clear from instruments that may be too complicated or are too tough to handle.

9. Which leads me to my final questions. Who asked for this? Who is paying this? And is anyone in Europe holding the ECB responsible for what they are doing in the area of retail payment oversight? Are they being evaluated by some other organisation than just themselves? And is this what the European citizens or European Parliament wish the ECB to do (rather than leave this to local central banks)?

Fed issues rules to debit card interchange...

After a lot of thinking, the FED issued its rules for debit card interchange. Essentially they've outlined the borders beteen which the outcome in the market is acceptable. And it's a smart solution for a tricky debate, because at some point it looked as if the FED didn't really knew what they were up to.

An interesting element is that 3 party networks are excluded from the regulation (which is legally inevitable). And that a sort of competition appears to be forced upon the issuer. In any case, the markets reaction in terms of increasing share price was quite clear. Although it might also have been the short-squeeze in US treasuries that did the trick.

Dutch Ov-Chipcard gets instructions from parliament

This week was the last week of this seasons parliament sessions in the Netherlands. And our parliament has a tendency, of late, to increasingly focus on details and incidents, rather than strategy and policy. Thus, responding to consumer dissatisfaction, the Dutch MPs approved a decree in which TransLinkSystem, the builder of the public transport chipcard, is ordered to simplify the check-in, check-out system.

Upon check-in the system deducts a big amount (sort of bail) from the pre-paid purse and only if check-out functions properly, the system returns the money (and deducts the fare price). This doesn't work properly so if somehow the machines don't work properly you quickly run out of cash and are forced into the hassle of phoning/contacting customer service to get your money back. There is even a separate fund that Translink owns, in which money resides which should have been claimed back due to these operaitonal errors. It's the money of customers who are unaware of the errors (they may have enabled the autoload function that fills up the purse from their bank account and they may not really check their accounts that well).

Additionally, there's going to be a change in governance for the ov-chipkaart. MPs decided to install a governing board that is responsible for design and customer features, reducing Translink to the mere processor of the scheme.

Well, as with most of MP initiated ideas, we'll have to see if this will fly (and how.....).