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May 30, 2003

Citigroup Global Consumer Business Day

Yesterday, Citigroup held a Global Consumer Business Day (Presentation PDF). Citigroup's card related income has experienced a 29% CAGR over the last five years.

What's the market for Proximity Payments?

Celent is out with a new report on "Convenience Payments" based upon RFID technologies.
Because the benefits of RFID are so enticing, Celent expects the technology to play an increasingly prominent role in payments. Considering that three of the top target retail outlets for RFID payments are quick service restaurants (QSRs), movie theaters, and movie and video game rental stores, RFID represents a significant revenue opportunity. In aggregate, 2002 US sales in all three were over US$160 billion. In 2007, we expect RFID payments to capture at least 8 percent of the revenue obtained by these three outlets.

May 29, 2003

Surprise jumps in credit rates bring scrutiny

Jennifer Bayot reports in the New York Times on credit card issuers adjusting fees based upon updated information regarding cardholder creditworthiness.
A provision now built into most card agreements allows the companies to reset anyone's interest rate based on the size and status of other debts. And improvements in information technology and a change in federal law have spurred card companies in the last couple of years to check their customers' data regularly, not only when they review applications or notice missed payments.

Philips and Visa form major alliance

Visa International and Royal Philips Electronics have announced a major alliance to jointly promote and develop the application of contactless chip technology for payment transactions.
The two global organizations have signed a Memorandum of Understanding (MOU) that outlines the scope of cooperation between the two companies. This agreement includes exploring the business requirements for secure payments utilizing contactless chip technology. Specifically, Philips and Visa are looking to identify joint business partners, such as hardware manufacturers and content providers, and to investigate developing business and technical models that meet their unique needs.

More Micropayments

Tim Oren points out Andrew Odlyzko's paper "The Case Against Micropayments". Although largely negative, Odlyzko's final paragraph offers a glimmer of hope for micropayments:
Still, micropayments may become widespread. There are needs that micropayments are uniquely suited to fill. However, given all the obstacles that micropayments face, they are unlikely to succeed if offered as a service that requires special hardware or software. They are most likely to succeed if they piggyback on top of something that is already widely used, such as cell phones, or (in some places) mass-transit smart cards. When offered as an additional feature for something that is already carried by most of the population, micropayments might be able to overcome the usual chicken and egg problem, and find their (very likely small) niche in the economy.
So, when and where might a breakthrough in adoption of micropayments on a mass scale occur? A Google News search on micropayments reveals a lot going on. Update: Paul Guthrie comments via email:
I think one might argue that Micropayments have broken through if you include Premium rate SMS transactions (mostly in Europe) or NTT DoCoMo's model in Japan. These approaches might more accurately be called micro-billing. As for something successful on the web, still very little is going on. So, the question in my mind, is with a convergence going on between web and mobile technologies, when will one of these systems start getting mainstream make the transition, and is a transition even possible, considering the mindset of web users is not to pay for anything, while the mindset of mobile users is to pay for every little thing.

May 27, 2003

Micropayments Redux at the Apple iTunes Music Store

Over on the Glenbrook site, we've just posted a new opinion piece about my experiences with the Apple iTunes Music Store and some observations about it from the perspective of micropayments.

Online bill payment tipping point?

NACHA reported this morning that online bill payment volumes increased sharply during the first quarter of 2003.
During the first quarter of 2003, NACHA estimates that more than $48 billion in online bill payments were made in which the Automated Clearing House (ACH) Network was the payment system used. That figure is half of the amount of $96 billion for all of 2002. At the current growth rate, the amount would exceed $200 billion for all of 2003. In contrast, a recent survey estimated online sales figures of $76 billion for 2002 and $96 billion for 2003.
Meanwhile, CRMdaily reports on Forrester research on business to business usage of electronic invoice presentment and payment.

Security at financial services firms

Deloitte & Touche has announced the results of a recent survey of the state of IT security at 78 global financial institutions.
Thirty-nine percent of respondents that experienced a security breach within the past year stated that only 10 percent of the attacks originated internally - contradicting common belief that the vast majority of cyber crime originates from within the organization rather than an external attack.

Interesting Businesses: Optimizing cash in ATM's

NCR and Transoft International this morning announced a deal with UBS in Switzerland for a system that manages the amount of cash the bank maintains in both branches and ATM's.
Using OptiCash, a solution that applies mathematical algorithms to historical, event and cost information, UBS will be able to optimize the level of cash held at its branches and ATMs (1,300 outlets in total) in Switzerland. This approach leads to obvious benefits in terms of reduction in interest and cash-handling costs.

