Tuesday, May 08, 2007

Electronic Money Strikes Back

I have been a long-time critic of electronic money. We've been hearing about how we'll all be ditching our banknotes and coins within "the next two years" since 1998. Similarly, we've had a regulatory response to the subject which has been particularly inadequate, as it was drafted with specific technologies in mind, while the market has moved towards account-based systems such as PayPal.

Now UK banks have charted the roll-out of a payment system to be included in new debit and credit cards that will allow electronic payment for amounts under ten pounds. The new system is a "contact-less" or swipe-through system similar to that used by London Transport in their Oyster Card scheme. An RFID system will be placed in the cards, which can make payment as easy as flashing out your card. The scheme has been piloted here in Edinburgh, in 11 shops surrounding the Royal Bank of Scotland. The scheme will then be tested in London, and then, as film villains like to say, the world (cue maniacal laughter).

I must admit that this seems like the real deal. It will be convenient, and it is set to reduce the cost of handling cash for businesses, so there is a strong incentive for adoption by intermediaries. It's also added to existing payment systems, so there will be no need to get extra cards to our already bulging wallets.

This feels strangely un-climactic. I cannot be curmudgeonly about new technologies! I must be losing my edge.

Update: The system is called payWave for Visa and PayPass for Mastercard (insert snarky comment about names here).


Anonymous said...

no doubt the cost of this new system will be borne by the retailers somehow, I can't see the banks letting it eat in to their bottom line. It already costs for rental of the existing EPOS technologies. I'm sure that many small and independent retailers, who still make up for a sizeable chunk of UK's rural high streets and some urban, will be slow on the uptake unless the banks really show strong support to assist uptake.

I'm not holding my breath for this one.

pangloss said...

Oh my you are losing your edge TL!
Didn't I send you this?


Andres Guadamuz said...

Thanks for the link Lil!

Interesting post, it makes some good points, but I think that it may misunderstand the technologies a bit. You could not place readers lying around, as the readers have to be registered, and would be secure enough to identify them to a merchant.

I'm not sure about what type of system we're talking about here though.

Is the chip going to be like an electronic wallet? You could then only take out as much as you put in.

Is it going to withdraw money from your account? It would then operate like a debit card.

Is it going to offer credit for money you don't have? This would mean it would be regulated as a credit card.

I sense a new article :)

Anonymous said...

I think contactless payment is a great idea. Remember while the cost might go up for the merchant the sheer volume opportunity for the merchants might negate any increase in cost.

Think of all those people who currently use cash for low value transactions at the local shop, whom slow down the check-out line fumbling for coins, who could be using MasterCard PayPass and simply wave their card or device on a special reader and go, thus allowing the next person in line to check-out.

The merchant might see increased sales as customers realize the speedy payment option at their local shop and purposely frequent merchants who accept contactless payment. And therefore foot traffic increases, credit/debit card use increases, and no longer is the merchant fearful about interchange fees—it is now about how I accommodate so many customers at the lunch hour.

This is particularly prevalent in the City and Canary Wharf – where the UK trials will take place – all those bankers exiting their offices and converging on the high street for lunch---a crush of people that would flow more smoothly if they all had contactless payment cards.

True there are security concerns, but since MasterCard and Visa and AMEX in the US offer zero liability for credit and debit card purchases, you are bound to be called by your bank or notice something on your next statement before causing major life threatening damage. Remember it is the merchant who is ultimately liable for fraudulent charges, they are the ones who at point of sale had the opportunity to check your signature, check your ID, and if they did not the banks stick them with the loss.

MasterCard has been the major player in this arena-contactless payment, with their MasterCard PayPass product. Visa only just branded their product and therefore are a bit behind in trials and select merchant adoption. Don’t even go there with American Express—they only offer contactless payment on three (3) of their products! MasterCard all the way!

Some links: