Payments Industry Thoughts

Last Post

2008-06-29T18:34:00.002+01:00

According to Wikipedia:

"Last Post" is a bugle call used at Commonwealth of Nations military funerals and ceremonies commemorating those who have fallen in war. "Last Post" was originally a bugle call used in British Army camps to signal the end of the day.

"The Last Post" is also the name of a poem by Robert Graves describing a soldier's funeral during World War I.

In this case it also signals my last post on Payments Industry Thoughts as I am leaving Spencer Rose to work in Dublin for Google as an Account Associate.

All the good work in the payments industry will be continued by Spencer Rose who are going through a large rebranding exercise which will be finished in the last quarter of this year with an overhaul of everything from the logo to the website.

So, if you want to contact anyone there about roles in the industry, phone +44208 99 555 00 and ask to speak to someone about roles in the payments industry and they will be able to help.

For me, with my 102nd second post, this has been a lot of fun. I will continue to look out for what is happening in the industry and I wish everyone all the best.

Altair Launches RED88 Prepaid Card in the UK

2008-05-22T08:30:00.001+01:00

Altair Financial Services International Plc (Altair) has a launched the RED88 Prepaid MasterCard® in conjunction with RED88 Ltd (Part of Spectrum Financial Group) and card issuer, Newcastle Building Society. The RED88 card is aimed at Chinese nationals, for both general use as well as remittances.

With the tagline “The Chinese people's cash card”, the card has been created to serve both the Chinese community living in the United Kingdom and other communities that wish to benefit from MasterCard ® branded prepaid card that can be used as a cost effective money remittance replacement product. According to the UK's Office for National Statistics (ONS), the Chinese population figure at the time of the 2001 national census was 247,403[1].Current estimates of the Chinese population living in the UK are close to 500,000.

Lee Britton, Altair CEO commented, “The RED88 Prepaid Card is a fantastic card program and we expect high uptake and use. By focusing on the specific target audience, Spectrum Financial Group and Altair have created a product that provides real benefits for the cardholder. Furthermore, cardholders can take advantage of a series of attractive discounts in many shops, restaurants and Chinese supermarkets bearing the RED88 symbol.”

The RED88 card program uses Altair’s dual card shared balance technology, where a primary and a secondary card can be issued with one balance. The secondary prepaid MasterCard can be issued and sent to someone in China or anywhere else in the world. While only the primary card can be loaded with additional funds, both cards will be accepted at over 25 million outlets and over 1 million ATM’s worldwide, wherever the MasterCard acceptance mark is displayed.

Leon Chan, Managing Director of RED88 says, “We have set up a great team in Manchester to provide the customer servicing for both English and Mandarin speaking customers. This team will also perform all Know Your Customer (KYC) checks and process the majority of loads onto the RED88 cards using our own internal processes.”

Altair and Blueberry Launch a Prepaid Card to Save Mothers Money

2008-05-19T17:33:00.003+01:00

Altair Financial Services International Plc (Altair), a leading prepaid card and global transaction processing solutions provider, and Blueberry Card Services Ltd, provider of innovative consumer prepaid services, have announced the launch of the BaBee Prepaid MasterCard® card. The BaBeeCard will be the first UK pay-as-you-go MasterCard® card created specifically to help new mothers manage their finances and save money on their day-to-day expenses.

http://www.babeecard.com/

Gemma Johnson, Blueberry CEO commented, “A BaBeeCard costs just £14.95 a year yet gives mums access to hundreds of discounts, from baby-related items to everyday essentials like groceries and petrol plus big ticket items like holidays. Just using the grocery and petrol vouchers alone could cover the cost of the card within a month.”

Lee Britton, CEO of Altair said, “This is a great example of a prepaid card program designed to meet the needs of a specific audience. We expect a great deal of interest surrounding the BaBeeCard program and believe it will be very successful. The BaBeeCard enables the cardholder to better budget their finances, saves the cardholder money on a range of relevant discounts and can furthermore earn money by referring their friends.

“The BaBeeCard program uses Altair Mobile Payment System (AMPS), so the prepaid cards can be conveniently managed by sending text messages from a registered mobile phone. Cardholders can obtain their balance, top up their card or lock/unlock their card for added security, from anywhere, 24 hours a day. In addition, the card enables friends and family to add funds to the card from any location in the UK, via online bank transfer or SMS if using a BaBee Top-Up Card.”

The UK annual birth-rate is approximately 750k, which presents a huge potential market for the BaBeeCard. With the current financial climate, a growing number of mums may find it difficult to obtain credit. Unlike a credit card, BaBeeCard applicants will not require credit checks and the cardholder can only spend what has been loaded onto the card. It has the convenience of being accepted everywhere displaying the MasterCard acceptance mark, currently 25.9 million locations worldwide.

Chris Reddish, Global Product Head of Prepaid Europe, MasterCard, said: “The BaBeeCard MasterCard is another great example of how prepaid programmes can be tailored to offer different benefits for different groups of consumers. The facility to manage spend by ring-fencing budget, combined with the security and convenience of prepaid cards, offer mums valuable peace of mind.”

About Altair Financial Services International Plc
Altair Financial Services International Plc was incorporated in 2005 as a global provider of Prepaid Card solutions with enhanced functionality. Altair acquired established transaction processing company, Symmetrex, Inc. in March 2007. Altair is headquartered in London with banking and processing relationships in UK, USA, Asia Pacific and throughout the Latin America and Caribbean regions and issues on behalf of MasterCard® and Visa.

Altair solutions are designed to be flexible enough to provide companies with almost any type of prepaid card functionality, including open and closed loop programs. Through its relationship with MasterCard® all Altair cards issued in Europe are based on Chip & PIN technology and are EMV standards compliant. Altair is a certified issuer and transaction processor of contactless (MasterCard® PayPass™) prepaid cards in the United Kingdom. For more information, visit file:///C:/Local%20Settings/Temporary%20Internet%20Files/OLK15/www.altair-financial.com.

About Blueberry Card Services Ltd
Blueberry Card Services Ltd was set up by Gemma Johnson in September 2006. Gemma and her team have more than 4 years experience in the prepaid card market and 10 years in the charge card industry. The company developed the BaBeeCard and the supporting programmes and will be introducing additional prepaid services in the future.

For every BaBeeCard sold, the company will donate £1 to BLISS, a UK registered charity dedicated to working for special care babies and their families. A survey conducted by BLISS late last year found that having a premature or sick baby can put families under crippling financial strain, with an average extra weekly spend of £189, and potential long-term implications for a family's finances.

Chaps Euro System Closed Down

2008-05-16T16:42:00.000+01:00

The Chaps euro system is being closed down at the end of today. It had been set up in January 1999 in preparation for the UK joining the Euro.

It had used the same settlement mechanisms as the Chaps sterling network.

According to Apacs, “When Chaps Euro was created in 1999, the UK was still contemplating joining the Euro. However, over time the UK’s stance has become clearer, making the case for continuing to participate in the clearing system considerably weaker”.

The system has been being wound down since last year, so it wasn’t a surprising revelation. Kind of interesting though… Slow news week to be honest.

ACI Gain New Business and Post Loss

2008-05-09T17:25:00.000+01:00

From PaymentsNews.com:

“ACI Worldwide has announced that MasterCard Worldwide has selected ACI's electronic payment solutions as key elements of the new MasterCard Integrated Processing Solutions (IPS) announced in early April. MasterCard IPS provides banks a suite of branded debit network and card issuer processing services including PIN and signature debit and prepaid processing, and ATM driving. “

They have used their BASE24-eps software, ACI’s most famous. This will be used in addition to ACI’s Payments Manager, which will be used to monitor all transaction activity.

As well as this, they have announced the following new contracts in their first quarter financial results:

EMEA: Added new BASE24-eps(tm) customer locations in Romania and Kyrgystan. Products selected across the region include BASE24(tm) combinations, the ACI Money Transfer System, and application infrastructure tools.
Asia: Bank and credit card customers added wholesale products including ACI Enterprise Banker, ACI Payments File Manager, Proactive Risk Manager, Trade Manager, NET24 XPNET and File Connect
Thailand: Kasikorn Bank purchased a global payment hub comprised of multiple products in an IBM environment
United States: A large supermarket chain purchased BASE24(tm) and Golden Gate.
Italy: A banking customer added BASE24-pos and Simulation Services for Enterprise Testing
6 new customers signed, including new users of ACI Enterprise Banker, BASE24-eps(tm) and Proactive Risk Manager
16 new applications added to existing customer relationships ranging from ACI Retail Commerce Server and Proactive Risk Manager for Enterprise.

Despite all this, they have made a loss, a wider first quarter loss than last year.

The problem with a service company such as ACI becomes clear – that the contracts can only go on the balance sheet when they have been delivered. Especially since ACI is going through such a sustained period of growth so short term costs such as salaries are going up rapidly before these large contracts can go on.

I think the situation will be a lot different in a couple of years time, and I think prospectors would get a bargain if they buy the shares now ($17.42 as at 9th May) and wait for two years, or I will eat my hat, or the nearest equivalent (like a cat).

Visa IPO: Beginning to End

2008-05-08T18:38:00.001+01:00

The Beginning

It was interesting to follow in the beginning as Visa prevaricated over announcing the IPO date finally scheduling it to price the week of March 17th with a tentative trading date of March 20th trading under the symbol V. The projected deal value of $18.8 billion ranked it 2nd on the all time list behind Industrial & Commercial Bank of China’s $21.9 billion offering in 2006.

It was proposed that 406 million shares would be sold, pricing between $37 and $42 each (MasterCard opened at $39 in 2004 and is now worth $198), the public owning around half the shares and the banks the other half.

There were also concerns over some of the participants. Floyd Norris of the New York Times noticed a few salient facts about JP Morgan who were underwriting the deal along with Goldman Sachs:

1. The largest shareholder in Visa.
2. The company’s largest customer, getting breaks of pricing not available to most other customers.
3. A member of the bank syndicate that agreed to lend $3 billion to Visa to cover litigation costs.
4. Slated to get $1.1 billion from the offering, through redeeming shares.

He estimated that none of the money would go back into the company to help Visa to grow, but will all go towards the recent litigation (American Express and Discover antitrust cases) and to help the banks out with additional capital, sorely needed due to the recent credit crunch problems. However, to me at least, it always seemed like these were the points behind the IPO in the first place.

The Launch

Finally, after months of anticipation, Visa’s IPO hit the stock market (20th March), providing a shot in the arm for financial markets, weakened by the credit crunch and false rumours (HBOS). It had been multiple times oversubscribed and was priced at around $44 per share, higher than the original estimate of $37-42 and totaling 406 million shares.

This valued the company at $42.5 billion compared with $27.6 billion for MasterCard. And, of course, it has to be remembered that the new Visa Inc does not include Visa Europe, which has opted to remain private.

The IPO did rank second to the Industrial & Commercial Bank of China Ltd, almost doubling the previous US record, set in 2000 by AT & T Wireless Group’s $10.6 billion offering.

By the end of the 20th March Visa Inc had jumped more than 35%, adding more than $15 billion automatically to the company’s market value. This worked out a share value of $59.50.

The shares finished their first day’s trading at $56.50, up 28.4%. Its market capitalisation of $56.8 bn ranks Visa as one of the world’s biggest financial services houses.

Visa Inc Dust Settles

Now that the dust has settled and the Visa Inc flotation is behind us, we can say that the value finished at $19.1 billion. The underwriters exercised their over-allotment option to purchase an additional 40,600,000 shares of its Class A common stock at $44 per share. Visa expects net proceeds from the offering, including the exercise of the over-allotment option, after deducting underwriting discounts and commissions and estimated offering expenses, to be approximately $19.1 billion, the second largest of all time and the largest in US history.

As of May 2008, Visa’s share price had risen to $86.34 per share.

Current Market Value

Visa Inc has recently announced financial results for their fiscal second quarter ended March 31, 2008. Selected quotes can be found below:

“GAAP net income for the quarter was $314 million, or $0.39 per diluted class A common share. GAAP diluted class A common shares outstanding were 778 million. On an adjusted basis (reflective of a normalized tax rate and excluding litigation, restructuring and purchase amortization), net income for the quarter was $401 million, or $0.52 per diluted class A common share. Adjusted diluted class A common shares outstanding were 779 million.
Net operating revenue in the fiscal second quarter 2008 was $1.5 billion. Strong contributions were made by service fees, data processing fees, and international transaction fees as payment volumes and processed transactions rose across all regions worldwide.”

“For the period ending December 31, 2007, which impacts the March 2008 fiscal quarter, Visa's operational performance highlights include:
-- Payments volume grew 19% over the prior year to $681 billion;
-- Total volume, inclusive of cash volume was $1.1 trillion, an increase
of 21% over the prior year;
-- Total cards carrying the Visa brands rose 16% worldwide to 1.6 billion
over the prior year; and
-- Total payment transactions increased by 16% over the prior year to 11
billion.””

To be concise Visa Inc’s profit rose 28 percent in the first three months of 2008 as people charged more to their cards due to the current shaky economy.Their fiscal second-quarter profit amounted to $314 million, or 39 cents a share, up from $246 million in the same period last year. So, although some investors were still unhappy with the results, believing they should be even stronger, most people were happy with heavy year on year growth.

Comment

The Visa offering is quite an unusual situation of such of an established company going public late. This is due to their previous total ownership by the member banks and its consequent status as an association. Since 2004, when MasterCard went public, they have been losing market share, and it was felt that this was needed to compete fully. It also provides a welcome fillip to the member banks that are able to use this windfall to dig themselves out of their self inflicted credit crunch holes.

The shares were so sought after as it is not just another case of a start up with huge hopes and not a lot of history, but a company that has its roots back with “Bank of AmeriCard” in the 1950s. When this is added onto the fact that Visa is one of the few large banking institutions not affected by the credit crunch due to it not extending credit to cardholders, it was a decision that didn’t require a lot of brainpower.

It will be interesting to see how this progresses and especially how the relationship between Visa Inc and Visa Europe now proceeds as I am sure there will be a lot of people watching how their performance ranks against the other.

Barclaycard fillets Goldfish

2008-05-08T17:45:00.000+01:00

Barclaycard have announced the axing of 1000 jobs at their London operations centre and their Scottish call centre. This follows on from their acquisition of Goldfish from Morgan Stanley, previously reported here.

The vast majority of these are call centre roles, about 900, with the rest being made up of management, marketing, audit and finance. They have announced they will migrate the rest of the roles to their other sites by the end of the year.

This was always inevitable as Barclaycard acquired Goldfish more for their customer portfolio than any particular human expertise, and the new business can be mostly serviced through existing personnel.

By the sounds of it, there will be more redundancies to come as well as Goldfish is fully integrated.

London Contactless Payments Stuttering

2008-05-07T18:10:00.001+01:00

The latest issue of Mobile Payments World has been reporting on a less than overwhelming success of the rollout of contactless cards so far in London.

Barclaycard has announced that all its cards will be contactless by 2011, but will they be used?

Ivan Brooks, VP and CIO for McDonalds reported “very low usage indeed” at their 13 restaurants, except at the Paddington office, near Visa Europe’s head office, at the café of which the use is high.

Boots have also shown reservations stating that it costs them 15 times more a year to bank card transactions than cash, indicating that banks would need to lower long-term merchant service charges to make the system attractive – for example each transaction costs around 5pm which can be a high percentage when the only good being bought are low cost items.

Yo Sushi has found that the £10 limit greatly reduces the number of transactions it takes and it also said that the lack of portable contactless terminals was a problem as was the accreditation process.

There is a certain amount of a business case as it will save people having to insert their cards into the machine – however, that is nowhere near compelling enough to change and the extra speed will not be overwhelming when you having to key the PIN in for over £10 or every couple of transactions in any case.

I also worry about the technology. Ethical hackers have already been able to pull data off the cards with simple scripts. If this is possible, how much easier would it be for professional criminals. At the minute the terminal has to be compromised in some way where as when you’re dealing with RFID, you are opening up a much larger can of worms.

UnionPay

2008-04-30T17:37:00.001+01:00

The largest competitor to Visa and MasterCard will come from China and is called UnionPay. It was established in 2002 and is the only interbank network in China. Of course, as with everything else in China, it has been established by the Government, through their version of the Bank of England, the People’s Bank of China (PBOC).Their credit cards are all affiliated with either MasterCard or Visa, so can be used across the world, though their debit cards can only be used as part of the UnionPay network and a limited number of other networks that have signed contracts.And this is where it gets interesting. Without me and most of the world noticing, UnionPay have started to expand in a big way. By 2006 they could be used in over twenty further countries outside China, including the United States, Japan, Singapore, Malaysia, Thailand, Germany, Switzerland, France, and Australia becoming increasingly influential.
UnionPay have continued to expand, more than doubling the number of merchants using UnionPay as their payment system by spreading out into 26 countries and regions in 2007, according to a report on ShanghaiDaily.com.

In the overseas market UnionPay cards are now accepted at 125,000 merchants, an increase of 150% from the previous year, with 365,000 ATMs now accepting it, up 23% on a year ago. Increasingly as they develop they come into competition with the effective duopoly of Visa and MasterCard.

China had issued more than 1.47 billion bank cards by the end of last year with more than 170 card issuers. China reportedly is encouraging the use of banks cards in order to track tax records and as a way to prevent money laundering.

UnionPay have also been making moves in the m-payment space. At the end of January they announced in a press release that the company’s cell phone-based payments added 4.95 million users in 2007, bringing its total user number to more than 10 million. Cell phone-based transfers totaled 10.8 billion RMB ($1.5 billion). The lack of reliable and scalable payment systems has been an inhibitor for e-commerce in China. Growing usage of credit cards and cell phone-based payments is expected to facilitate more e-commerce transactions.

Aite Group has published a new report titled "The Future of Card Networks: Gauging Battle-Readiness for a Post-Visa IPO World". This suggests that Visa and MasterCard will also begin to lose out to American Express and Discover, blaming, or crediting, the 2004 Department of Justice decision to repeal the exclusionary rules that prevented Visa and MasterCard’s members from using the other networks.The duopoly has been mostly stable for the last couple of decades and it seems like a lot of ructions are coming. Visa and MasterCard will still have enough to be able to see off most of the battles, but it will cut into their market shares and they will need to change the way they operate to survive.

Visa or MasterCard or Discover or American Express

2008-04-29T18:05:00.002+01:00

I decided to ask a very simple question on Linkedin that I hadn’t thought of before:

Visa or MasterCard or Discover or American Express - Which would you recommend and why?

The answers are abbreviated below. For a full transcript, click here.

Daniel Gradsky
”Out of the premium brands i would put MasterCard first, American Express and Visa would share the second place, whilst Discover would be the last one.” ”The most important factor is the financial advantages. My MasterCard, starts with a 250 000 and UP credit line, at 0% APR for 90 days, AMEX rarely starts over 100 k with monthly statements. MasterCard, never stops, transactions never get canceled, you literally can spend as much as You can afford, AMEX will get checked and checked, over and over again, creating a socially humiliating situation. Cash would be available without any daily limits with Master, whilst Amex gives you a limit... So financially Master is much stronger.... “”In terms of services, Centurion and Master are very similar, 24 hour concierge, business lounge, travel discounts, travel insurance. But only Master offers a rental program that includes not only cars, but also Yachts, Private Jets, and Limos. Only with Master, people will go to incredible lengths to help their clients. "

John Machacek
“If you pay in full each month or carry a very minimal amount, there are tons of rewards choices.
AMEX: I've never used AMEX but have heard good things with their reward redemptions.
Discover: I've had one for 15 yrs and like the cash back. I now typically use it more for their promo quarters where you get 5% back, such as gas purchases in July-Sep or home improvement purchases in Apr-Jun. At $3+ per gallon, using the card is like shaving at least $0.15 off each gallon.
Mastercard - rarely have used.
Visa - I use this most because I get the same cashback as Discover but it is more widely accepted. My card is through my bank (U.S. Bank) so it is nice to see my card balance & transaction data with my internet banking (on same page I see my checking, savings, roth, etc) and making direct payments is so simple and efficient. Also, I use a Visa tied to my college alumni foundation so not only do I get my cash reward, the school gets a little bit back too.”

Luan Vu
“as a student ---> visa for acceptance by all merchants
as a professinal --> amex for great insurance, service, and travel assist

just using amex points alone, I've qualified on Delta airline's platinum medallion status

“We pay cash for everything, then I noticed that cash doesn't protect you in case of fraud, damage, or theft. that's when my wife and I switched to using amex exclusively for all purchases. their travel assist helped me when my mother-in-law collapsed on a trip in France --- they were professional, fast, and resourceful (all free).

amex purchase protection also replaced damaged/lost items when I lost my glasses and sunglasses by accident (each costs $300).”

Chetan Shah
“I like VISA because of their

- Auto Rental Insurance Protection.
- Zero Liability.”

Yan Maisonneuve-Gauthier
“For my part it is Diners Club.

Reason ? I travel a lot and it is good for flyers lounge in airports. A lot of advantages regarding inssurances and they also have a point program with very nice stuff as well. Service is #1.”

Faster Payments Update

2008-04-28T18:16:00.001+01:00

Faster Payments is finally going live, 6 months late, on 27th May as planned previously. However, it isn’t as simple as it first appears.

The system is due to process Internet and phone payments of up to £10,000 and standing orders of up to £100,000. Standing orders are not scheduled to start being processed through the faster payments service until 6th June.

But, this system will not automatically be available to all users from the start. For example, on day one it is expected that only five percent of members’ Internet and phone payments will be processed as faster payments.

Some banks also plan to phase the system in so that lower limits will be there for the foreseeable future. So Faster Payments goes live on the 27th May, but not really…

Verifone Cull Begins

2008-04-21T18:41:00.000+01:00

The cull at Verifone has finally begun after the mistakes of 2007. To recap, Verifone massively overstated their operating profits for the first 9 months of 2007 by $36.9 million, although at the time they claimed that it was only by $27 billion. As a result, their share price has fallen from close to $50 per share to what is now $15.94.

The Verifone CFO, Barry Zwarenstein, has now resigned which was the most obvious move. Other changes have been instituted such as the chairmanship being taken away from CEO Douglas Bergeron, to be filled by Charles Rinehart, the supply chain controller being fired and better IT and enterprise resource planning systems. Global headcount has been reduced by 6%.

Hopefully, these steps will enable them to put all this behind them.

Phishing Attacks up by 200%

2008-04-18T17:35:00.001+01:00

Apacs has announced some interesting figures, indicating that phishing attacks have risen by 200% in the first quarter of 2008 from the same period last year (to 10,325 phishing incidents from 3394). Phishing is the name given to emails that claim to be from your bank but are actually sent to you by fraudsters. They normally ask you to click on a link which switches you to a website that looks like your bank’s website and asks you to put in personal details which they use to access your bank account.

82% of people ignore these emails completely, up from 75% in 2006, so that is still quite a lot of people who are failing to follow simple safety precautions, which is quite depressing.

On the bright side, online banking fraud losses has fallen by a third, from £33.5m in 2006 to £22.6m in 2007.

ALTAIR FINANCIAL SERVICES INTERNATIONAL PLC & RAPHAELS BANK PARTNER TO BRING YOUNG PEOPLE UNIQUE DEBIT CARD

2008-04-17T17:58:00.001+01:00

Cambridgeshire County Council works with prepaid debit card pioneers to give disadvantaged young people more independence

Leading prepaid card solutions provider, Altair Financial Services International Plc (Altair) and prepaid card issuer, Raphaels Bank have partnered with Cambridgeshire County Council to launch a unique prepaid card scheme, the g2g Card. Developed for disadvantaged young people aged 13-17, the card was launched on 1st April 2008 and will run as a pilot for one year to offer up to 2,000 young people in Cambridgeshire access to activities that previously may have been out of their reach. Each card will be pre-loaded by Cambridgeshire County Council with £40 a month for the cardholder to spend on positive activities such as sports, music, arts and drama.

Lee Britton, CEO at Altair commented, “We are delighted to deliver such an innovative card program to Cambridgeshire County Council. This project uses our technology to improve the ability of young people in Cambridgeshire to take part in out of school activities in a positive way. This is one of the first Government departments to issue a prepaid card program in the UK. Similar prepaid card programs in the USA have experienced significant success at replacing cash in the government and public sector – and we look forward to the pilot being incredibly successful.

“There are two areas in government where we see prepaid cards having a significant impact. These include cards to distribute payments to beneficiaries and cards to efficiently manage internal expenditure, such as travel and expenses. Prepaid cards can improve efficiency, reduce costs and enhance the transparency of the payment process.”

“We are delighted to be launching the g2g Card, a prepaid Maestro™ debit card that can help disadvantaged young people try different activities without being held back by the cost”, confirmed Simon Bates, Project Manager at Cambridgeshire County Council. “The pilot scheme aims to test whether funding activities that boost a young person’s confidence and esteem outside the school gate, will, in turn, help to build confidence and esteem inside the classroom.”

Card issuer, Raphaels Bank has worked in partnership with Altair Financial Services to create a chip and PIN card that will only work with pre-approved merchant categories, so that the funds can only be spent on a wide range of council-approved activities. A micro site has been set up to promote the scheme at www.g2gcard.co.uk and a dedicated website has been set up for cardholders at www.purplepigeon.net/g2gcard, providing information on how to use it and find activities.

“We are tremendously excited about being involved in this project”, confirmed Mike Smith, Director, Raphaels Bank. “The g2g Card will give young people their first debit card, teaching them how to deal with money in a safe way, while enabling them to take part in activities they may not have been able to afford previously. We have worked with Altair Financial Services to ensure the card is secure and can only be used for the range of activities selected by Cambridgeshire County Council.

“We will be monitoring very closely how the pilot proceeds over the coming year and look forward to working with other local authorities in the future, once this scheme has been proven.”

Research has proven that those who take part in these kind of positive activities stand an improved chance of doing better at school as well as being more likely to contribute to the community and less likely to be involved with anti-social behaviour. However, there is a range of barriers that stop about 25% of youngsters taking part in activities, ranging from transport problems to lack of finance. With the g2g Card scheme Cambridgeshire County Council wants to see if the finance barrier can be addressed.

The g2g Card, which is being funded by the Government, will be available to 2,000 pre-selected young people from Cambridgeshire who receive free school meals or are in local authority care. Cardholders will have £40 loaded onto their card every month, allowing them to pay for activities at a list of registered providers. They will not, however, be able to use the card to withdraw cash. Every card issued will come with a PIN to protect the system from fraud and unspent money will be carried over to the next month, allowing individuals to save up funds if they wish.

Cambridgeshire is only one of nine local authorities taking part in the government pilot to use a prepaid card with either Visa or MasterCard. Cambridgeshire has mapped its scheme closely to the original concept of the Youth Matters green paper.

Latest Visa News (HSBC and New Rival)

2008-04-17T17:55:00.000+01:00

Mixed news for Visa over the last week or so.

It started with the announcement by HSBC that they are to switch the debit cards if 10m customers from Maestro to Visa. Retailers have been up in arms as it will mean the fees they pay will rise from 5.97p to 8p a transaction.

However, it will enable customers to use the cards more widely as, although Maestro is widely accepted in Europe, it is not in the US or Asia. In addition, Visa offers customers some protection if goods bought on their card are damaged.

On the other side, there is news that a group of French and German banks are looking to set up a pan-European card network to compete with Visa and MasterCard. This idea has been bouncing about for a couple of years, flamed by the European Commission (EC). They remind everyone of their preference for a new scheme every time they issue a statement. Whether it suits economies of scales doesn’t seem to be borne in mind. The EC does often seem to pursue competition for the sake for competition rather than efficient competition.

The banks have only at this point expressed the possibility of setting up a rival scheme and would want clarification on how interchange would work in the light of recent decisions that the interchange fee was illegal and the reopened investigation into Visa’s interchange fee.

In my opinion we are a long way from a rival to the two large schemes and whether it is worthwhile at all seems questionable to me.

ALTAIR SUPPORTS LAUNCH OF MODUS PAYROLL CARD

2008-04-10T17:34:00.003+01:00

Altair Financial Services International Plc (Altair), a leading prepaid card and transaction processing solutions provider, supported the launch of The OnePay Card, a payroll card for unbanked and migrant workers. The prepaid card program is aimed at the SME market, providing an alternative to paying staff by paper cheque or cash, making it easier to pay unbanked and under-banked employees such as migrant workers.

The card program was created in partnership with MasterCard® prepaid card issuer Raphaels Bank for Modus UK Limited, the specialist provider of payroll cards for UK employers and employment agencies.

Lee Britton, Altair CEO commented “We’re delighted to be working with Modus on the OnePay card. Their expertise in bringing together companies’ payroll systems with our prepaid card systems will provide huge benefits for employers and the functions of the card, particularly our SMS capability will make for ready acceptance from workers.”

The expansion of the European Union has brought an influx of migrant workers into the UK and many do not have local bank accounts. Responding to this demand, the OnePay Card offers a simple payment solution for both migrant and unbanked workers. The card is Chip and PIN protected, providing secure access to cash from ATMs and it can also be used wherever the MasterCard symbol is shown at merchants around the world.

Lee Hartley, Managing Director, Modus, comments, “This payroll card is aimed at SMEs making cash or cheque payments to migrant workers and the unbanked. The payroll card delivers a simple, secure, cost effective alternative to cash or cheques, bringing major benefits to both employees and employers.

“Employees avoid the additional fees and risks associated with cashing cheques or sharing bank accounts, as well as gaining access to balance checks and detailed transaction history, making it easier to manage their money. The cards can be loaded automatically with their wages, making it quicker and easier for businesses to pay employees. Staff will benefit from payments reaching their prepaid account in real-time, rather than waiting for cheques to clear.”

For employers, the OnePay card provides an effective method for payroll and HR managers to streamline their payroll payments. The key benefits arise through cost savings and reduced risks compared with paper-based payments or cash handling and payment administration costs.

To make it easy for cardholders to track their account, OnePay card uses the latest mobile technology from Altair Financial Services which enables cardholders to manage their accounts using their mobile phone. With a text message from a registered mobile phone, cardholders can check their balance as well as lock and unlock their card account to prevent any unauthorised withdrawals.

Mike Smith, Director at Raphaels Bank added “We were pleased to help Modus bring the OnePay card to market. There is a good opportunity in the UK for such a card and Modus has the right product and the right skills to help employers and employees with their payroll and wages. We’re sure the OnePay card will be very successful.”

TJX Settle with MasterCard

2008-04-08T19:41:00.001+01:00

TJX has agreed to pay up to $24 million to MasterCard in a settlement following the massive security breach at its operations that resulted in the theft of millions of credit and debit card numbers. Finextra.

I have previously blogged about this when TJX’s sales went up after news of the crisis broke.(In a recap their security lapses led to 94 million accounts being compromised).

This follows them paying $40.9 million to Visa, which is small change considering that TJX has set aside $107 million for possible litigation, which should comfortably cover the claims of the remaining smaller networks.

TJX has also had to agree to an independent audit every 2 years for the next 20 years, which is not much of a hassle considering they would have to be assessed regularly for PCI:DSS anyway.

Still, it is amazing that a company can end up having to set aside over $100 million for a breach that was only discovered a year ago. This is by far the worst example, although others have been in the news recently like with GE Money and with Hannaford.

Citi Sell Diners Club

2008-04-08T13:26:00.000+01:00

In an interesting move, Citi has agreed to sell Diners Club International to Discover for $165 million.

Looked at objectively it is not an altogether surprising move. Citi has become very unwieldy and inefficient and the ownership of Diners Club wasn’t really improving competitiveness in any way.

Vikram Pandit, the new Chief Executive has been brought in specifically to cut the fat and this follows on from the recent loss of 4000 jobs in Citi worldwide, with suggestions for a second round that is likely to focus around middle management with a possible 25,000 losing their jobs worldwide. This severs a 27 year link up Citi has had with Diners Club.

Citi will now be able to focus on their card issuing business around the world according to Ed Eger, the Head of International Cards.

It will make sense from a Discover point of view as well as it will increase their network, which can be quite limited. The integration will allow Discover cardholders to use their cards at merchants that accept Diners Club cards around the world. At the same time Diners Club customers will be to use their plastic on the Discover Network in North America.

Contactless Keyrings - Why??

2008-04-02T18:17:00.003+01:00

American Express has discontinued their contactless keyring, although it is not much of a surprise. The only surprise to me is that it has stuck around since 2002.

These types of products are always more about the news stories generated than they are about the business case, and I suppose it did its job in terms of spreading the news about ExpressPay, Amex’s contactless system, which is always going to be in the shadow of Visa and MasterCard’s PayWave and PayPass.

Visa and MasterCard are still running their versions, probably because their budgets haven’t run out yet.

In an unrelated news story, EAT has become the first retailer in the UK to introduce a fully integrated contactless payment system at the point of sale. APACS have estimated that over 5 million contactless cards will have been issued by the end of 2008, although with all the worries over security, are we running headlong into a lot of trouble?

InsureandGo Prepaid Card Wins ‘Best Use Of IT in Insurance’ Award At the FST Awards 2008

2008-04-02T17:38:00.000+01:00

InsureandGo Prepaid Card Wins ‘Best Use Of IT in Insurance’ Award At the FST Awards 2008

Altair Financial Services International Plc (Altair), a leading prepaid card and transaction processing services provider, and Raphaels Bank, specialist prepaid card issuing bank, announced today that the InsureandGo Prepaid Travel Card program has been selected as the winner of the Best use of IT in Insurance category at the FST Awards 2008.

Altair CEO, Lee Britton said: “We are very pleased that the InsureandGo card program has won yet another award – especially against the likes of RBS, Standard Life, Axa Winterthur and Brit Insurance. This award is a good indication that the prepaid card programs delivered by Altair can compete within the technology driven financial services sector. The card program utilised advanced payments technology, providing a prepaid card that serves a dual function – travel foreign exchange and insurance claim payouts.”

According to Neil Ainger, editor of Financial Sector Technology magazine and chair of the judging panel, said: “InsureandGo’s Prepaid Travel and Claim Card, which was developed with Altair, won the FST Awards 2008 Best use of IT in Insurance trophy because of the innovation evident in the project and its ability to ease customer access to the claims process.”

Mike Smith, Director, Raphaels Bank, added: “Raphaels Bank is delighted to be working with Altair and InsureandGo on this programme and proud to be associated with another award. The Insurance industry is beginning to wake up to the possibility of using prepaid cards in various ways to support their customer propositions and we’re pleased to be part of a programme applying IT innovation in this way.”

Perry Wilson from InsureandGo said: “At InsureandGo we are constantly looking to provide innovative products that enhance the already excellent levels of customer service we are famous for. Our Prepaid Travel Card has allowed us to offer a vastly more convenient system of paying claims to our customers, so they can make use of the payment while they are overseas rather than waiting to be reimbursed when they return home. This has been particularly important given the rise in claims for lost luggage in 2007 – a problem we fear will only continue to get worse.”

Altair Financial partners with Payments Industry Thoughts

2008-04-02T17:37:00.000+01:00

In case it hadn’t been noticed recently with the stories coming through, I am now in partnership Altair Financial to publish latest press releases. These will be following pretty regularly from now on. Any comments about these can be sent through the site and I’ll be able to pass them on to the Head of Marketing at Altair.

Hannaford Security Breach:Part 2

2008-03-31T19:04:00.001+01:00

Further to my previous post about Hannaford, it seems I have a retraction to make. I had suggested that “This is sadly just another case of cutting costs” with a consequent lack of security like with TJX. Full comments can be seen here.

Instead, a “new and sophisticated” method has been used in which software, known as malware, was installed on servers at all of their grocery stores. The track 2 data stored on the magnetic stripe of payment cards was intercepted, which included the card number and the expiration number. The malware stored up records of the data and then transmitted them in batches.

This could have been achieved in a number of ways:
The software could have been installed remotely through a breach of the company’s firewall;
Have been installed due to not running the latest security patches;
Finally, it could have been an insider, either an employee or a technician for one of the vendors. The company had recently replaced all their hardware.

All relevant PCI:DSS standards had been met up to the point of the breach.

This is a lot more disturbing then and interesting that I originally thought. The industry does like you to think that if the companies are in compliance with regulations, then the card information is safe.

However, the criminals are getting smarter and the rewards are getting better as more information is digitalised. Previously we had been able to blame the company itself. However, if this is a case of it being installed remotely, and it still is an if, then we have to wonder whether all the technical advances are just leaving us more open to fraud.

Visa Inc Dust Settles

2008-03-28T17:11:00.000Z

Now that the dust has settled and the Visa Inc flotation is behind us, we can say that the value finished at $19.1 billion. The underwriters exercised their over-allotment option to purchase an additional 40,600,000 shares of its Class A common stock at $44 per share. Visa expects net proceeds from the offering, including the exercise of the over-allotment option, after deducting underwriting discounts and commissions and estimated offering expenses, to be approximately $19.1 billion, the second largest of all time and the largest in US history.

SEPA – A Catalyst for Payments Consolidation by Way of Systems Integration

2008-03-27T19:16:00.000Z

The following is an article by Paresh Madani - Head, Payments Center of Excellence, PrimeSourcing, i-flex solutions.

SEPA – A Catalyst for Payments Consolidation by Way of Systems Integration

(A paper presented at the SEPA Conference (International Payments) November 8-9, 2006)

This paper talks about how the Single European Payments Area (SEPA) initiative presents an opportunity for various banks across Europe to consolidate and optimize their payments processing. Corporates and banks, in particular, will be evaluating a number of routes toward SEPA compliance but, eventually, a phased approach will take precedence over the others. Let us look at how SEPA will affect – and influence – key players, and delve into how technology and, most importantly, systems integration will be critical in achieving SEPA compliance. While there have been a number of discussions and debates on how SEPA will affect banks, corporates and their customers, not enough is being discussed about how Information Technology can play a pivotal role. SEPA presents a unique setting for banks to consolidate their fragmented payment processing to a few platforms of scale. These platforms will centralize payment and messaging flows, to the ultimate benefit of the end-user.

Impact
There has been enough written about the impact of SEPA; the loss of revenues due to increased cross-border competition being uppermost on everyone’s minds. Studies conducted in the market indicate that despite SEPA bringing in increased efficiencies on account of greater Straight-Through Processing (STP) and better liquidity management, revenue losses and investment costs for SEPA adoption will outweigh the cost savings.

Opportunities
Then again, just as loss of revenue can be considered a negative, it can also be treated as an impetus to streamline the fragmented payments processing infrastructure, increase efficiencies, and help evolve new payments business models. The effect of SEPA on the banking sector as a whole would depend on banks’ ability to reduce infrastructure costs, reduce manual handling in some parts of the payment processing chain, and also evolve profitable pricing models. Developing new products, re-engineering pricing models to develop new lines of revenue, and steering customers towards the most profitable payments instruments are some strategic decisions that can help banks invest in future growth. For instance, banks could look at creating payments business models to include in-sourcing of payments business for other financial institutions.

Strategizing - The Way Forward
It is critical for financial institutions to adopt a proactive approach and address any concerns related to fragmented product-based silos in the process, thereby, avoiding inefficient processing; for instance, in the duplication of payment processing across different product processor-based systems. In the face of rising competition and falling revenues, banks may be called on to replace or adapt their existing product processing systems for cross-border payment transactions. Such systems would need to develop the capacity to accommodate new interfaces. Banks will need to look at integrated STP systems that help them add value and reduce costs.

Impact on Key Players
As stated earlier, while SEPA is expected to bring in increased efficiency in payments processing, there is also the apprehension of investment costs outweighing any saving in costs. Hence, it will become extremely critical to effectively manage the ramifications of multiple entities in the face of SEPA. Banks are expected to face maximum challenges; especially, in terms of overcoming increased competition, high investments, new pricing models, needs for re-evaluating and re-engineering payments infrastructure and, most importantly, the evaluation (/evolution) of new payment business and outsourcing models as part of the larger objective of creating Payments Business Utility Services.
As commercial and economic borders open up with SEPA, corporates will again have to look at new business models in order to cater to the business opportunities that would emerge post implementation of SEPA. Offering consistent pricing to customers both within and across national borders, and consolidating and centralizing treasury functions, and evaluating accounting structures would enforce changes on their existing back-office ERP applications. The end customer community may reap the maximum benefits, though they will have to carefully consider the availability and levels of new business services post SEPA implementation. These benefits will include low costs, speed in transfer, ease and reliability, and transparency in (as in domestic) cross-border accounting. A slew of business and technology considerations will have to be assessed before embarking on any change in payment processing and related IT Infrastructure. For instance, from a business perspective, the factors are:

• New rulebooks and frameworks for complying with SEPA Business Rules
• Bulk payment processing capabilities for low-value processing used for paying through ACHs such as STEP2
• Debit Transfer Processing
• TARGET2 Liquidity Management
• Pricing and billing capabilities
• Achieving operational efficiencies

On the Technology Side…
• Implementation of new payment instruments resulting in changes/ replacements of systems for new instruments such as SEPA Credit Transfer
• Adoption of open standards (ISO 20022) for SEPA Credit Transfer, Direct Debit, TARGET2 Liquidity Management
• Implementation of new SWIFTNet business solutions
• Integration with new clearing/ market infrastructures
• Inter-operability between multiple systems
• Ability to process volumes Needless to say, SEPA does not offer banks a common or single solution. It is recommended that banks view the multitude of factors specific to their business and future goals before setting forth on any implementation.

Consolidating Payments Processing
If one were to pick the top few areas that banks would be evaluating to achieve payments processing efficiencies, it would most certainly have to include:
• Increasing the rates of STP (areas such as analyzing payment patterns for auto-enrichment and repair; automatic matching of payments between Directs and Covers)
• Centralized liquidity management
• Understanding a variety of transactional attributes that would be used in the derivation of pricing
• Efficient payment flow tracking and tracking of payments (dashboard functionality, automatic handling of exceptions)
To analyze transactional patterns and attributes for pricing and payment flows, Payment Analytics would come into play. If one considers the different processing steps involved in an all-encompassing payment processing model, we recommend the following steps for optimization:
• Receipt, safe-store and authentication
• Message enrichment and transformation - (including auto
repair)
• OFAC/Compliance checking
• Debit account validation (including IBAN check)
• Debit authority check-mandate verification (for DD MT204 &
PEDD)
• Funds/Credit check (VOSTRO disposition) and earmarking
• Payment routing (Chain build)
– Book clearing, NOSTRO (Serial, Direct-cover)
• Credit account validation/qualification (including account v/s name matching)
• FX processing (standard rates, special rates, among others)
• Pre-advise (MT210)/notification generation and dispatch
• Pre-advise (MT210) matching (for incoming)
• Direct v/s Cover matching – MT103 v/s MT202 / MT910 (for incoming)
• Fees and charges calculation (including correspondent fees)
• Cut-off times check (clearing/ treasury) and value dating
• Liquidity desk–scheduling, warehouse, timed payment holds, among others
• Liquidity desk – Funds checks (including TARGET2 cash messaging)

Liquidity desk – Payments prioritization, alternate routing
(if needed)
• Message formatting and bulking (if required)
• Message final validation (OFAC, cut-off, etc.) and release (InterAct, FileAct)
• Acknowledgment (ACK/NACK)/confirmation match and handling
• Book-keeping and MIS
• Advising (SWIFT, e-mail, fax, paper)

If one considers the overall enterprise payments IT infrastructure, there could be multiple options for the consolidation of payment processes and components such as:
• Payment initiation systems
• Payment types (wholesale and retail)
• Payment processing factory components (currently siloed across different product processors and
payment processing systems)
• SWIFTNet solutions for business (Funds, etc.) and market infrastructures (STEP2, TARGET2,
Faster Payments), thereby consolidating the SWIFTNet ISO20022 processing
• Liquidity management
• Payment interfaces and gateways- consolidate via a centralized messaging hub
• Complementary systems (e.g. Accounting, Billing)
• Payment networks

Many SEPA migrations will witness the gradual consolidation towards an enterprise payments infrastructure. It would be advisable for banks to move to component-based, service-oriented payments architecture with a central messaging hub to interface with the myriad of systems, including direct business processing. Common payment processing components such as compliance checks, credit management and pricing can be developed as Web Services, which can then be reused across applications.

Possible Approaches for SEPA Migration
From a generic implementation adopted by the smaller banks (e.g. indirect participants) by connecting to an external SEPA compliant SWIFTNet infrastructure, to banks
wanting to create a consolidated payments, liquidity and SWIFTNet infrastructure as discussed earlier, the approaches towards SEPA migration can vary. Significant among these routes will be that of a SEPA SWIFTNet messaging hub that can act as a single window to external networks and systems and connecting to market infrastructures such as TARGET2 and STEP2, as well as for other SWIFTNet Business Solutions in the areas of funds, cash reporting, exceptions and investigations and trade services.

Systems Integration – The Way Forward
In a nutshell, there are going to be multiple businesses and IT infrastructure changes that will drive compliance towards SEPA and, ultimately, towards the larger goal of enterprise payments infrastructure consolidation. Most organizations have set up a SEPA Implementation Committee/ Group cutting across business and IT divisions. While such groups will have SEPA compliance in immediate focus, they cannot afford to ignore the larger objectives, and not define roadmaps accordingly. All these paths will lead to changes across multiple applications and payment processes, and the creation of new applications and processes. This would imply that most SEPA initiatives would involve systems integration, thereby, introducing the need for selecting an IT solutions partner. A cost-effective solution backed by a vendor’s expertise in global payment processes is what will win in the end.

Author
Paresh Madani
Head,
Payments Center of Excellence,
PrimeSourcingTM, i-flex solutions

SWIFT 2010: Opportunities and Challenges

2008-03-25T09:18:00.003Z

The following is authored by Sameer Deo, Senior Consultant, PrimeSourcing, i-flex solutions - "SWIFT 2010: Opportunities and Challenges".

SWIFT 2010: Opportunities and Challenges

In its time, SWIFT has faced a number of challenges. This article explores what the future holds for SWIFT as it moves towards increasing value for customers and boosting interoperability. Towering operating costs, decentralized operations and fragmented IT infrastructure are some of the challenges that the banking community has faced for some time now. In many ways, the evolution that SWIFTNet has seen in the past few years has provided banks with the right platform to address these issues. SWIFT2010 heralds a phase of increased interoperability and customer value. This is also a phase where the financial services community is working towards reducing costs and time for payment processing, injecting more straight-through processing (STP) into business practices, and improving supply chain management and corporate access. These factors have also resulted in financial services institutions undertaking significant technology changes - most importantly in the areas of consolidation, interoperability, and message standardization.

SWIFT Evolution
SWIFT was established in 1973 by 239 banks from 15 countries. From the outset, it set out to be the global financial community’s foremost messaging infrastructure, offering the lowest degree of risk and the highest resilience possible. For most of the first decade of SWIFT’s operations, many believed that bringing competing banks together to co-operate and standardize communications would be a near-impossible task, but SWIFT was able to replace old Telex machines and help automate back-office operations in banks. FIN, SWIFT’s core ‘store and forward’ messaging service, was the first step
towards setting up standards in financial messaging. As of today, FIN services enable over 8,000 financial institutions in more than 200 countries to exchange financial data in a secure, cost-effective and reliable manner.
Its value-added services include:
• Message validation to ensure SWIFT message formats
• Delivery monitoring and prioritization
• Message storage and retrieval
• FIN COPY service (Y/T)

SWIFT FIN messages cover a wide range of markets, including payments, treasury, securities and trade finance. A quick glance at global FIN traffic in 2006 reveals that payments and securities contribute to 80 percent of the messages exchanged over the SWIFT FIN network.

SWIFTNet Migration
SWIFT was able to orchestrate financial messaging and transaction processing successfully in the last three decades. However, even though FIN service and MT message formats played a significant role in standardization, they are limited by the sometimes inflexible nature of the FIN messaging structure, in that it cannot accommodate newer business rules and functionality easily. As the financial community focuses on end-to-end automation and improved STP, there is a need to look beyond FIN messaging to improve efficiency within the payments and securities domain and to expand SWIFT’s network beyond this space. Secured card reader and ICC cards were two forms of security that worked well until SWIFT became the backbone of all financial communication, thereby raising the need for more secure communication(PKI-based) needs, in addition to increased bandwidth and reliable networks. IP-based connectivity, PKI-based security, and XML-based flexible messaging were the three main influences for the introduction of SWIFTNet. SWIFT also introduced many business solutions based on new FileAct and InterAct protocols. The same infrastructure also provided an opportunity for financial institutions to run their own bespoke messaging. SWIFT’s single window architecture now allows users to connect through a common point and use multiple services. The following chart provides a snapshot of the opportunities that SWIFTNet offers the financial services community. When SWIFT made it mandatory for all SWIFT users to migrate to SWIFTNet, FIN CBTs had to be upgraded for SWIFTNet connectivity and newer SWIFT software. Routers, VPN boxes and other network components had to be set up to connect to SIPN. It is important to note that SWIFTNet migration should not be treated as a mere technical upgrade that begins with IP migration and ends with SWIFTNet Phase2 but, instead, it should be viewed as a restructuring opportunity. Injection of XML standards into mainstream SWIFT messaging, a single window architecture, and the introduction of new SWIFT participants are all part of the new opportunities that SWIFTNet offers - consequently, triggering a significant amount of re-thinking within the financial services industry. While benefits such as centralization, STP and the network’s extended reach to newer players and territories are tangible, many financial institutions find it a challenge to re-engineer entire back-office operations towards these objectives. Garnering industry-wide agreement around common standards can also prove to be another huge challenge. Let us look at some of these benefits in greater detail.

Centralization
With SWIFTNet implementation, banks have had to reduce their SWIFT touch points to two or three hubs. This has provided them with the opportunity to centralize their financial messaging operations. Cumbersome processes such as internal billing and cost allocation, message repair and MIS handling, including monitoring and tracking activities, can be managed by moving towards a centralized hub solution. Many market infrastructures stipulate that their participants implement solutions over SWIFTNet. As advantages of using many upcoming SWIFT solutions over FileAct and InterAct are becoming more obvious, one can see multiple SWIFTNet implementations for various business segments within the same organization. This is the time to adopt a cautious attitude and assess your organization’s roadmap for SWIFTNet by asking a few vital questions, such as:

• Is my SWIFTNet infrastructure set-up sufficient for the ever-growing SWIFTNet traffic?

• Do I have a reusable, centralized set-up for implementing new SWIFT solutions?
• How many SWIFT touch points do I want to have for my organization?
• Can I offer any solution to my customers over SWIFTNet?
• How can I reduce the cost of managing and implementing SWIFTNet infrastructure?
• How transparent are back-end business applications to the protocol-related complexities inherent within SWIFTNet?

SWIFTNet introduced the single window architecture. Now, financial institutions need to replicate the same model within their own units. This, therefore, stresses the need for a reusable, generic, resilient framework as part of a SWIFTNet roadmap that can help consolidate messaging and streamline business through the easier implementation of newer services, centralized message tracking, internal cost allocation features, and lesser time to market.

Improvement in Operational Efficiency and Straight-Through Processing
The industry’s focus on STP is economically motivated. Therefore, even in the past, SWIFT aligned with the banking community to help banks improve STP. The implementation of ISO15022 standards in the securities space and the migration from MT100 to 103 are two examples that come to mind immediately. ISO 15022 was a first step towards de-coupling business elements from their physical representation and ensuring that business items were always represented in the same manner, irrespective of the contents of the message. The lessons learned during the migration from 7775 to 15022 were that mere syntax translation and mapping will not bring all the anticipated benefits; instead, the migration has to be treated as a complete paradigm change. What was
needed was a focus on the business elements rather than a mere mapping with the fields within the 7775 format. Another important effort in the FIN space was the migration to MT103 and the de-commissioning of MT100 in the payments space. The industry experienced clear advantages of moving from MT100 to MT103 - increased transparency, automation (STP) of customer transfers, besides reduced cost and risks, and conformity to regulatory requirements worldwide. Earlier efforts towards interoperability were significant but not sufficient, mainly for two reasons:
• The FIN format is not equipped to accommodate changes and continuously support the introduction of new functionality
• Lack of a community-wide agreement on a standardized data exchange - even beyond FIN message types This is where the industry believes ISO20022 standards will provide a link between pre- and post-trade domains. ISO 20022-UNIversal Financial Industry Message scheme (UNIFI) is an international standard published in 2004, which defines the ISO platform for the development of financial message standards. UNIFI standards go beyond FIN messages and address the key issue of interoperability and co-existence between different standards. The objective is to create a ‘syntax-neutral’ message model, which can be transformed in message formats in the desired syntax (FIN, MX , XML, FIX, among others).

Expanding Horizons
The uniqueness of SWIFT2010 lies in the emphasis it places on enlarging its existing influence over the banking domain to extend to the corporate space. In 2001, SWIFT opened its network to the corporate world through the creation of ‘Member Administered Closed User Groups’ for non-financial institutions. In 2006, with SWIFT easing the access conditions for corporates, by meeting certain conditions, members from the corporate world can now join a Closed User Group managed by SWIFT through which they can connect to multiple banks. Simultaneously, SWIFT has targeted growth and increased presence in the growing BRIC+ economies (Brazil, Russia, India, China and the emerging Middle East and African market) in addition to extending its network to new domains, such as capital markets (viz. exchanging FpML message over SWIFTNet).

Challenges: Adopting Newer Standards
The introduction of XML messages and the new naming and addressing conventions with SWIFTNet propelled the move towards ‘Gen Next’ messaging standards, but the question that begs an answer is: how do we leverage these developments to the maximum? The challenge lies in re designing back-end applications so that they can generate, understand and process ISO 20022 messages. Over the years, most legacy applications have become FIN compatible (there are many applications that do not support SWIFT II FIN messages even today, and banks continue to transform SWIFT II to SWIFT I), but making them ISO20022 compliant is bound to take longer. However, the mandatory SWIFTNet migration has initiated the adoption of XML standards by the financial community.

Phased Approach
Many players are looking at a generic transformation engine that will allow legacy applications to enjoy the benefits of new business solutions being deployed over SWIFTNet using ISO20022 standards. Re-engineering their back-office infrastructure in the securities and payments domain would then be the next strategic step.

Accommodating New Players
Corporate access is one of the major focus areas for SWIFT. However, corporate customers are demanding more meaningful roles in SWIFT decision-making and overall usage. This is one of the reasons why the earlier MA-CUG model for corporate access was not as successful as SWIFT expected. Now, SWIFT has introduced the new corporate access model, SCORE, to make multi-banking possible for corporate customers. Similarly, SWIFT is also trying to bring various players in the investment funds industry and non-banking players in the remittances industry onto SWIFT. Success of these initiatives also depends on the flexibility banks and SWIFT show while understanding and accommodating specific requirements of these newer market segments.

Penetrating New Regions/Emerging Markets
SWIFT2010 strategy has BRIC+ economies as a major focus area and SWIFT is trying to leverage the role of National Members/User Groups/ Global banks, and is trying to establish a working relationship with regulators and central banks and RTGS and ACH implementations for low-value, high-volume payments. However, SWIFT and its solutions are still perceived as expensive and complex solutions in these markets. SWIFT would have work on raising its profile and position itself beyond international payments in these regions/economies.

Conclusion
SWIFT is gearing itself to increase its influence over a wide customer base with new offerings encompassing a range of domains in the financial services sector. This is no less a challenge even for SWIFT. The evolution that has started with IP move, will begin showing significant business gains only after the underlying business model is redefined. How much banks stand to gain from this evolution depends on how they align their strategies and roadmap, including their provisions for consolidation, interoperability and message standardization in the coming decade.

Author:
Sameer Deo
Senior Consultant,
Payments Center of Excellence,
PrimeSourcingTM, i-flex solutions

i-flex partners with Payments Industry Thoughts

2008-03-25T09:17:00.000Z

I am now in partnership with i-flex solutions to publish articles from their consultants on current payments issues. These will be following pretty regularly from now on. Any comments about these can be sent through the site and I’ll be able to pass them on to i-flex.

Visa Inc Begins Trading

2008-03-22T10:46:00.001Z

Finally, after months of anticipation, Visa’s IPO hit the stock market (20th March), providing a shot in the arm for financial markets, weakened by the credit crunch and false rumours (HBOS). It had been multiple times oversubscribed and was priced at around $44 per share, higher than the original estimate of $37-42 and totalling 406 million shares.

This valued the company at $42.5 billion compared with $27.6 billion for MasterCard. And, of course, it has to be remembered that the new Visa Inc does not include Visa Europe, which has opted to remain private.

The IPO ranks second worldwide only to the $22 billion debut in 2006 of Industrial & Commercial Bank of China Ltd, almost doubling the previous US record, set in 2000 by AT & T Wireless Group’s $10.6 billion offering.

The Visa offering is quite an unusual situation of such of an established company going public late. This is due to their previous total ownership by the member banks and its consequent status as an association. Since 2004, when MasterCard went public, they have been losing market share, and it was felt that this was needed to compete fully. It also provides a welcome fillip to the member banks who get to use this windfall to dig themselves out of their self inflicted credit crunch holes.

The shares have been so sought after as it is not just another case of a start up with huge hopes and not a lot of history, but a company that has its roots back with “Bank of AmeriCard” in the 1950s. When this is added onto the fact that Visa is one of the few large banking institutions not affected by the credit crunch due to it not extending credit to cardholders, it was a decision that didn’t require a lot of brainpower.

On its market debut on the 20th March Visa Inc jumped more than 35%, adding more than $15 billion automatically to the company’s market value. This worked out a share value of $59.50.

The shares finished their first day’s trading at $56.50, up 28.4%. Its market capitalisation of $56.8 bn ranks Visa as one of the world’s biggest financial services houses.

It will be interesting to see how this progresses and especially how the relationship between Visa Inc and Visa Europe now proceeds as I am sure there will be a lot of people watching how their performance ranks against each other.

Hannaford Security Breach

2008-03-19T08:23:00.001Z

News has emerged of another significant security breach at another large retail branch in the US, after the TJX Scandal, where over 90 million customers had their details stolen.

About 4.2 million unique card numbers have been exposed by Hannaford Bros after it was illegally accessed from their computer systems during the card authorization process. This has affected Hannaford stores in New England and New York state and Sweetbay stores in Florida, as well as some independent companies in the North East that carry Hannaford products.

So far there have been around 2000 cases of reported crime, so the potential is there for a lot more unless people cancel their cards and order new ones. It does annoy me but there will always be a danger of this, especially in the retail market. The industry protocol is to pile them high and sell them cheap and to increase margins at every step. This is sadly just another case of cutting costs, and they will have worked out the cost of compliance as against the cost on non-compliance and have taken an educated bet that they would get away with it. It would be interesting for me to try to take an educated bet how many other retail stores are in the same situation – I’m guessing quite a few.

TrialPay

2008-03-18T19:26:00.001Z

A really interesting article in The Nilson Report:

Rather than marketing what would qualify as a payment method in the conventional sense, the developers of TrialPay have created a platform that facilitates payments by moving online shoppers from a product they’re not sure they want to pay for, to one that they’re willing to buy. TrialPay’s platform sits in between its roughly 3,000 merchant clients who draw customers to their Web sites in the first place, and its stable of about 2,000 advertisers whose product the customer ultimately buys.

At Winzip.com, for example, a Web site that sells software for compressing files, consumers who are unsure whether they want to go ahead and spend $29.95 on the program can get it for free by choosing to buy something from one of the advertisers. (Merchants typically select hundreds from the thousands available.) If, for example, a wavering consumer chooses to buy flowers from advertiser FTD instead, WinZip would earn less than they would have by selling their own wares. But if the consumer chooses to buy life insurance from Geico, WinZip stands to earn far more. Each of TrialPay’s merchants sets their minimum unit price per alternate sale. TrialPay adds between 20 and 30 merchants a day.

I like this idea. TrialPay does not handle any payment information, but merely moves consumers to the advertiser’s shopping cart where they eventually make the purchase. It replaces the person in the shop who suggests a blue top instead of the green with a much wider variety of alternatives.

Users number 5.7 million, and the company adds about 15,000 a day. The company recently closed a $12.7 million round of Series B funding, bringing the total venture capital raised to $15.8 million. So it seems like the company is on the up but, of course, lots of companies with venture capital coming out of their ears fail as the rewards for venture capital companies who guess right are so huge.

I do worry that the idea and software behind this is not the hardest to replicate, and Google checkout is not too far from being able to replicate this type of function and they can draw on the consumer buy-in they already have to subsume TrialPay.

Altair pair with Manchester City

2008-03-18T18:32:00.000Z

LONDON, 18 March 2008: Altair Financial Services International Plc (Altair) have helped deliver the first stadium contactless prepaid card in Europe, the Manchester City FC MasterCard® Prepaid Seasoncard with PayPass™, with MBNA and MasterCard. The card will replace the standard season ticket currently issued to supporters.

“We are delighted to have delivered such an innovative and remarkable payment card program, which is among the most technically advanced in the world today,” says Lee Britton, Altair CEO. “The cards make use of EMV functionality, which has never been implemented on a prepaid card program before, enabling the cards to manage their own authorisation activity when used at contactless terminals.”

The Manchester City FC MasterCard Prepaid Seasoncard, currently on trial with 3,500 season ticket holders, combines for the first time three applications in a single piece of plastic. The card stores membership data and is capable of interfacing contactlessly to the Manchester City Stadium turnstiles to allow entry to home matches, it also supports standard Chip and PIN payments and contactless payments with MasterCard PayPass.

“Essentially, a cardholder could use their card to enter the stadium and pay for their halftime meal and drinks by simply tapping their card with contactless enabled merchants. In addition, cardholders can use their card outside of the stadium to make purchases with their card at both chip and PIN and contactless point of sale devices. Furthermore, cardholders can load their card with additional funds either online at www.mcfc.co.uk, over the phone on 0870 062 1894, or via a Payzone point at retailers,” Says Britton.

Brendan Jones, Product Executive at MBNA, said: “The Manchester City FC MasterCard Prepaid Seasoncard with Paypass is a great innovation in stadium technology. We believe this concept will work both inside and outside of stadia, and will revolutionise the way people use cash.”

Chris Reddish, Global Product Head of Prepaid Europe, MasterCard, said, "The power of the Seasoncard is that it combines the openness and availability of prepaid with the speed and execution of a PayPass transaction.”

The contactless card concept has been proven by millions of passengers globally that use RFID enabled cards for public transit daily. The Manchester City FC MasterCard Prepaid Seasoncard is the first of the next generation entry control cards that offer speed and convenience both on entry and on purchases once inside the stadium. Altair believes stadia, sports and music events are next in line to take advantage of the benefits of implementing similar prepaid contactless card programs.

Products like this have huge benefits to stadium owners, as they not only combine membership management, access control and an open loop payment product into a single easily manageable piece of plastic, but also have huge benefits to stadium owners with their potential to remove cash from the stadium environment which can be a major time and money overhead.

The card supports EMV scripting which allows Altair to dynamically update data held on board the card when it is used in a Chip and PIN reader. This is a powerful tool which allows management of individual cards, in support of fraud control, offline balance management, card blocking and so forth.

Richard Pinnick, Head of Global Strategic Projects at Fortress GB, the company responsible for the provision of the application that controls membership and access to the stadium commented, “The coexistence of multiple applications, managed by different organisations, on a single MasterCard represents a quantum step forward in thinking for the card industry, simply driven by the needs of the fan. It opens the way to new and innovative card programmes that deliver a multiplicity of functions and services that best fit the lifestyle and environment of the consumer”

Caston FX pair with Altair

2008-03-13T18:26:00.002Z

Altair Financial Services International Plc (Altair), a leading prepaid card and transaction processing solutions provider, have delivered an extensive upgrade on the Caxton FX prepaid travel card program (http://www.caxtonfxcard.com/). The prepaid card program now boasts a host of new features, including the Altair Mobile Payments System (AMPS), both US Dollar and Euro currency options and enables cardholders to select their own PIN at the time of application.

Rupert Lee-Browne, CEO of Caxton FX comments, "We are delighted to have joined forces with Altair to launch the Caxton FX currency cards. We selected Altair because of their excellent reputation for strong project management and flexibility in implementation. Ultimately, flexibility has been at the core of Caxton's success - we identify a need, make decisions quickly and implement rapidly. By launching our card program with Altair, we are now at the forefront of prepaid card technology, keeping up with the needs of clients and customers.”

The addition of Altair Mobile Payment System (AMPS) to the Caxton FX card program provides cardholders with a range of self-service card management tools by simply using their mobile phone. After the cardholder associates their mobile phone with their prepaid card, they can send mobile SMS (text) messages to load their card and check their balance. For account security purposes, AMPS can eliminate unauthorised use with ‘lock’ and ‘unlock’ commands. When locked using AMPS, the card can not be used at point of sale or to withdraw cash at ATMs.

Lee Britton, Altair CEO remarks, “The market for prepaid travel cards is vast. 67m overseas visits are made each year, and in most cases the travellers are paying over the odds for their travel money. We expect that Caxton FX will make a serious impact on the travellers’ foreign currency market, offering anyone who travels overseas, on business or pleasure, excellent value for money.”

The cards are issued by Newcastle Building Society and are available to UK residents over the age of 18 can apply for both a EUR and USD on the Caxton website (http://www.caxtonfxcard.com/). They can also apply for a secondary card for one of their dependents (min age 13). The secondary card will be linked to the primary and will share the same balance as the primary card. Like an electronic purse, cardholders can pre-load the card with up to €7500 or $10,000.

Cardholders can load funds onto the card in three ways: using the Internet, via SMS or by calling the UK based Caxton Customer Services team.

Card Fraud Part 2

2008-03-12T07:41:00.000Z

Further to my card details being stolen on Saturday, I arrived home last night to be greeted by my new debit card. I’m really impressed by Natwest on this.

First, they stopped the person trying to take the money out of my account in Tunisia, they contacted me the same day and when I phoned back, they cancelled it right away and by the Tuesday morning, my new card was sitting waiting patiently for me to come home.

Interestingly I noticed stories about this exact type of situation on the BBC News website and the Metro this morning:

“There was a 25% rise in the fraudulent use of UK credit and debit cards last year, with losses amounting to £535m, according to the banking industry.

The Association of Payment Clearing Services (Apacs) said the first rise in three years was mainly due to stolen and counterfeit cards used abroad.

Card fraud overseas rose by 77% last year to £208m, 39% of the total.”

Still, it’s nice to know that when it does happen, I can feel a bit safer now knowing that the fraud prevention unit is working efficiently.

Opinions on Decoupled Debit

2008-03-11T19:01:00.001Z

I posted the follwing question on Linkedin a couple of weeks back:

Credit Cards v Debit Cards
What do people think of decoupled debit and how it will affect the credit card market - has this been too long in coming? It will give people more options when purchasing with a debit card and the possibility for rewards for doing so rather than needing to use a credit card automatically. http://willburnspayments.blogspot.com/2007/10/decoupled-debit.html

The results were interestingly mixed and contained many salient points. The following is a selection of them. For the full answer, click on this.

Peter McIntyre

“My personal opinion is that credit cards far outweigh debit cards in todays world”.

“Overall, the decoupling is another step by financial institutions to make more money by having them use their card. It will boil down to the individual. Are you comfortable with credit cards and can successfully manage them? Or are you comfortable with only using debit cards?”

Philip McCarthy-Clarke

“Industry stats tell the story - Datamonitor project 1% credit card growth over the next 5yrs in the UK, while APACS says debit will almost double - and it already represents over 72% of card transactions.”

“Add in the potential once Faster Payments is up, running and part of everyday life and decoupled debit has the potential to replace 'normal' debit - at least for some people.”

Neil Charley

“In UK, the main benefit of credit cards is that, under section 75 of the Consumer Credit Act 1974, if you pay with a credit card customers who have a claim against a supplier for breach of contract or misrepresentation will generally have an equal claim against the card issuer. This is a much easier way of recovering compensation than suing the retailer /supplier. This cover is not available on both Debit Cards and Charge Cards - they fall outside the Consumer Credit Act 1974. A lot of people use credit card solely for this protection.”

Steve Rhode

“As a consumer debt expert I avoid using my debit card at all costs and advise everyone to become more informed about the risks. In its report, called “Debit Card Danger,” the Center for Responsible Lending said that 38 percent of overdrafts were caused by debit card, point-of-sale transactions.”

“As ironic as it may be, consumer protection when using a credit card far out weighs that which protects debit card users. There is nothing that prevents anyone from using a credit card and then logging on to their bank and sending off the payment for the purchase when they get home. Same net result but with much better financial safety and protection.”

Rodney A. Hoiseth

“My personal opinion is that if more people used debit cards and fewer used credit cards we would see a lot more financial health among consumers.”

James C Brandon

“For those wrestling with uncontrolable spending habits & those new to credit - a Debit Card might be a choice. For those who pay off their balance every month - how can you complain with free money for 40-50 days and companies fighting to provide you with ancillary benefits when you buy with their card.”

Card Fraud

2008-03-10T19:20:00.001Z

I was the victim of card fraud for the first time on Saturday. Victim might be a bit strong considering nothing was taken but still.

I was on my way to a friend’s birthday and was on the tube. When I went overground there was a message on my phone from the Natwest Card Fraud line. I phoned back, (a 0845 number of course), and was taken through steps in an automated process where I had to confirm I was Will Burns and confirm my birthday.

Only then was I passed through to an attendant who also confirmed some details with me and asked me if I had tried to take £85 out of an ATM in Tunisia today. Standing in the rain at Earls Court I was able to say that unfortunately I hadn’t. He then cancelled my card and said it would be with me in 2-4 working days.

All quite impressive efficiency. They weren’t able to share any more information. I, due to the area I work in, am very careful about my card details. I always check ATMs to see if they have been tampered with. I always shield my pin. I had my debit card with me at all times. How did they get the information to do this? I’m guessing I will never know.

Altair Financial Latest Press Release

2008-03-07T12:25:00.004Z

I have written previously about Altair Financial. Leading UK prepaid company Altair Financial has released this today:

INSUREANDGO PREPAID CARD PROGRAM WINNER OF TWO AWARDS AT 2008 PAYBEFORE AWARDS AND SHORTLISTED FOR FST AWARD

Altair Financial Services International Plc, a leading prepaid card and transaction processing services provider, and Raphaels Bank, specialist prepaid card issuing bank, announced today that the InsureandGo Prepaid Travel Card program has been selected as a winner of two awards at the 2008 Paybefore Awards.

In June 2007, leading travel insurance company InsureandGo enhanced its conventional offering by providing its customers with a prepaid card on to which it could pay insurance claims whilst its customers were still overseas on holiday. This speeds up the processing of claims and is more convenient for customers, as they can use the money to replace lost items (such as luggage) immediately. The product delivers simple, easy-to-use customer-focussed benefits, as well as excellent foreign exchange rates and comparatively low fees.

The InsureandGo Prepaid Travel Card was selected as a winner of the Best Consumer Card Program and Best Claim Card at the Paybefore Awards, held on March 4 in Las Vegas as part of the 2008 Prepaid Card Expo.

Lee Britton, Altair CEO, commented, “We are honoured to be a winner at this year’s Paybefore Awards. The InsureandGo Prepaid Travel Card is a unique and exciting card program. We were delighted to deliver a solution which creates added value and provides a great new experience for InsureandGo customers. It’s always a pleasure to receive recognition for the innovative technology and card programs Altair has created.”

Mike Smith, Director at Raphaels Bank commented, “This was a great program to work on with InsureandGo and Altair. InsureandGo’s reputation for innovation was enhanced through this Card Program and Altair demonstrated yet again that they have excellent systems and development timescales in leading this project. We were pleased to be able to respond rapidly to get the program up and running for the summer season, particularly resolving the issues around the upgrading process from payout to a full travel card proposition. Obviously we’re delighted and honoured to be the issuer of this award-winning card.”

Perry Wilson, managing director of InsureandGo, said, “At InsureandGo we are constantly looking to provide innovative products that enhance the already excellent levels of customer service we are famous for. Our Prepaid Travel Card has allowed us to offer a vastly more convenient system of paying claims to our customers, so they can make use of the payment while they are overseas rather than waiting to be reimbursed when they return home. This has been particularly important given the rise in claims for lost luggage in 2007 – a problem we fear will only continue to get worse.”

Paybefore, publisher of Paybefore Update and other publications for the prepaid and stored value card industry, produces Paybefore Awards annually. “The winners, three in each category, represent outstanding achievement in their respective fields,” says Marilyn Bochicchio, president of Paybefore. “This year’s nominations were remarkable for the quality of the products, services and programs they represent, and every category was extraordinarily competitive.”

Altair Mobile Payment System (AMPS), the unique SMS technology introduced by Altair, has also been shortlisted for the Best Payments Deployment Award at the Financial Services Technology (FST) Awards to be held on 27 March 2008 at the Royal Lancaster Hotel in London. AMPS has already been successfully deployed on several prepaid card programs created and managed by Altair. The system adds value to client card programs and furthermore, provides cardholders with flexibility and accessibility to easily manage their funds, via their mobile phone.

The InsureandGo Prepaid Travel Card program has also been shortlisted for the Best use of IT in Insurance category at the FST Awards for its utilisation of advanced payments technology, providing a prepaid card that serves a dual function – travel FX and insurance claim payouts.

Retail Decisions

2008-03-06T08:26:00.000Z

Retail Decisions (ReD) has entered the prepaid card market through a partnership with shirt maker Thomas Pink. The card can be charged with any value and is redeemable in Thomas Pink’s UK and US stores.

ReD has been a company that has also been in the news consistently over the last 6 months, with quite a few comments from their CEO, Carl Clump, finding their way into the newspapers (I counted two in The Times myself over the Xmas break).

As I have mentioned before, I think the prepaid market will be the growth area over the next two years. Boston Consulting Group has predicted the UK prepaid card is set to rise to £17 billion by 2010, the biggest in Europe.

My boss bought shares in ReD about 10 years ago when ReD were still quite young and was stung a bit by them. However, I think he might be wise to take another chance now.

O2 "m-wallet"

2008-03-05T18:41:00.000Z

O2 have two months left on a limited 6 month trial of 500 people across of London of their “m-wallet”. O2’s “m-wallet” is a mobile phone with contactless functionality for both payments and travel (like an oyster card). This initiative has brought in a wide range of different partners, including Transport for London, TranSys, Barclaycard, Visa Europe, Nokia and AEG. £50 has been loaded on each phone, to be used on whatever purchases the trailees see fit.

These are early stages and at the moment it is a handset based application that has been chosen, although there are plans to migrate to a SIM based application when the technology for that becomes available. However, there is no need to choose the application regardless of whether you are on the underground or buying coffee as the phone automatically does it for you.

I’m sure that there are other similar trials out there, although this is the first one in the UK of this type that I have heard of yet. O2 has been at the forefront of a lot of these things, including building up close relationships with a lot of the mobile payments start-ups like Monilink, and the higher levels of management see this as a first step into encroaching on the banks.

MasterCard Appeals EC Decision

2008-03-03T19:37:00.002Z

Further to my previous blog in December where “The European Commission has decided that MC’s multilateral interchange fees (MIF) for cross-border payment card transactions with MC and Maestro branded debit and consumer credit cards in the European Economic Area violate EC Treaty rules on restrictive business practices (Article 81).”

MasterCard has now appealed the decision to the Court of First Instance. As you might have noticed form my previous post, I think the European Commission’s decision was a right and fair one, opening up the interchange fee so that each cost is clear to the consumer.

MasterCard argues that the Commission has failed to recognise that payment systems "cannot operate without default settlement terms between banks that issue cards to consumers and those that acquire transactions for merchants, which requires the setting of an interchange fee".

Javier Perez, president of MasterCard Europe has also argued that this decision will limit the scope for innovation in payment services. Which, of course, is not what it does. All it is asking is that MasterCard put a value on all these costs, including innovation instead of a catch all fee that can be hidden behind.

Still, the European Court has been known to make the odd bad decision. We will see what they do.

Nationwide ATM Mistake

2008-02-29T17:25:00.001Z

Nationwide have been forced to apologise to thousands of customers after a technical glitch led to accounts not being debited when cash was withdrawn from some ATMs in Northern Ireland (Finextra).

It is reported that 7500 customers have been affected, who withdrew £400,000 from Northern Bank machines between November and February.

In fairness to Nationwide, they have apologised, have said they won’t charge anyone this makes overdrawn and will listen sympathetically to anyone this affects. And they do a good record on this type of thing, including recently winning "The Most Responsible Credit Card Lending Practices" at the Card Awards.

A colleague of mine has suggested that if people have become overdrawn, it is their own fault. But it seems to me that people will not always check if certain transactions come out of their accounts, myself included.

Plus, as someone who grew up in Northern Ireland, I know that most people would have noticed this and been happily taking out money assuming they would never get caught, as does tend to be the way in the country of my birth meaning they might be quite a bit overdrawn. Doing the Maths people have only lost an average of £53 each, but there will be some with a lot more.

Faster Payments Has End of May 27th

2008-02-27T17:54:00.000Z

Faster Payments is due to make its belated appearance, not bad for something that was meant to be launched last November. Barclays and Citigroup were widely seen as the worst culprits for the delays, but it looks like everything is now in line. The infrastructure for the new system is set to be launched at the end of May 2008.

Faster Payments is designed to introduce near real-time transfer of phone, internet and standing order payments instructions. This will run alongside UK electronic payment schemes such as Bacs and Chaps.

This still hasn’t been advertised enough, but Apacs have reassured customers that updates and information will be made available as the date approaches.

Visa IPO Continued

2008-02-27T07:56:00.001Z

The Visa IPO has now been scheduled to price the week of March 17th with a tentative trading date of March 20th trading under the symbol V. The projected deal value of $18.8 billion will rank it 2nd on the all time list behind Industrial & Commercial Bank of China’s $21.9 billion offering in 2006.

Visa has proposed selling 406 million shares between $37 and $42 each (MasterCard opened at $39 in 2004 and is now worth $198), the public owning around half the shares and the banks the other half.

Floyd Norris of the New York Times made an interesting observation about JP Morgan who is underwriting the deal along with Goldman Sachs. They are:

1. The largest shareholder in Visa.
2. The company’s largest customer, getting breaks of pricing not available to most other customers.
3. A member of the bank syndicate that agreed to lend $3 billion to Visa to cover litigation costs.
4. Slated to get $1.1 billion from the offering, through redeeming shares.

He estimates that none of the money will go back into the company to help Visa to grow, but will all go towards the recent litigation (American Express and Discover antitrust cases) and to help the banks out with additional capital, sorely needed due to the recent credit crunch problems.

The most interesting observation will be how Visa Inc and Visa Europe, which isn’t part of the IPO, will work together in practice and how each will fare as compared to the other in the next few years.

Visa IPO to be Highest Ever?

2008-02-25T17:46:00.000Z

Visa have announced they could make up to $18.8 billion in the forthcoming flotation, which would smash the previous mark of $10.6 billion raised by AT&T Wireless.

Mastercard’s shares have quintupled in price since floating in 2004, and Visa obviously hope to jump on that bandwagon. The question is have they erred by announcing this so early?

The Visa IPO already has the market in a stir. By announcing such a high figure this early surely they have risked fuelling it so that they come down with a larger than expected bump from the initial high.

Ingenico/Hypercom: the Saga Ends

2008-02-21T18:25:00.000Z

Now the Ingenico/Hypercom saga is finished, I feel I can write about it without anything I say becoming defunct after a couple of hours.

In short, Hypercom made an offer for the e-transactions side of Thales, then Ingencio made an offer for Hypercom on the proviso they would drop their pursuit, then Hypercom went ahead with the Thales deal, then Ingenico dropped out. Deep breath…

The merger between Hypercom and Ingenico would have made sense in the same way that the Thomson-Reuters merger did (surprisingly allowed by the European Commission a few days ago). It would have put the merged company above Verifone, who announced a large deal with the Bank of China today for the supply of 16,000 wireless and countertop payment terminals.

Hypercom would have been saddled with a $10 million termination fee for pulling out and these complications made a deal impossible in the end.

Verifone holds a 30.6% global market share, Ingenico 25.5%, and Hypercom and Thales together have 12.8%, so a merged company would have 38.3% forming an effective duopoly in the industry.

Altair Financial

2008-02-18T18:10:00.000Z

Another company who have increasingly been in the news recently has been Altair Financial, a prepaid card organisation. I know one of the more senior members of staff there and have been watching their press statements with interest.

MasterCard are the movers in this particular market, and Altair has been winning quite a significant portion of the deals they have been making.

Back in November, they teamed up to create a limited edition Swarovski Fashion Rocks prepaid “Tap & Go™” contactless card. These were preloaded with £10 and were unreloadable.

At the Brits on 20th February they are partnering on a very similar project. They will be issuing 5350 cards with £10 on them that can be used to purchase food and drinks or a USB with the Brits Hits album from kiosks.

These types of cards seem to have more of a business case than the credit or debit cards. Prepaid cards can be used for kids if you want to give them pocket money but control their spending (or monitor it), can be used more safely online as you control what can be stolen and are useful gifts for the lazy of mind.

The contactless business case end of the cards is till to convince however. In situations such as events, it is true that it will speed up queues a certain amount, but negligibly, and this can be carried out by a more simple smart card system. And, will the queues for food & beverages really be helped by much as against money?

Goldfish Takes Bite out of Morgan Stanley

2008-02-15T08:01:00.000Z

Barclays have purchased the Goldfish credit card business from Discover Financial Services for around £35 million (the best headline I saw was from Finextra, “Barclays swallows Goldfish”, a bit obvious but still…).

Their ownership has really bounced about in two years from Lloyds to Morgan Stanley to Discover, when it was spun off from Morgan Stanley, to Barclays.

Morgan Stanley purchased it for £1 billion, had to write off $422 million last year due to the credit crunch and has suffered a huge loss. It seems like a good piece of business for Barclays as the current portfolio can be streamlined and integrated into their current business. Whoever recommended the original purchase by Morgan Stanley should be put up against a wall and shot.

The Card Awards 2008

2008-02-13T12:54:00.001Z

It has taken me a couple of weeks to write about this due to a couple of factors, mostly a well earned holiday.

It was held at the Grovesnor at Park Lane on 31st January and involved most of the important people from the Credit Card industry.

The big winner, as could have been predicted, was Barclaycard with four awards, followed by Lloyds with 2 awards. The One Pulse card also predictably won Credit Card Innovation of the year and was nominated in a couple of other categories.

My personal highlight was Lawrence Dallaglio’s appearance and speech on the behalf of The Listening Company. In what must go down as the worst opening line to speech in history, he said “I am here on behalf of The Listening Company. Now it is time for you to listen.” The groan must have been audible from the lectern.

Rory Bremner was the host and a lot funnier than I thought he was. I remember quite a few of the jokes being quite close to the bone but it all passed off well enough.

There were lots of chances for networking, especially as everyone became drunker. Quite a few cards were swapped. All very handy.

I was off at a (relatively) early stage so didn’t see some of the worst excesses, although it seems the photos caught some of them, mostly of women dancing, which is quite unusual considering the attendance was approximately 95% male. I’m guessing the photographer was male…

Still, all in all a great night and a good advertisement for the industry, with Roger Alexander of Elavon Merchant Services deservedly winning the Industry Personality of the Year after 30 years in the credit card business.

Monilink (Monitise)

2008-02-12T19:19:00.002Z

Monitise have been in the news recently quite a bit for good and bad. They focus on mobile payments, a favourite subject of mine, so it is about time I gave them a mention.

On the subject I was having lunch with a VP in a mobile payments company last week who came up with an interesting solution to why the phrase mobile payments has two solutions (making a payment on a website on your phone and using an NFC enabled chip). He suggested that as companies had realised that making internet payments on your phone wasn’t going to take off, especially the likes of Visa and Mastercard who had contributed a lot of money, they moved over to calling NFC payments on your mobile “mobile payments” in the hope that no-one would notice the change and they wouldn’t need to justify what they had done. A bit cynical, but I have to admit I like it.

Anyway…..

Monitise (Monilink in the UK and Monitise Americas in North America) have launched MoniTrust, a platform fro NFC payments and ticketing. This will “integrate to Monitise’s live multi-bank, multi-mobile operator mobile banking and payments ecosystems” providing a delivery framework for contactless payments using a mobile handset.

They have also launched MoniHome, an international remittance service enabling customers to use their handsets to intiate, manage and track payments around the world.

This flurry of activity might be explained by Monitise having to announce that its losses have tripled in its fiscal first half. Its shares fell 15% to 12.75 pence after losses rose to £7 million in the first six months compared to £2.9 million a year ago. However, the business case is strong, the banks are beginning to come on board and I see this as being a company to watch maybe not right away, but definitely towards the later part of this year.

MasterCard Announces Q4 2007 Financial Results

2008-02-04T19:10:00.001Z

In a news story I noticed on Payments News: “MasterCard Worldwide reported Q4 2007 financial results this morning. MasterCard’s gross dollar volume increased 15.2%, on a local currency basis, to $634 billion on a 17.2% increase in the number of transactions processed to 5.2 billion. Worldwide purchase volume rose 16.1%, on a local currency basis, during the quarter to $477 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of December 31, 2007, the company’s financial institution customers had issued 916 million MasterCard cards, an increase of 12.6% over the cards issued at December 31, 2006.”

Mastercard have continued to go from strength to strength even considering the market conditions, a key reason Visa is to become a public company as well this month.

In a not altogether unrelated story, Visa and Mastercard have continued their global domination plans (cue the stroking of a white cat and an evil laugh) by moving into fuel cards in a larger way than before. They have been launching commercial credit cards that offer a range of benefits including discounts on fuel and account management facilities.

An example is the Tesco Business Credit Card (Mastercard) which offers a reduction of 2p on each litre of petrol and diesel purchased at Tesco service stations.

This is greatly threatening the oil companies proprietary fuel cards and they are needing to enter partnerships, such as the Visa Repsol card in Spain, which offers a 2% discount on fuel.

This was an obvious way for Visa and Mastercard to go, especially in light of the growing threats from American Express, UnionPay etc due to recent court cases, as they seek to maintain their current levels of profits.

People worry more about Online Fraud

2008-02-01T18:00:00.000Z

As you would expect, the media coverage of cyber crime has had a noticeable effect on the ways Brits shop online, according to a GfK NOP poll of 1002 adults. 82% of consumers now only shop online with “reputable name retailers”, and over half (54%) now take “more precautions”.

Media coverage has sometimes stepped over to the alarmist side, you may be surprised to hear, but people are taking more care, myself included, and that can only be a good thing. Simple precautions like using credit cards and prepaid cards instead of debit cards and taking out insurance may not decrease the risk, but at least minimise it.

It’s more important than ever due to the number of people shopping online. Nielsen this week suggested that an astonishing 97% of people in the UK with internet access had shopped online, meaning it is a really mainstream thing to do now.

Of course, if you couple this demand with people not wanting to use reputable retailers, you end up with strong market barriers to new companies coming in, as a lot of money would now need to be spent to launch a new name on the market so that people recognise the site as popular enough to feel safe to use, so I would expect to see the big names get bigger and possible oligopolies form in the market around particular products.

Look to the East: Part II

2008-01-30T13:15:00.000Z

Further to my previous post about UnionPay, UnionPay have continued to gobble up more countries in its wake, more than doubling the number of merchants using UnionPay as their payment system by expanding into 26 countries and regions in 2007, according to a report on ShanghaiDaily.com.

In the overseas market UnionPay cards are now accepted at 125,000 merchants, an increase of 150% from the previous year, with 365,000 ATMs now accepting it, up 23% on a year ago. Increasingly as they expand they come into competition with the effective duopoly of Visa and Mastercard.

China had issued more than 1.47 billion bank cards by the end of last year with more than 170 card issuers. China reportedly is encouraging the use of banks cards in order to track tax records and as a way to prevent money laundering. And I am sure to monitor their citizens in general, although it does make me contemplate how much the Government is able to monitor our behaviour through our cards as well. And I am not wholly sure I trust them either.

Extra information as at 31/1: Chinese bank card payment union China UnionPay announced yesterday in a press release that the company’s cell phone-based payments added 4.95 million users in 2007, bringing its total user number to more than 10 million. Cell phone-based transfers totaled 10.8 billion RMB ($1.5 billion). The lack of reliable and scalable payment systems has been an inhibitor for e-commerce in China. Growing usage of credit cards and cell phone-based payments is expected to facilitate more e-commerce transactions.

