Yesterday Consult Hyperion’s Dave Birch paid a visit to Glenbrook World HQ here in Menlo Park. We talked payments, consulting, emerging markets, and blogging. But the highlight was our test of his UK issued contactless payment sticker at the 7-Eleven next to our office. It worked!
You have to be a hardcore contactless geek to understand why that’s significant. Here’s a quick explanation: [click to continue…]
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As you may have seen on PaymentsNews, MasterCard announced the acquisition of DataCash, a pan-European (and a bit beyond) gateway, this morning for $520 million.
Before I jump in, you might want to take a look at the earlier opinion piece I posted regarding Visa’s $2 billion acquisition of CyberSource, since the rationale for MasterCard’s acquisition seems similar. Also, there’s also a bit of background on gateways in general included there.
Getting back to MasterCard and DataCash, in my opinion, this is an aggressive move that makes sense for a number of reasons. First, MasterCard is not exactly a new entrant into the gateway business. It has been running MiGS (MasterCard Internet Gateway Service) in the Asia Pacific region for a number of years and has been successful with that offering. MasterCard seems to clearly believe in the strategic nature of the gateway business and the importance of expanding it beyond that region, particularly in Europe.
DataCash comes with over 300 employees and will undoubtedly speed MasterCard’s time-to-market in Europe. If MasterCard were to take the purely organic growth path in that region, it would have a lot of new hires to make and train in a short period of time—and the gateway business is competitive and moving fast.
I think it’s also important to point out a perhaps than less obvious benefit of this acquisition. It sends a clear signal to the marketplace and to MasterCard’s own employees that MasterCard is entering a new phase. It seems willing to make aggressive acquisitions and raise the competitive intensity of the battle – Game On!
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One of the more interesting elements added late in the game to the Durbin amendment was the language added around card-related fraud costs. This has led to much speculation about what this might mean for various anti-fraud technologies (e.g., EMV in the US, a mandate for 3-D Secure for online ecommerce, etc.) as the Fed considers whether and how to get into this new arena of regulatory activity.
Earlier today, a colleague drew my attention back to a paper by Richard J. Sullivan of the Federal Reserve Bank of Kansas City that was published in a recent edition of the bank’s quarterly Economic Review. His concluding paragraph caught my eye:
“To guard against excessive fraud losses and to ensure confidence in card payments, policymakers need to monitor developments in card payment security. First, will card payment security continue to evolve without the benefit of industry-wide statistics on the level and sources of fraud losses? These statistics would help to determine whether the in- dustry continues to tolerate a relatively high rate of fraud. Second, will the card payment industry move toward more coordination of security efforts? Such coordinated efforts have been successful in the Automated Clearing House system, another electronic payment system that has grown rapidly in recent years (Braun and others). If not, policymakers might consider a more active role to help the payments industry over- come barriers to effective coordination of security development.”
Let’s parse what he said. It’s clear that there still aren’t yet industry-wide statistics on “the level and sources of fraud losses.” Various estimates are made by various industry pundits – but the actual data as reported within the industry isn’t available.
There has been some movement within the industry toward more coordination of security efforts as Sullivan calls it – but almost of that activity has exclusively in the arena of PCI-DSS.
So, the open question remains: what exactly should policy makers at the Fed do with respect to card payment fraud in the US? Is Fed intervention required to impose new requirements that wouldn’t otherwise be adopted by individual stakeholders acting alone? See my earlier post from just over a year ago about “Broken Windows and Card Payments Fraud“.
What do you think?
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I’m just back from a fascinating ten day visit to India – and, frankly, I’m still in a bit of a daze from that amazing experience. More to come about my visit there.
Tonight, as I’m catching up on the happenings while I was gone, I came across a press release earlier this week from eWise announcing a new $12.1 million funding round led by Balderton Capital.
In the funding announcement, eWise coins the term OBeP – Online Banking ePayments – for the services it provides that “enable consumers to make private and secure payments for goods and services online” by directing consumers to their own online bank accounts to complete payment.
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The potential of mobile banking, for the realization of ‘anywhere, at anytime’ transactions, is well documented. However, interest is starting to develop regarding a more consumer-orientated vision of what mobile banking and payments can offer. Glenbrook’s Jacqueline Chilton recently published an article in E-Finance & Payments Law & Policy examining the ways mobile banking can develop to increase the value for consumers.
A PDF version of Jacqueline’s article is available here.