May 23, 2003

Gaming panel shelves ATM slots

Liz Benston reports from Las Vegas on a decision by the Nevada Gaming Commission that blocked plans to equip slot machines with debit card readers.

Credit card games in India

The Business Standard reports on credit and debit card activities in India.
Says Uttam Nayak, deputy country manager (South Asia), Visa International, "Thirty million people are eligible for credit cards while 130 million bank account holders are eligible for debit cards. That is the potential for growth." Banks expect card usage to grow 100 per cent in the next year. Currently, roughly 55 per cent of credit cards are active. The usage growth will depend on how many outlets accept cards.

Network 365 wins NTT DoCoMo mobile payments business

Network 365 announced this morning that it has been selected by Japan's NTT DoCoMo to provide DoCommerce, a secure mobile payments service.

May 22, 2003

Securities firms, retailers could enter banking

Friday's Washington Post has an article by Kathleen Day regarding proposed legislation that would allow retailers and manufacturers to own full service banks nationwide.
At issue is whether Congress should expand the power of obscure entities known as industrial loan companies. These state-chartered, limited-purpose banks -- which operate in Utah, California, Colorado, Nevada and Minnesota -- generally specialize in one area, such as offering credit cards. The owners of these companies are not regulated by the Federal Reserve and may include automakers, discount department stores and other firms that are largely unrelated to financial services.

Verified by Visa, MasterCard SecureCode

Sun has published an interesting article about the payer authentication solutions now being implemented by Visa and MasterCard.

Micropayments Redux

We're picking up some interesting "chatter" on our radar regarding renewed interest in micropayments on the Internet. We're thinking there's enough interest that it's worthy of doing some more digging to learn more about what others are thinking. If this is a subject you're interested in -- particularly if you think you have stuff to sell where a micropayment solutions would be valuable to you, please let me know directly -- or -- also feel free to post a comment here. Quoting from a Barton Biggs' piece earlier this week:
As Philostratus wrote: "the wise perceive things about to happen."
Are micropayments, finally, about to happen? I've started a new page to log my new learnings about micropayments.

Clear2Pay announces financing

Brussels-based Clear2Pay has announced it has closed a new round of equity financing.
"The successful implementation of the Visa Direct environment in London, is proof that we are indeed able to implement the Clear2Pay vision in existing and complex environments. Financial service providers can literally make quite some money by improving efficiency in their payment systems and integration with their customers. This is an area where we at this very time, when inter-bank fees are under heavy scrutiny, need to focus on. The bilateral payment systems we know today automate existing processes and cannot deliver that promise. I strongly believe in what I call 'the New Wave': internet based payment systems which handle transactions at a multi-lateral level. The bank retains and strengthens its role as the primary payments processor and customer relationship owner, whilst at the same time enhancing efficiency, improving ease of use and cutting costs." said Michel Akkermans, CEO and Chairman of Board of Directors of Clear2Pay.

eMac Digital selected by McDonalds; Goes independent

eMac Digital has announced that it has been selected by McDonald's to supply its next-generation POS system. It also announced that Accel-KKR, co-founder of eMac Digital, is buying out an equity stake in the company previously owned by McDonald's. eMac Digital provides a variety of services to the global foodservice industry.

Loyalty patent cross-licensing agreement announced

Catuity, Visa USA, Visa International and Welcome Real-Time have announced they have entered into a patent cross-license agreement.
Under the Visa Loyalty Program Patent Agreement, Catuity, Visa and Welcome will cross license existing and future patents for Visa smart loyalty programs. This cross license will be worldwide and royalty-free until the last patent expires. The cross license will extend to all Visa affiliates, members and merchants. Participants will develop and promote interoperable loyalty solutions by integrating the Visa interoperability toolkits within their platforms. These toolkits, demonstrated by Visa, Welcome and Catuity during Cartes 2002, allow cards with one technology to be used in terminals connected to a different loyalty platform, and for data from different loyalty processing centers to be aggregated to enable customer service activities.