Next time you're leaving your job...

2008-01-29T13:17:00.000Z

After my previous post about China and the life sentence for fraud, an article about seven former Citibank staff in Singapore caught my eye. They all moved onto UBS, and face a total of 1223 charges for accessing the Citibank computer network without authority and downloading or printing client data under the Computer Misuse Act.

The charges will carry fines of over $125,000 and up to 20 years in prison.

I am always caught in a quandary with these types of crimes. I feel we’re missing a happy(er) medium somewhere. The laws in the UK are far too lax on “white collar” crimes. These cost companies a lot of money and have effects for the public further down the line, sometimes serious ones such as job losses.

Do it in China and you face the death penalty. Do it in Singapore or the US and you face a possible life penalty. It always feels a bit unusual to me to face a life penalty for anything other than the most serious crimes.

And it didn’t seem to worry the Enron executives.

PCI DSS Progress

2008-01-28T18:29:00.001Z

Further to my previous post on PCI DSS, it is good to see a lot of progress in 2007, at least in the US. Visa Inc announced that “as of the end of 2007, more than three-fourths of the largest US merchants (those processing six million or more Visa transactions annually) and nearly two-thirds of medium sized merchants (those processing between one million and six million Visa transactions annually) have now validated their compliance with PCI DSS. Merchants in these two categories account for approximately two-thirds of Visa’s US transaction volume”.

The compliance deadlines have been and gone (30/9/07 for large merchants, 31/12/07 for medium), and Visa have been levying fines of $25,000 and $5,000 respectively. Smaller merchants have been encouraged mostly through education.

Overall between March 2006 and December 2007 compliance amongst the largest merchants increased from 12% to 77%, and with medium merchants increased from 15% to 62% between December 2006 and December 2007.

Visa has put it down to education, financial incentives and fines. As always, it will mostly be down to the fines, which are sadly the way to make a company sit up and notice. News stories such as TJX must have helped as well, as companies realised the eventual costs of non-compliance are higher than the costs of compliance.

Alternative Payments Leaders Announce Results

2008-01-25T17:09:00.000Z

I know it seems like I am mentioning alternative payments methods too much now, (Bill Me Later twice in 3 days now), but the two leaders, Paypal and Bill Me Later, have announced their results for the holiday period.

With Bill Me Later toy purchases grew 131%, travel buying +67%, female fashion, including shoes and handbags, +128%. As mentioned previously, a study by Brulant found that Bill Me Later had the highest merchant adoption rates among all the alternative payment services last year.

eBay reported results yesterday stating “Paypal posted another stellar quarter with $563 million in revenue, an increase of 35% year-over-year.” PayPal also reported active accounts of 57.3 million, up 16% from the prior year.

Bill Me Later

2008-01-22T18:10:00.000Z

I assumed I’d written something on Bill Me Later before but realised whilst writing my post of 18/1/08, Alternative Payment Methods Continue to Grow, that I hadn’t.

Simply put it enables customers to make online purchases without a credit or debit card. Customers open their account by supplying their birthdate and the last four digits of their Social Security numbers. Their credit decisioning technology opens new accounts in seconds.

Citigroup provides Bill Me Later with a $1 billion line of credit and FDI is the account processor. More than 3 million people have opened a Bill Me Later account since 2001, 2 million of them in the last 2 years.

It is a pretty simple idea – provide credit to the credit worthy and is what banks have been doing for years. It surprises me that there are not more competitors around. The benefits of this approach in terms of a reduction in fraud are obvious, but see my hyperlinked article in the first paragraph for the drawbacks.

More Personal Details Go Missing

2008-01-21T18:42:00.000Z

I am getting really tired of the stories about losing people’s personal details. First we had the TJX scandal (see previous posts), then we had the British Government being spectacularly stupid with the child benefit information. Now we have GE Money not only bad luck but unbelievably crass stupidity also comes in threes.

Personal information on about 650,000 customers of JC Penney and up to 100 other retailers could be compromised after a computer tape went missing from GE Money, who handles the credit card operations for these companies. This contained 150,000 Social Security numbers and went missing in October.

GE Money has announced that there have been no indications of fraud so far and that it would take specialized skills to glean the information. All proper procedures have been put in place now to minimise any damage.

I am getting progressively more annoyed by all this. They must realise how important this information is, but they don’t seem to care. Money fines just don’t seem to be enough to stop it happening. There has to more that can be done. I’ll leave that open to others to suggest. There was a six-fold increase last year in the number of records reported compromised in the US to 125 million, and it makes me tear my hair out.

China Excels Itself

2008-01-21T18:15:00.001Z

In a small story that caught my attention, a Chinese court is hearing the case of a man who was handed a life sentence for taking funds from a faulty cash machine which deducted just Yn1 from his account for every Yn1000 withdrawn. Xu Ting withdrew nearly Yn175,000 (Finextra).

Under Chinese criminal law, people who steal more than Yn100,000 from a bank face a life sentence or the death penalty. The sentence was overturned this week.

Makes the complaining of the Natwest 3 seem that much worse. After all they knew they were breaking laws that pertained to the US, and Xu Ting knew he was breaking Chinese law. But whilst I agree with the extradation of the Natwest 3, I can’t agree with the Chinese sentence.

It does worry me about the potential influence of the Chinese economy on the world. It is already enormous and will only continue to get bigger, and a country that can put people to death for stealing what amounts £7500 doesn’t fill me with confidence that they will always act for the best.

And it is for actions like this that China has been rewarded with the Olympics…

Alternative Payment Methods Continue to Grow

2008-01-18T17:29:00.000Z

Alternative Payment Methods (APM) have continued to grow in the US with around 30% of US online retailers offering it, a 25% increase since February 2007 according to Brulant.

Bill Me Later comes out top with 21% of firms, followed by PayPal with 19%, with Google Checkout already at 10%, impressive considering how recently that was created.

The reason for the growth is that people have become worried over using credit and debit cards, especially debit cards, online and want a safe alternative which these provide. However, they do have some pitfalls that are not immediately apparent.

If you use PayPal Pay Later, where you purchase on a line of credit which is paid back in instalments, or Bill Me Later, they function as a line of credit. They are considered a risk on your credit report, especially because they immediately carry a balance. If you come close to maxing out your credit, your credit score can often drop dramatically.

Also, PayPal Pay Later charges 22.75% APR and Bill Me Later has an interest rate of variable 19.99%. Credit cards carry an average of 13.89%.

So these alternative methods have their benefits, but also their drawbacks, and it is worthwhile for people to be aware of them before they buy.

AIB in the News

2008-01-17T19:08:00.000Z

Allied Irish Bank (AIB) has been in the news twice in the last week, impressive since I haven’t noticed them in the news over the last year, so I thought I’d take my one chance to write about them.

The European Commission has given the green light to a joint payment cards venture between AIB and First Data (FDI) providing services relating to the use and acceptance of payment cards in Ireland and other EU states. The reason it had to be ok’ed was that, as well as AIB controlling a large part of the Irish acquiring market, FDI hold a controlling stake in Omnipay. The rationale was that the two countries would constitute less than one percent of all merchant acquiring in the EEA.

It does seem to me that the Commission decide what they want to do and then find the rationale for it. Coming from a legal background it doesn’t surprise me at all, but I think the general public would be shocked how much of this stuff just comes down to opinion.

AIB have also awarded a three year contract, worth €45 million to IBM to overhaul its core banking infrastructure. This infrastructure will run on a System Z platform, which does seem to be increasingly popular.

IBM has been doing well elsewhere, with new contracts with Bank of London and the Middle East and Standard Bank, as well as the recently announced strategic relationship with ACI.

Well, there we go… my post about AIB. I will work out how long it is before I mention them again.

Credit Cards Go Quirky

2008-01-15T18:55:00.000Z

I have noticed a few more unusual credit card stories recently. Capital One have been innovative recently and consistently gaining my praise with Decoupled Debit and their Card Lab (see previous posts of October 24th and November 27th respectively).

They have now given all their consumer credit card customers the option to visit their website and upload their own photo images to be printed on their card. This can be done by visiting http:/www.capitalone.com/imagecard. Once the image is approved, the new card will be mailed to the customer at no extra cost.

I would never approve of choosing a credit card for this feature, but I do like the little extra touches like this, that appeal to people’s softer sides.

Meanwhile, back in Korea… Kookmin Bank and Samsung SDI have developed a multimedia credit card and holder that allows users to watch video clips and photos and check on their transaction histories. This is achieved through an embedded flash memory chip and its case, which is 6cm wide by 10cm long and 1 cm thick.

Really this is just silly season, and the fact that we can technologically do something, does not automatically make it of use. Although, they have also announced that a credit card that plays clips that does not even require a case is only two years away. If anybody can think of how this benefits the world in general, answers on a postcard.

Visa Reloadable Cards: Part 2

2008-01-08T18:40:00.000Z

I have found a Visa reloadable card of sorts thanks to the good Stuart Oliver on Linkedin. It’s a 3V Card (www.3vcash.com).

It isn’t the most innovative or convenient idea I’ve ever heard of, but at least it’s a start. You register for free for a 3V Card which gets sent out to you in the post. You then take it in to the participating retailer, where you pay upfront for a certain amount of money. You are given a receipt, which states a 16 digit Visa number on it, and you use this for online purchases.

The number of participating retailers does not seem too bad, but there is definitely not many. It all seems a bit time consuming as well.

On the plus side it is about as safe as online shopping gets, which isn’t a small plus with increasing online fraud.

Still, I want an actual Visa reloadable card, rather than a reloadable receipt.

Payment Myths

2008-01-07T18:14:00.001Z

APACS have published an interesting report titled “Payment Myths”, with 10 common misconceptions, some interesting some not so.

MYTH

Cash is no longer king - today people only use cash to pay for small value items.

• 91% of payments under £10 in value are made by cash, compared with just 5% by debit card and 2% by credit card
• 21% of all payments over £50 are made by cash, compared with 24% by debit card, 8% by cheque, 13% by credit card and 32% by direct debit or standing order
• In 2006, £36.3 billion was spent in cash in supermarkets.

I found this quite interesting, although not compelling. I know in my life I still use cash to an overwhelming degree. A card can be rejected, where as money is unlikely to be and if you need to lend money to someone or pay for something that comes up at short notice. Money will always be useful for this.

MYTH

Most people don’t regularly repay the balance on their credit cards.

• 68% of us usually or always repay our credit card balances in full every month
• On average, only 7% of cardholders usually make only the minimum repayment each month on their most-used credit card

I hadn’t this impression of the market, mostly because newspapers tend to scram about rising consumer debt and how it will overwhelm us all.

MYTH

Only people who use their cards online are at risk from online fraud.

• Most fraud is committed by people stealing cards in the real world and then using them for card-not-present transactions.
• 68% of us usually or always repay our credit card balances in full every month
• Figures show that in 2006 total card fraud losses amounted to £428.0m
• Online, phone and mail order fraud accounts for almost half of the total (£212.6m)

I’ve only experienced hackers breaking into my internet banking and withdrawing money. As you might have been able to tell from previous posts, card fraud is a particular concern of mine, but, luckily, I have not been a victim of it as of yet.

MYTH

No one is paid their wages by cash anymore.

• In fact, nearly 2 million of us are still paid in cash on a weekly basis.
• APACS figures for 2006 show that 7 per cent of the working population were paid in cash. The majority of these workers are self-employed – 30 per cent of Britain’s 3.6 million self-employed, or those working for smaller companies.

I do wonder how many more actually are paid in cash in the black market but are not recorded for tax purposes. Quite a few of my friends are Antipodeans and make money cash in hand through labouring.

MYTH

No one uses cheques any more.

• There is almost the same number of payments made by cheque as by credit card and many small businesses still prefer using cheques.
• Cheques are the single largest payment method for credit card bills, at 126 million payments
• Businesses make 590 million payments by cheque to other businesses

I have written one cheque in my life, more for the novelty value than for anything else. They are becoming increasing irrelevant to people’s lives and 2006 saw the fastest-ever decline in cheque volumes with a drop of 8% to 1.8 billion transactions

I did find most of these myths intriguing, although most of the APACS reports do tend to be, and they make you question some of the automatic beliefs you have about the industry that you never really stop to question.

Where are all the Visa Reloadable Cards?

2008-01-07T17:40:00.000Z

This is to see if anyone who comes across this knows. I like purchasing items online, and often do it through US sites. Most of these only seem to allow you to use Visa cards. As someone who does not own a Visa credit card, it seemed like a reloadable card would be the safest way to purchase online.

However, the only UK reloadable cards seem to be Mastercard, such as the Tuxedo card which is currently plastered across tube stations everywhere. There do seem quite a few US reloadable Visa cards.

I have now been forced to get myself a Barclaycard, which has now taken the last 3 weeks due to Xmas, although it should be here in the next few days, which is definitely not preferable to a reloadable card.

Why is there this gap in the market?

Huge Breach means rise in sales

2008-01-03T19:12:00.001Z

I read a really interesting article on the Boston Globe online. Everyone now remembers the TJX scandal (As a recap, a lack of security meant that 95 million and counting account details were stolen). TJX own chains like TJ Maxx and Marshalls.

Well, it turns out that the scandal hasn’t hit them as hard as it should have. Net sales have risen to $13.2 billion for the nine months ended Oct 27, up from $12.3 billion for the same period a year earlier. Same store sales rose 3% in the third quarter and 7% in November alone.

Analysts have predicted that losses from the breach could total $1 billion, so, including inflation, TJX’s situation will not be that much worse than last year.

Human psychology is a weird and wonderful thing. Apparently people have been spending money at TJX as they believe that they are safer because they have been burnt before. I’ve actually heard this logic recently applied to David Millar who was caught a couple of years ago doing drugs on the Tour de France – he’s been banned previously, it won’t happen again. Note how that logic worked with Ben “Caught twice” Johnson, the Canadian sprinter.

To quote:

“I think they’re much safer than other vendors who haven’t had a breach and gone through the pain”

“They got nailed from so many banks, I have to believe whatever can be done they have done”

Of course, not all buyers feel this way, especially the ones who had to have their cards cancelled or had to go to trouble due to the breach.

But it is an interesting inversion, that to be trusted more, first you have to breach that trust. How can I make use of that…

PCI DSS

2007-12-24T18:18:00.000Z

I have increasingly been coming across this recently, but it hasn’t been directly applicable to me so I haven’t really inquired too deeply into it yet. But in the last 3 weeks, two roles have come in where this is important so I thought it was about time I did my research. This is it as I understand it. If anyone disagrees with it, feel free to write in.

History

PCI DSS stands for Payment Card Industry Data Security Standard, and was developed by the major credit card companies to help any company that processes card payments prevent any type of related fraud.

PCI DSS first started as five separate programs from Visa, Mastercard, American Express, Discover and JCB. To pull this together, The Payment Card Industry Security Standards Council was formed and consequently PCI DSS was created. This has now been updated from version 1.0 to 1.1 as of September 2006.

Size of Company

Companies all need to comply with the same standards irrespective of size. However, validation requirements vary based on annual processing totals:

Level 1: > 6 million transactions across all channels (can include online) then an Annual Onsite PCI Data Security Assessment and Quarterly Network Scans are required.

Level 2: between 1 and 6 million transaction, an Annual Self Assessment and Quarterly Network Scans are required.

Level 3: between 20,000 and 1 million e-commerce transactions, an Annual Self-Assessment and Quarterly Network Scans are required.

Level 4: Fewer than 20,000 e-commerce transactions and below 1 million Visa transactions across all channels, an Annual Self-Assessment and Annual Network Scans.

The 12 PCI DSS requirements

1. Install and maintain a firewall configuration to protect data. Note that there are no PCI-compliant firewalls. PCI Requirement 1.1 is intended to ensure that companies put a firewall configuration policy in place and also develop a configuration test methodology. A merchant must configure the firewall accordingly to protect cardholder data. Most firewalls can be configured for that need.
2. Do not use vendor-supplied defaults for system passwords and other security parameters.
3. Protect stored data.
4. Encrypt transmission of cardholder data and sensitive information across public networks.
5. Use and regularly update antivirus software.
6. Develop and maintain secure systems and applications.
7. Restrict access to data by business need to know.
8. Assign a unique ID to each person with computer access.
9. Restrict physical access to cardholder data.
10. Track and monitor all access to network resources and cardholder data.
11. Regularly test security systems and processes.
12. Maintain a policy that addresses information security.

Wireless Networks

Wireless networks are recognized by PCI DSS and are required to be encrypted. There are two additional security guidelines:

1. Firewall segmentation between the wireless networks and the POS networks
2. Use of Wireless analyzers to detect unauthorized wireless devices and attacks.

Comments

Looking through the requirements, these are not to comply with. This has to be something that companies should be serious about. Additionally, if you look at the recent TJX fiasco where they have had to pay $40.9 million to Visa alone due to their breaches, making the relevant changes is cheap at half the price.

The easiest way to ensure PCI compliance is to put a security framework in place such as ISO 17799 or Information Technology Infrastructure Library, or to implement best practices, such as Gap analysis, policies on storage, training for all staff and making sure that the full 16-digit credit card number never appears on any hard copy output.

RBS Launch 'Emergency Cash'

2007-12-20T15:17:00.000Z

In an interesting small story, the RBS Group (RBS, Natwest, Ulster Bank and Tesco Personal Finance) is launching an “emergency cash” ATM service to provide funds to customers who have had their debit card lost or stolen.

When you call the bank to cancel your card, they will ask if you need access to emergency cash. If you answer three security questions, you will be issued a PIN number which gives you three hours to take out up to ₤300. To access the money, you press the blank keys on the machine’s key pad. The ‘emergency cash’ screen will then be displayed.

The service will be free over the holiday period up to 11/1/08 and then there will be a fixed fee of ₤5.

I do have a number of worries. What kind of ATM do you have to use? Will it be any or, as is more likely, will it involve you finding an ATM from the RBS Group.