E-Finance & Payments Law & Policy magazine provides all those involved in this fast evolving sector with practical information on legal, regulatory and policy developments. E-Finance & Payments Law & Policy focuses on developments within the UK and the EU but includes articles on developments elsewhere, particularly the US.
Glenbrook Payments Views and Payments News readers can sign up for a free trial here: www.e-comlaw.com/trial.htm
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Last week we asked readers to help us capture a snapshot of U.S. market contactless/RFID terminalization. We were pleased to get 43 brave souls to respond.
Here are the (admittedly anything but scientific) results:
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We’re looking for some impressions – from those of you “in the know” and from those of you who are just observant – about the state of contactless reader deployment at merchants in the USA. Below is a quick survey – we’d appreciate you giving us your opinions! If you’d like to receive the final results, be sure to indicate that you’d like them and give us your email address.
[Editors note: Our contactless deployment survey is now closed. We've posted the results here. Thank you for your interest.]
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In a post titled “Great since day one“, Marco Arment blogs about what makes the iPhone different – in essence he writes that Apple makes products that are great today. Android isn’t.
Reading his post brought to mind the fragmented nature of the card payments ecosystem that we live in – and how it’s so difficult to innovate in a way that provides an easy, simple and complete consumer experience.
Isn’t that the weak underbelly of today’s card payments acceptance environment? The fragmented nature of it – merchants having to deal with acquirers, struggling with PCI-DSS compliance, etc. Issuers who can’t influence the acceptance environment – yet are dependent upon it.
Problems like these create new opportunities – for those bold enough to pursue them. Yet the incumbents continue with their “business as usual” strategies.
Where are the smart new entrants – eager to disrupt? One thing’s almost certain – they’re out there working hard and they’ll soon surprise us – then, we’ll say: “Of course!”
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If you’ve been following along, you know that I’m just back from a week in Europe.
Before heading over, I took the extra precaution of calling a couple of my card issuers to let them know I was going to be traveling – in the hopes that my primary debit and credit cards would continue to function over there! (They did!)
But, in thinking about this a bit more, why couldn’t I just inform them about my location in real-time from my iPhone? Why should I have to call them, wasting both my time and theirs – to provide that update – which, frankly, may or may not be helpful to them – or me.
Envision the alternative scenario – my flight lands in Frankfurt. I power up the iPhone and click on my pseudo-FourSquare app that informs the card issuers I care about where I am – using the geolocation information in the phone (suitably “fuzzed up a bit” to provide a bit of personal privacy protection). They update their risk management systems to include this new location awareness metadata – and my cards will work hassle free.
Extending this mobile app a bit more, perhaps it also informs me of other useful things – such as remembering when my cards are due to expire and helping me manage and update subscription relationships, etc.
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In a most interesting blog post by Foursquare today, the company’s biz dev team talks about how the location-based app plans to evolve its platform by integrating with “thousands of merchants”.
As MG Siegler writing on TechCrunch noted, down near the end of the blog post under Redemptions is further discussion about how this mobile location-based platform might evolve to make the user experience easier in terms of redeeming offers by Foursquare users. It seems to allude to yet another bar code to POS application on the horizon.
As technology advances and Point of Sale systems get smarter, this responsibility can move from humans to barcode scans, loyalty card integrations and other means, thus reducing the potential friction.
What do you think? Do you use Foursquare and enjoy collecting badges, etc. as you check-in at various locations? Would you participate in loyalty offers from merchants – and want to redeem them quickly at POS?
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I’m in Europe this week teaching, along with my partner Carol Coye Benson, a private payments workshop. This is the first time we’ve done this in Europe – and we’re looking forward to it!
Flying over on United Airlines, I couldn’t help but notice the new optical bar code scanners that have been installed at the TSA screening checkpoints at SFO and at the United gates. My printed out boarding pass had a 2D bar code on it – but that wasn’t read in either case. Those devices are apparently primarily intended for use with mobile boarding passes – 2D bar code images displayed from your mobile phone.
I used one of these new mobile boarding passes for the first time on a recent flight on American Airlines. When I checked in online for the flight home, I noticed a mobile boarding pass option – selected it, received an email with an attached image file that I then displayed to a reader at the boarding gate. [click to continue…]
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“Pay with a Tweet – A social payment system.” These aren’t my words. Instead, it is the name of a new payment concept developed by an interactive advertising agency called Innovative Thunder. Given the work we’ve been doing on social payments here at Glenbrook, we had to investigate this one.
Here’s how it works. A seller registers a URL with Pay with a Tweet that points to some digital content they want to sell, and attaches a tweet to the URL. When a potential buyer comes along, they just click on the “Pay with a Tweet” button which tweets the seller’s message from the buyer and then provides the buyer with access to the underlying digital goods.
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There, did I get your attention? … Tonight’s headlines say it even more clearly – see this Wall St. Journal story titled “Merchants Win Debit-Card Fee Battle“. Or, see this post on PaymentsNews.com about the Durbin compromise announced earlier today.
Seriously, it seems to me that there’s a bit of a sleeper buried in all of this discussion about the Durbin amendment and debit interchange fees.
What’s the sleeper? Card-not-present (CNP) interchange fees – on both debit (think Durbin) and credit card purchases using MasterCard or Visa cards.
As many know, eCommerce and mail order/telephone order merchants pay higher interchange fees than merchants who are able to physically read a payment card’s magnetic stripe. That’s just the way it works.
Why? Issuers certainly have operational costs associated with handling fraud disputes on card not present (CNP) transactions – likely this was the original justification for a higher CNP interchange rate way back in the mail order/telephone order days.
A quick look at Visa’s online table of US interchange fees, illustrates this difference:
MasterCard’s interchange fees are a bit more difficult to figure out. Looking at pages 74 and 75, you’ll find:
You get the idea.
For “signature” (non-PIN) debit card transactions, Visa and MasterCard interchange rates are roughly 65-75 basis points more expensive to CNP merchants. As usual with interchange fees, it’s a zero sum game – what the merchants pay goes to the card issuers – expense to CNP merchants, revenue to the bank issuers.
In addition to the higher card interchange rates borne by CNP merchants, they also are responsible for all of the fraud liability associated with CNP transactions. That’s just the way it works. If issuers can’t see (and verify) the full mag stripe card data, the rules say they don’t have any liability for fraud.
Card present merchants are protected from that liability – it is borne by the card issuer. (Note: both Visa and MasterCard offer programs – Verified by Visa and MasterCard SecureCode – that deal with that. These programs shift the liability for fraudulent transactions from CNP merchants to issuers – but most CNP merchants in the US have opted not to participate in these programs for a variety of reasons.)
If the Durbin amendment passes in some form, it will be fascinating to watch how the Federal Reserve deals with these differences between card present and card not present interchange rates for purchases using debit cards.
Note that the compromise announced earlier today by Durbin includes some new language about fraud prevention costs – giving the Fed the ability to adjust the interchange fee to the issuing bank “if the bank demonstrates that the adjustment is reasonably necessary to cover fraud prevention costs incurred by the bank.”
We live in interesting times!
What do you think? Let us know in the comments…
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I’ve been amazed by what I’ve been reading of late from the “analyst” firms commenting on the Durbin Amendment. A lot of what I’ve seen makes me wonder whether these folks should turn in their analyst licenses and simply register as paid lobbyists for their big bank clientele. (The Durbin amendment, for those not in our industry, is an amendment to the financial regulation bill that has passed the Senate and is awaiting its fate in the reconciliation committees. The amendment would give the Fed, and possibly the consumer regulatory agency, the power to regulate debit card interchange. Most likely, this would reduce a key source of retail bank revenue.)
Now, don’t mistake me as a supporter of the Durbin approach. I’d like to see the courts deal with the legality of the present interchange arrangement and hopefully guide us toward a more market-based approach to setting prices, but for a moment, let’s deal with the world as it is, rather than as we wish it to be.
The Amendment could be modified, watered down, and limited, but the strong probability is that it will pass in some form that will result in lower rates of interchange on most debit card transactions. There, I said it. So now let’s talk realistically about what could ensue.
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Today the Financial Women’s Association of San Francisco (FWASF) hosted its annual Scholarship Luncheon. Two undergraduates and six graduate students from six Bay Area schools received a total of $70,000 in scholarships. I am on the FWA board and have been involved in the scholarship program for many years — and each year I am amazed by the caliber of the candidates. We have to make tough decisions to select the honorees. And each year at the luncheon when the scholarship recipients share their stories and ambitions I am touched, inspired, and reminded of how important it is to foster and encourage the success of younger people (not just younger women). But enough about me, here’s a list of this year’s FWA scholarship recipients:
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GLENBROOK PAYMENTS BOOT CAMPS
October 6-7, 2010, Santa Clara, CA
October 27-28, 2010, New York, NY
December 8-9, 2010, Santa Clara, CA
Custom Private Payments Workshops
Headlines from Payments News