Also, what will the security questions be? Imagine a case where you have confidential ID data about someone, but don’t know their pin. Would this not be an easy way of taking out ₤300? Would it not be wiser to keep the person’s pin the same as before for the transaction. Where is the benefit of the change?

Mastercard forced to be Competitive

2007-12-20T14:54:00.000Z

I have been forced off the scene for the last week due to what seems to be a chest infection. I have been completely off the radar, and have plugged back in today to be confronted by quite a few interesting stories, so am writing from my sick bed.

The most newsworthy has been the Mastercard (MC) European Commission decision. I was confronted by a typically sensationalist headline from the Daily Mail, “CREDIT CARD CHARGES SLASHED” in a bold type so large it may be the only man-made object visible from space.

To cut through the hype, in legal jargon, “The European Commission has decided that MC’s multilateral interchange fees (MIF) for cross-border payment card transactions with MC and Maestro branded debit and consumer credit cards in the European Economic Area violate EC Treaty rules on restrictive business practices (Article 81).

In other words, MC’s fees inflated the cost of card acceptance by retailers without giving enough back in the way of efficiencies or other benefits to the industry. Daily payment penalities of up to 3.5% of MC’s daily global turnover in the preceding business year will be charged after six months if the appropriate changes have not been made.

To give you an idea of how much the MIF costs consumers, it varies between 0.8 and 1.2% for MC credit cards and 0.4 and 1.05%, varying according to value of transaction.

I did find it amusing reading through the MC press release at the level of righteous indignation reached. To give some examples:

“Because we are strong supporters of SEPA, we are very concerned that the Commission’s decision casts a shadow of uncertainty over this effort and, ultimately, will hurt European competitiveness”

“As is often the case when market forces are supplanted by regulation, it is the smaller merchant and less-well-off consumer that will be hurt the most”.

To be clear, it will be MC that will be hurt the most. They have been gaining an unfair advantage since 2002 when the Commission exempted a similar system proposed by Visa after Visa offered substantial reforms to its MIF. In particular, Visa offered to reduce progressively the level of its fees from an average of 1.1% to 0.7% until the end of 2007 and to cap fees at the level of costs for specific services. Visa have been vocal in their complaints about MC being able to maintain their more profitable system up until this point and this decision will bring the two systems closer together. However, Visa will need to review the decision and more changes will need to be implemented.

The European Commission sometimes craft flawed decisions in their pursuit of competition as Economics is such as imperfect science. As a Competition lawyer once remarked to me, “the problem with Economists is you could put 10 of them in a room with a problem and they would come out with 10 different answers and be completely happy with that without a desire to prove the others wrong.”

However, what they are doing here is making a very cloudy system a little brighter. Instead of a catch all fee known as the MIF which is claimed to cover exactly what is required to promote efficiency, investment and innovation, each particular cost can be given a value and justified on a case by case basis. It will require another change in attitude from the schemes, most notably MC, and despite the amusing press release, will not hurt them as much as claimed.

MC are launching an appeal, as is necessary seemingly whenever anyone loses any kind of case, “based on its firm conviction that market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers’ choices over which forms of payment to accept”. They will comply with the ruling in the meantime.

Biometrics Suffer Problems

2007-12-12T20:02:00.000Z

Two stories about one of my favourite topics, fingerprint technology, were in the news over the last couple of weeks.

First with the positive, Wincor Nixdorf has added technology for safe and easy fingerprint payments as well as additional fingerprint applications such as cashier authorization and access control.

On the payments side, it has the potential to greatly speed up transaction time. On the cashier side, its benefits are obvious as well. I used to work part-time in a bar and you would put in your pin every time you were taking the money for something. You had the potential for using someone else’s pin and it was time consuming when you were being screamed at to serve faster!Onto the negative. Pay by Touch looks like it is going out of business. The company 600 employees haven’t been getting paid fully for months and four employees have filed papers for insolvency. At first glance this appears to be a blow for fingerprint technology but it’s a lot more complicated than that.

Pay by Touch have been doing relatively well in terms of signing up major retailers, but appear to have tried to grow too fast. Hedge funds and venture capitalists have thrown money at them due to the cool factor of the technology, but without enough thought into how it will be used.

There have been a lot of allegations surrounding the behaviour of the Chief Executive, John Rogers, who seems to have wielded too much influence and most of it in the wrong directions (reportedly woman and cocaine).

The various parties are still fighting over the assets in an indication of the value of what Pay by Touch has been doing, (a combination of John Rogers, hedge finds and the venture capitalists).

In an interesting twist, Verifone have been getting involved. They were in the news recently for the wrong reasons for overstating its pre-tax profit by 80 percent this fiscal year due to accounting errors. This would appear to have scuppered their bid for the time being as their shares have tumbled by $22 per share or 45%.

Pay by Touch will be in the news, and the courts, for quite a while yet, so there will be no quick resolution on this one.

ID Theft

2007-12-10T18:41:00.000Z

The rise in ID theft continues unabated on both sides of the pond. A new report from the Federal Trade Commission estimates that 8.3 million Americans, 4% of the population, fell victim to identity theft in 2005. The survey found that fraudsters obtained more goods and services where thieves opened new accounts rather than using old ones. If it was an old account, the loss was a median of $500, if it was new median was $1350.

In the UK, The Times reported that it has uncovered more than 100 web sites selling British bank details – which includes private account numbers. Reporters downloaded 32 for free and found a fraudster willing to sell 30,000 UK credit card numbers for less than £1 each.

There are so many people’s details out there, it seems best to start again. There are lots of solutions now being found to these problems whether Paypal, Verified by Visa or by using gift cards. But, it does seem like getting a computer, surfing the internet and buying anti-virus software a couple of weeks later. By that point, it is too late and it might be time to buy again.

Outlook for IT staff the brightest

2007-12-10T18:19:00.000Z

In the general gloom of market forecasts, (UBS writing down a further $10 billion today) there has been one shaft of light. Two stories recently have indicated that financial IT recruitment is set to rise.

The first was by Claymore Partners, a recruitment consultancy. 90% of respondents to the survey believe the credit crisis would have “slight” OR “no impact” on 2008 hiring plans. This can be treated with some caution as Claymore Partners obviously have a vested interest.

The second by European research outfit Pierre Audoin Consultants indicated that UK bank expenditure on software and IT services is set to grow at a compound annual growth rate of 7.7% between 2007 and 2011, although there is a warning of tightening margins and increased pressure from the Indian consultancies such as TCS, Cognizant and Infosys.

This is positive news for those of us in the financial recruitment industry. I expect even to see this magnified in the payments industry with so much going on over the next few years. Faster Payments, Target 2 and SEPA will continue to reverberate for years to come, and banks will not be able to cut back on these projects, although expect to see some banks outsourcing their SEPA payment processing to keep it profitable.

Greed is Bad

2007-12-05T19:40:00.000Z

“Greed is bad” or so Gordan Gecko would say in the noughties. Big business always knows how to follow trends and the credit card industry have really decided to tap into the new heal the world sentiment.

Most relevant at the moment is climate change, I almost felt like using capital letters for it, and Bank of America has teamed with Brighter Planet to “offer a credit card that helps customers reduce their contribution to climate change and invest in the development of clean, renewable energy projects”.

You earn one EarthSmart point for every $1 spent in purchases, which are then used to build community-based renewable energy projects across the US. 1000 points would be equivalent to offsetting one ton of carbon dioxide.

A tad self importantly, Mindy Lubber, part of the Brighter Planet Project Selection Committee, proclaims “this credit card doesn’t only buy goods – it buys the world time in the fight against global warming. By paying for projects that reduce greenhouse gases, the credit card educates consumers and allows them to do something more with their rewards than purchasing airline tickets and hotel stays”.

Barclaycard have recently launched the Breathe Easy card. Customers using the card to buy home-efficiency products from selected retail partners would receive an initial discount on the purchase. They would then repay the cost of the purchase as a loan where their monthly repayments are expected to be in line with the savings they would make on their energy costs. This comes on top of the previously launched Breathe card which offers customer incentives such as discounts on home insulation to encourage greener spending, as well as 50% of the profits being donated to environmental projects around the world.

Possibly one of the most well meaning but worst gift presents would be the gift card from GlobalGiving.org. Imagine your friend’s face when you give them a gift card that enables you to choose on a website what you want to donate your money to: such as the gift of education for a Zimbabwean orphan, pedal-powered electricity for a Nepalese village, or fuel-efficient stoves for Sudanese refugees.

This reminds me of the time a friend gave me the sponsorship of a monkey for Xmas in all seriousness. I’d have loved to have seen my face, didn’t really know where to look, but I think I just about carried it off. I do want to give to charity and do, but Xmas is the time for the giving AND the receiving of presents and I’d like to receive some I can use.

The gist of the stories are, “Apply for a credit card, save the world”. Business always responds to public opinion and sees the pound signs currently in environmentally friendly cards. I can see why they do to a certain extent. It is the high earners who tend to care more about these things as they have the spare money to do things in an eco-friendly way ie. the people who have the capacity to spend the most on their credit cards.

Now there is a real crackdown on lending to low income families due to the recent “credit crisis”, the credit card companies are increasing the reasons for the wealthier to use their credit cards rather than their debit cards or cash.

It is simple supply and demand, and nothing at all to do about buying the world time in the fight against global warming.

Online Bonanza

2007-12-03T18:38:00.000Z

It has been estimated that the UK will spend £200m a day in the run up to Xmas, with the total likely to reach £4bn. This will be up to 50% more than last year according to a Deloitte report.

APACS meanwhile expects the total to reach £5bn this December with today expected to be the busiest day. The total to be spent this December by any method is estimated to be £53bn.

The rise in online shopping has led to a decrease in people visiting shops with the number of shoppers in November down 2.9% against the same month a year ago, whilst number of visitors to shopping and classified websites jumped 22.4% in November. Whilst some of this is likely to be down to a decrease in consumer confidence from the previous year, the rise in hits shows at least some is attributable to online shopping.

There is of course the downside to buying online with worries about security. I myself always have doubts. You are normally fine with the larger sites such as Amazon but I do feel that buying a stored value card and using that may be the safest method. Failing that, APACS has also launched http:/www.shopsafeonline.org.uk, which contains details about Verified by Visa and MasterCard SecureCode, which are designed to alleviate some of these problems.

Online shopping is growing but is still a low percentage at only 9.4% using the APACS figures. People will always want to see what they are buying when it comes to items such as clothes, or want to browse through stores for ideas. Online shopping is rapidly growing, but I don’t think it will be too much longer before we see a natural plateau reached.

Who Sees the Fault?

2007-11-30T16:31:00.000Z

TFL have teamed up with Nokia and O2 to develop a scheme that will enable customers to pay for tube journeys via a NFC chip in their mobile phones. The final details are being finalised but it should be trialled shortly, and it is expected that the scheme will be extended to bus journeys, trams and some overland journeys.

Barclaycard are going to use this as an opportunity to pilot their mobile payments technology. They are due to credit 225 of the 500 phones to be used in the Oyster pilot with £200 worth of non-reloadable funds for making low value contactless payments at retailers such as EAT and Krispy Kreme.

On this subject, RBS are now trialling mobile contactless debit payments technology at their headquarters ahead of a public trial next year.

I am beginning to have some reservations about this single point of failure, especially with the Barclaycard case. If lost, I will be losing my phone, means of payment and my Oyster card. Reminds me of a very drunken story for another time...

But I could be left without money, a way to get home or the ability to phone people to help me out. Expect to see a lot better dressed people in the future asking for spare change outside tube stations trying to find a way home.

Capital One Forge Ahead

2007-11-27T18:16:00.000Z

After their previous venture with decoupled debit, (my post of October 24th) Capital One have launched the Capital One Card Lab, “a convenient online tool designed to help customers select from a menu of terms and options to build their own credit card. The Capital One Card Lab site offers an array of options related to interest rate, annual fee, rewards and even the design on the front of their card and allows consumers to select the combination of features that are the most important to them.”

You make an online application, choosing the features you want and, if approved, the customized card will be emailed to you.

I like the less important features like picking the design, but, more importantly, customers get a real choice in the rewards they want the card to offer eg. an annual fee will mean that you earn rewards faster.

This is a step forward as it will allow customers to decide what they want out of a credit card rather than being told what they want and shows a credit card company thinking outside the box for once.

Paypal

2007-11-26T18:33:00.001Z

Online shopping will be carried out by most people this Christmas, and a lot will do a large proportion of their Xmas shopping in this way. A survey carried out by Nielsen Online, found that 35% will spend between 25 and 50% of their holiday budget shopping online. This growth has been helping to fuel the rise and rise of Paypal.

In less than a decade Paypal and other non-credit card electronic payment processors have claimed over 30% market share, with Paypal, the leader, accounting for 24% of that market. Paypal have increased 24% in volume in the last year to $12.2 billion processed in the last quarter. Although most of Paypal’s business, as an eBay subsidiary, comes from eBay, nearly 45% of payments processed last quarter were now for non-eBay purchases. Google Checkout has been a more recent rival, launching in 2005, but it still has 12% of the online payments market.

There is a safety factor to using Paypal online as credit card companies have not moved fast enough to cover off the risks associated with card-not-present fraud. Only now are the banks responding with readers being sent out, but these were not sent off quickly enough and are not technically advanced enough.

Paypal continues to innovate:

· Their virtual card (my post of November 20th), although an old idea, will help to grab market share.
· Mobile Checkout, which enables customers to pay for purchases using web-enabled phones. This has now been rolled out to Australia, the UK, US and Canada.
· Earlier this year they launched a mass market mobile payments system so customers can make purchases and transfer funds using SMS text messages – rolled out in the UK, US and Canada.

Nimbler rivals to Visa and Mastercard like Paypal and Google Checkout are really showing them up at the moment and they will need to reorganise themselves to reflect the new market circumstances.

Gift Card Xmas Rush

2007-11-22T18:43:00.001Z

And for the laziest of us, a flood of gift cards are hitting the market in time for Christmas, showing they are hitting the mainstream for the first time.

Barclays have launched, imaginatively titled, the Barclays Gift Card. It is “a versatile alternative to giving retail vouchers and is aimed at customers who want to give a flexible gift for birthdays, Christmas or other occasions”.

It costs £3 to purchase, can be loaded up to £300, is valid for up to two years, can be personalised with person’s name and you have a choice of 6 designs. There are no costs to using the card.

Hot on their heels is the MINT have launched a gift card called, a lack of imagination again, the MINT Gift Card. It doesn’t incur costs again and again is £3 to purchase. The British have been accused of a lack of creative thinking and this seems to bear it out as consumers don’t have much choice in what they want.

You can always trust the Americans to come up with something different. The American Idol gift card provides fans with the ability to buy music from past American Idol contestants and associated apparel and accessories. So you can only buy American Idol merchandise, a dream or nightmare dependant on your views.

In a final miserable thought, although the Americans have the upper hand in innovative cards, American Express have announced results from a survey finding that Americans plan to spend nearly a quarter of their gift-giving budgets on gift cards this year, up from 18% last year and 13% in 2005.

So as gift cards become more common in the UK, we all have a Xmas filled with well thought out, personal gift cards…

The Future of ATMs

2007-11-21T19:04:00.000Z

Had some interesting answers to a question about ATMs I posted on linkedin. There were some mentions of functions I hadn’t heard had been introduced:

“The way ATMs are used is interesting based on the type of client, the location, and purpose of transaction. In places like Brazil, ATMs are used as primary financial transaction engines. In one branch you may find 4 ATMs that take deposits, 4 ATMs that just do withdrawals and 2 that are multi-function. You stand in line for the transaction that you want to make.”

“Recently I have seen an increase in "bonus" functionality at ATMs: selling stamps, printing mini-statements, check images on deposit receipts, auto-learning popular transactions. This is very nice and has served me well.”

There were the normal calls for biometric security:

“What I'd like to see:
- Biometric security. Fingerprint readers are cheap and ubiquitous. PIN security is easily circumvented with a pair of binoculars.”

“Finger print, or slightly more "out there" face recognition rather than PINs.”

There were demands for a lot of extra functionality, which was swiftly answered by another answer:

“What I am looking for is an ATM that lets you order pizza or pay for a movie ticket or book the best seat in a listed restaurant. Hey.. This is a business idea! :)”

“BUT I would object to waiting whilst someone books theatre tickets, a taxi to get them there and a pizza to be waiting at home later when all I wanted was cash. On the other hand if I were booking the tickets etc. then .....?”

And some less hopeful views of the future of ATMs:

“It might be good to continue offering more services through the ATM, but I think people will still look at an ATM as a cash machine.”

“I think the ATM is a dying animal.
Why pay ATM fees when you can get your cash from a restaurant or grocery store?”

It seems there are widely conflicting views of what people would and would not like to see. All we can do is wait and see in which direction the manufacturers take us.

Paypal launch virtual card

2007-11-20T18:11:00.000Z

Paypal have launched a new virtual card payments system in alliance with Mastercard, which would allow you to use their online system to pay for any purchase, even those that do not accept their service.

The system generates a Mastercard number and one-time verification code, linked to your Paypal account, so you can enter this as if you were paying with a normal credit card. The browser plug-in detects when a user lands on an e-commerce checkout page and automatically fills in your stored financial details.

It has been interesting watching the reaction to this news bounce around the blogs. One very good one pointed out that Paypal had actually introduced this product 6 years ago: http://www.internetnews.com/ec-news/article.php/914441.

I have always been wary of any plug-in that fills in financial details or passwords of any type automatically, as it really opens up everything to security breaches and your details being misused. Is it really so hard to fill in your details each time?

It is an interesting direction for Paypal to go. It would seem to stop the demand for a site to introduce Paypal at all, as it can always be paid for in this way. It also keeps Mastercard in the loop. If Paypal were to continue to market and push their method, demand from the sites will lead to their technology being introduced and there will be no need for Mastercard to be involved at all.

FDI Layoff

2007-11-19T17:50:00.000Z

Reuters – “First Data Corp, the credit and debit card payment processor, said it is eliminating 1,700 jobs, less than two months after private equity firm Kohlberg Kravis Roberts & Co [KKR.UL] acquired it for $26 billion.
The layoffs amount to about 6 percent of First Data's workforce, spokeswoman Nancy Etheredge said. Workers were notified Thursday of the cuts, some of which took effect the same day, and which will be largely completed by year end, she said.”

This is not quite as dramatic as it sounds as staff levels are merely returning to the levels they were at the end of 2006. However, 1700 people being made redundant is never going to be a small story. This is a typical private equity move to increase profits and cash flow so they can pay off their lenders and make the company more valuable to sell in a couple of years.

There have been rumours in the market of low morale and poor organization in FDI for quite a while and they were always going to be vulnerable to a takeover. If anything, whilst private equity is having a rough time in the newspapers, this might be good for the company long term. It will force them to look at everything anew, and face any internal problems they may have. They have been losing market share to competitors recently, most notably Tsys.

A lot will depend on how the job cut has been carried out. Has it been haphazard or well thought out? Have they looked at the hierarchy and decided what is essential and what is not, or have they picked the names out of a hat? I’ve recently heard that it hasn’t been carried out in the most structured manner. However, if it has been, it will make them leaner and more competitive and more prepared to take back their place in the market.

Visa to raise $10bn in IPO

2007-11-15T18:23:00.000Z

Visa have announced plans to raise $10 billion through their stock market flotation, expected to take place in the early part of next year.

No further details were revealed such as how many shares, the share price or the final date. It will be interesting to see where Visa pitch their price with Mastercard's share price having risen so dramatically since their flotation (Today's price is $182.96 from a flotation price of $39). Will they match what they did by pricing it quite low and seeing what happens?

They are now free to press ahead with this after the settlement with American Express (my post of 10 November). The lawsuit would have led to numerous problems with how liability would be shared.

Recent Mobile Payments News

2007-11-15T18:16:00.000Z

US - A recent study by ABI Research has concluded that the mobile fund transfer market will see a $8bn revenue opportunity for mobile operators by 2012 – from just over $10m in 2006.

US - Juniper Research forecasts have estimated that around 52m consumers will adopt new mobile technologies such as NFC and other physical m-payment methods to pay for everyday goods and services by 2011, helping to drive the physical m-payments market to $11.5bn by the same year. They also found that by 2011, around 12% of the total .

Chiltern Railways has announced an m-ticketing platform that means passengers can buy a rail ticket directly from their mobile.

Contactless from the world?

2007-11-15T18:12:00.000Z

As I used my internet banking to transfer money to an account, poked a friend on facebook and text messaged another, it struck me how all developments recently have been leading in one direction.

If I want to go into a bank these days, and with telephone and internet banking it is not required, I can use one of the self service ATMs for most of what I might need to do. If I need to pay for petrol I can do it at the pump without needing to interact, and, with contactless payments, I soon won’t even need to look at the attendant as I pay.

Most shopping this Xmas will be done on the web delivered to my house from Amazon or the like, so there is no need to brave Oxford Circus, and if I need to go to Tescos, I can also do that on the internet.

With the increasing use of remote working, I might not even need to see my workmates on a daily basis. Email means you don’t even need to talk to your clients if you so wish anymore.

These are all advancements that make our lives that extra 1% easier and more flexible. Taken together it all seems to be leading to a strange direction.

Contactless rollouts keep on rolling

2007-11-12T18:27:00.000Z

Halifax has begun issuing contactless debit cards featuring Visa payWave technology to around 25,000 customers in London. The cards are being rolled out to customers taking part in the initial phase of the national contactless payment rollout.

This is another rollout taking place, on top of the ones I’d previously mentioned. Despite all this, I still do not know one person who currently has been sent a contactless debit card. I’m guessing I’m not moving in the right circles!

However, patience is a virtue and Apacs has estimated that over 5 million contactless cards will have been issued by the end of 2008 and be accepted in at least 100,000 merchants across the UK.

Visa Settlement Increases Confusion

2007-11-10T17:40:00.000Z

And how can I fail to mention Visa settling with Amex for $2.25 billion. Visa will make an upfront payment of $1.13 billion, remainder to be payable in instalments of $70 million each quarter for next four years.

This is dating back to the 2004 judgment mentioned in my previous post, representing the financial effects on American Express from 1996 to 2004 of Visa refusing to allow their member banks from using any other network, symbolizing both the “historical damages plus future damages from the historical acts”.

I know that Visa makes a lot of money but a judgment like this cannot fail to have some effect, especially since Visa still have to settle with Discover. The amount owing to them is unclear as Discover holders pay lower fees than Amex but tend to spend more.

The effect on Mastercard is even less clear. They are still sticking to their defence, whether as a negotiating ploy or because they believe they are right. I very much doubt Visa would have paid out this much money unless they were sure of their own culpability. However, Visa IPO has complicated matters and Visa were keen to get rid of this hanging over their heads before the New Year.

Mastercard risk being caught high and dry with punitive damages if they continue and fail. Or have Visa lost their nerve too early?

Look to the East

2007-11-08T18:38:00.000Z

From my last post, the large competitor to Visa and Mastercard from China is called Unionpay. It was established in 2002 and is the only interbank network in China. Of course, as with everything else in China, it has been set up by the Government, through their version of the Bank of England, the People’s Bank of China (PBOC).

Their credit cards are all affiliated with either Mastercard or Visa, so can be used across the world, though their debit cards can only be used as part of the UnionPay network and a limited number of other networks that have signed contracts.

And this is where it gets interesting. Without myself and most of the world noticing, UnionPay have started to expand in a big way. Since 2006 they can be used in over twenty further countries outside China, including the United States, Japan, Singapore, Malaysia, Thailand, Germany, Switzerland, France, and Australia. They will begin to affect the market in a big way.

Therefore it was interesting that Aite Group have published a new report titled "The Future of Card Networks: Gauging Battle-Readiness for a Post-Visa IPO World". This suggests that Visa and Mastercard will also begin to lose out to American Express and Discover, blaming the 2004 Department of Justice decision to repeal the exclusionary rules that prevented Visa and Mastercard’s members from using the other networks.

The duopoly has been mostly stable for the last couple of decades and it seems like a lot of ructions are coming. Visa and Mastercard will still have enough to be able to see off most of the battles, but it will cut into their market shares and they will need to change the way they operate to survive.

EAPS

2007-11-07T18:43:00.000Z

I read an intriguing story on finextra: “A Brussels-based company that aims to link national debit card systems to process cross-border transactions across Europe has been established by The Euro Alliance of Payment Schemes (EAPS), a consortium of six of the region's largest national operators.”

This is following on from the European commission’s recommendation to this effect in their report as well as making it known that they would very favourably on such an attempt. This is to break the “stranglehold” that Visa and Mastercard have.

Prima facie I do understand the business reasons for wanting to introduce more competition, but markets are not that simple where competition is always for the best. There are natural monopolies, duopolies and oligopolies. I do not see the reason for introducing more companies for the sake of it.

EAPS has been rumoured to be coming for a while, and whilst it still might all peter out, it looks like it may be here to stay. It seems to me that Mastercard and Visa run things well, but…

I would also keep an eye to the East, where I have heard that there is a large scheme in China that is starting to make its way into Eastern Europe and may be the more serious challenger to the big two. Watch this space.

Credit Card Crunch?!

2007-11-06T19:25:00.000Z

I read an article online from the Telegraph, although I am normally a Times reader, about a “credit card crunch”, where one analyst predicts “credit card chaos” due to fee and rate increases.

It is true that market conditions are tight all round. The main credit card players were already making it harder to get a credit card, (Barclaycard rejected over 50% last year), due to the amount of bad debt that has had to be written off in the last 5 years. The market has been surprisingly buoyant for a long time, and still remains so.

The US sub-prime mess hasn’t helped the situation. However, these things do tend to get blown out of proportion for an easy headline which is felt to suit the public mood. I am not saying that conditions are not going to harder than they have been for a decade, but there is no need to worry yet, unless you’re an investment banker around bonus time…

Pay by Touch

2007-11-05T18:10:00.000Z

Whilst Pay at the Pump with debit cards is only beginning in the UK, the US is again light years ahead. Shell is piloting Pay by Touch at 10 Chicagoland retail locations. All you need to do is press your finger against the reader to pay.

To sign up all you need is a government issued photo ID, like a passport, and a payment method, and at least one finger.

With payments it always seems the industry has to go down a number of dead-ends until the optimum solution is reached, so we are currently going through contactless cards before we reach wallet phones and biometrics, fingerprinting probably being the most reliable. These dead-ends do tend to serve a purpose as they do lead towards the right infrastructure and buy time until the business cases of the other solutions become sustainable and dependable.

Wallet Phones4U(K) and U(S)

2007-11-01T18:47:00.000Z

I was reading an interesting article by Richard Winston, Head of North American Payment Industry Program at Accenture about mobile payments.

Asia, particularly Japan, is so far ahead of Europe and the US at the moment. He uses the example of a man in taxi on his way to a meeting, checking his bank balance on his mobile, texting his daughter her allowance and then waving his phone, using NFC technology, over the taxi’s reader. All of this is already available in Japan, where NTT DoCoMo have signed up more than 15 million subscribers to use their phones as wallet phones.

Japan has a history of being ahead of the game when it comes to technology and it seems like the UK and the US are missing a trick here. When the technology for wallet phones is already viable, why is there this recent rush for contactless cards. They are not adding too much value to the market, except in terms of a 10 second saving per customer. Why does the market not be truly innovative and jump straight to wallet phones when the business case is more compelling and it will surely happen anyway. The contactless card rollout seems to be a bit of a waste of time.

There must be reasons for it but I will need time to think…

Round 1 Telecoms?

2007-11-01T07:52:00.000Z

http://www.bsgclearing.com/pdfs/Bill2Phone-Payment-Solution.pdf.

Bill2Phone has been launched allowing consumers to charge online purchases to their home telephone bill. This completely takes the place of using a credit card.

There is a general feeling of unease about using a credit card online amongst consumers, with good reason due to the rise of card-not-present fraud, so this product is well placed to take advantage of that.

I have not seen any indications yet of how credit card companies intend to combat this. Nor have I heard how the financial regulatory authorities will respond. At what point does a telecoms company become a financial institution and become vulnerable to the more restrictive regulations that that entails. This is something that the industry will run into more and more if they continue to take bites out of the heels of the likes of Visa, who are never slow to press their case with their lawyers.

ATMs finally move forward

2007-10-29T18:16:00.000Z

NCR has announced that Alliance & Leicester (A&L) will be the first bank in the United Kingdom to install automated teller machines (ATMs) across its entire branch/store enterprise with NCR’s Intelligent “No Envelope” Deposit functionality for cash and cheque deposits.
These will be self service, as well as having staff nearby to help and identify customers that can use it.
I was actually in a HSBC store the other week which had this type of service and found it really useful. I had money to deposit into a friend’s account, and, apart from the flap almost closing on my hand, everything went smoothly. It meant I saved 10 minutes in the queue and the money was credited immediately as the machine automatically counted it and asked me to confirm it was the right amount. In another cool function, the NCR machine can scan cheques and then print out the image for you to confirm.
It is about time that ATMs are innovating, rather than stagnating. They have the potential to take on more functions, so the need to queue lessens, and bank trips need not be dreaded as much as they are now, with at least half an hour penciled in for the wait.

Prepaid starting to pay their way

2007-10-26T16:26:00.000+01:00

Gift cards are really starting to take a foothold in the market. They have always been the perfect gift for the lazy person to get someone, but now they have gone electronic, it means it is easier to keep the value of them, which was always a problem with gift vouchers. However, this is not to downplay any problems with gift cards:

1) A lot of the cards have fees involved, such as initialisation fees or non-use fees.
2) Some have time limits on use so if you don’t use them in time, you lose the value.
3) Terms are often more hidden, as the regulations surrounding these are less than with credit cards.

They are already huge in the US where U.S. Bank recently announced they had issued 10 million gift cards in little over a year.

This has started to be reflected in Europe, where MasterCard have recently launched three new prepaid card programmes. According to independent research commissioned by MasterCard in December 2006, spending on prepaid payment cards in Europe is estimated to reach €120 billion by 2010.

According to market information, Visa will be responding to this next year in a large way and I would expect yet another battle for market position between the big two with American Express sitting it out as usual until Visa and Mastercard have finalised the business case and best way to market.

The skills for people in the credit card market will be very transferable already, so a good credit card project manager will be a good prepaid card project manager. However, I see prepaid cards needing additional people to those already within the credit card industry, therefore, those with credit card skills will become more in-demand. Otherwise we will see the companies requiring less industry knowledge than normal with more emphasis on people being trained up.

Anyway, who knows. We will see.

Decoupled Debit

2007-10-24T17:48:00.000+01:00

In the light of Capital One’s announcement that it will begin issuing debit cards, I thought I’d talk about this.

“Decoupled debit” is when your bank account is untied from the issuer of a debit card eg. you can have a debit card from Capital One, which takes out money from your HSBC account. In return for using their debit cards, Capital One will have rewards, much like credit cards.

There is no real way for the banks to refuse this. If they charge fees for this or try to refuse it altogether, they risk their customers moving their accounts to another bank which will allow it. The only real way to compete will be to offer rewards as well, which is good news all round for customers. In my opinion, there should be some rewards already for customers moving to debit and for loyalty for using their bank.

The banks have been laid back for too long in this area, and I truly welcome seeing how the competition unfolds.

Mobile Fingerprint Recognition

2007-10-23T13:08:00.000+01:00

Interesting story from WebWire - http://www.webwire.com/ViewPressRel.asp?aId=50788.

It reports on a successful trial for using fingerprint touch control features on a phone to make payments. 87% of the testers were interested in using the technology when it came out, more than 75% were satisfied, with vast majority saying it was easy and convenient to use.

I am looking forward to this. It is more secure than a pin, subject to your finger being ripped off (don't discount it!), easier to use, and quicker. It also has a certain cool factor, which is always good for bringing in the initial users, who spread the word.

I really look forward to seeing how this works when it makes its way over to the UK.

Safepass(age)

2007-10-19T12:44:00.000+01:00

Bank of America has announced a free service, called Safepass, that delivers a six digit code as a text message to consumers' mobile devices, for when they are making an olnine transaction. This will cut down on card not present fraud. The code then expires 10 minutes after being issued.

The bank is also piloting a wallet-sized card which generates a one-time code when button on card is pressed.

Both of these are good ideas and address the clunky nature of the machines sent out by most of the other banks that you have to put your card in. This meant you could only make a purchase from home otherwise you would be carrying that machine about with you all day. Instead now all you need is your phone or a small card in your wallet.

These ideas are definitely all welcome to help cut down on the rising tide of card not present fraud.

War of the Worlds

2007-10-18T12:42:00.000+01:00

I read a story that made me think about the start of a competition between telecommunication companies and banks. Orange, Vodafone, T-mobile, 3 and O2 have launched a payment system, PayForIt, that allows subscribers to pay for low value purchases (up to £10) on their phones. This is for goods and services such as ringtones, train tickets and parking fees using web-enabled handsets.

Money spent is just added onto your mobile phone bill at the end of the month, so you don't need a credit card or even a bank account.

Obviously this is relatively restricted at the moment, but the potential is for all internet purchases to be made in this way, cutting the credit card companies, and debit cards, out of the loop, except in the normal way when you actually don't immediately have the money (although you would only need to pay your mobile bill at the end of the month).

Telecommunications companies have until now been pairing with banks, such as Nokia with Citigroup. Are these the first shots being fired in a new battle for supremacy...

RBS Launching Contactless

2007-10-17T12:39:00.000+01:00

I was wondering when this was going to happen. Barclaycard had been getting all the publicity with the One Pulse card, and I was waiting for another bank to make the running.

After all, RBS were the first to trial contactless with their own emplyees back in June 2006. Now, finally, in November they will start issuing several hundred thousand contactless debit and credit cards to RBS, Natwest and Mint customers in the London area.

The One Pulse card hasn't interested me that much, but the debit cards options are finally coming out. Will be interesting to see whether the other banks respond quickly or sit back to see how it all works out.

Fraud

2007-10-16T18:26:00.000+01:00

Since fraud is getting more and more high tech and dangerous to the card industry, it seems right to start on this topic.

Governor Schwarzenegger today vetoed California Assembly Bill 779, which would have written a series of data security and protection methods regarding payment card and personal information into law. What this would have done was make retailers responsible for informing any customers who had had their financial information (account numbers, car numbers etc). Most of these are already guidelines, but this would have toughened them all up.

I can understand why this has been done, vote saving, but with the recent thefts of financial information, (TK Maxx being the worst example), it seems to me that more has to be done.

Apacs recently published figures showing a massive 126% rise in fraud committed on UK cards abroad in the six months to June 2007. There was also 44% jump in card not present fraud, which rose from £95.3 million to £137 million.

Fraud is going to be an enormous area of growth - A patent for software that tackles card not present (CNP) fraud, as well as cross border card fraud, is expected to fetch at least $500,000 when it goes up for auction in Chicago later this month. This would enable you to switch your card off, so no card-not-present transactions can take place until you reactivate it.

I'll definitely be keeping a close eye on the recruitment market for fraud.

First thoughts...

2007-10-16T17:28:00.000+01:00

I have created this to discuss current industry changes. A sea-change is currently taking place, meaning that finding people with the right skills can be difficult as the in-demand skills are changing all the time. Today companies may be looking for people with contactless and visionplus skills, in 2 years this might have changed to something that cannot be foreseen now.

So this is the chance to demonstrate how these changes affect the recruitment side, and to allow me to talk about industry "hot topics". Hope most of what I say makes sense!

Will.