May 21, 2003

First Data Corp. files registration statement for proposed merger with Concord EFS

First Data Corp. announced this morning the filing of its S-4 registration statement with the SEC regarding the proposed merger with Concord EFS. FDC also announced that it has been notified by the Payment System Working Group, a sub-group of the National Association of Attorneys General, that it plans to request a copy of the information that First Data has thus far supplied to the US Department of Justice regarding the proposed merger. FDC said it will be supplying the requested information.

Consumer Preference for PIN Debit

The combination of yesterday's announcement of the UK Northampton chip and PIN trial coupled with Star's latest consumer survey results got me exploring a bit this morning. A Google search on "consumer preference for PIN debit" turns up some interesting results including the top item - a presentation by Star System on last year's survey results and results from a similar survey also done in 2002 by Paymentech. Bottom line: these surveys say that US consumers express a clear preference for PIN over signature primarily because they perceive it as faster.

May 20, 2003

Star finds growing interest in small value electronic payments

Star announced the results of a recent study finding that consumers are indicating a growing desire to make small payments by debit card.
The survey of 11,263 consumers, the largest in the electronic payments industry, also found that consumers who make both PIN-secured and signature debit purchases are the most active among all debit cardholders in terms of number of transactions. Respondents who used only signature debit used their card an average of 13 times per month, while those who used only PIN-secured debit used their card almost 9 times (8.9) per month. But usage frequency jumped to almost 19 times (18.8) per month among those who made both types of transactions.

Lloyd Constantine - Anti-trust lawyer

Lynda Richardson profiles anti-trust lawyer Lloyd Constantine in this morning's New York Times. Constantine was the lead attorney on the recently settled merchant lawsuit against MasterCard and Visa USA.
He says this recent case will reshape an industry in which the two companies used their dominance in the credit card market to exact excessive fees from merchants when customers used their debit cards. He calls them "the cartel of Visa and MasterCard." "We believe people do better when things are free," he says. "The regime we're ending is a system where there were no choices." He also expects the settlements to cut the fees that merchants usually pay each time they accept Visa- or MasterCard-branded debit cards, saving merchants and consumers as much as $100 billion over the next 10 years. "To me, that's 100 times more important than $3 billion," he says.

Chip and PIN transactions begin in the UK

The Register reports on the start of trials in Northhampton in the UK using smart cards with consumer PIN verification technology designed to reduce card fraud. More information about the initiative is available at the Chip and PIN website created by the card industry in the UK to provide consumer and merchant information about the program.

Online shopping decisions significantly impacted by enhanced security

MasterCard reports on the results of a recent survey of consumers which indicates that enhanced security features are important to increasing consumer online shopping.
Assurance that personal information would be kept private, a guarantee that consumers would not receive unwanted e-mails as a result of purchases and an extra layer of security for credit card transactions were among the most important factors influencing the degree to which consumers would make purchases online. More than 1,000 consumers participated in the study, "MasterCard Internet Consumer Segmentation Research," which was conducted during fourth quarter 2002.

May 19, 2003

Avoiding Biometrics

Over the last year or so, we've been doing a lot of work with various biometric authentication technologies -- including my partner Allen Weinberg's latest Advisory Report "See Me, Hear Me, Touch Me" that discusses how biometric technologies might apply to applications in the financial services industry. Over the weekend, we came across this story in CNN's Offbeat news section. We've heard of folks trying hard to avoid being identified, but this one takes the cake!
Shortly after he was arrested, prosecutors said Olusajo tried to conceal his identity by soaking his fingers in a jail toilet, then chewing away the softened skin. He was unsuccessful, according to prosecutors.
Amazing!

MasterCard's 10-Q available online

Last week, MasterCard filed its most recent 10-Q report with the SEC. It includes some additional information on the merchant settlement. For the first quarter of 2003, MasterCard reported revenues of slightly over $500 MM as compared to $392 MM the year earlier. MasterCard's net income would have been about $50 MM for the quarter except for the settlement costs charged in the quarter of $721 MM. As part of it's 10-Q filing, MasterCard also filed a revised Executive Incentive Plan.

May 15, 2003

Growth forecast for online sales

CNET reports on a new study by Shop.org and Forrester which forecasts online sales in the US could reach $96 billion this year, a 26 per cent growth over last year. At that level, online sales would represent 4.5 per cent of total retail sales.
Last year, online retail sales in seven out of 15 product categories accounted for 5 percent or more of the $2.07 trillion in total retail spending. And this year, that figure is expected to increase to 9 categories out of 15, Silverman said. It is estimated that retail sales this year could reach $2.13 trillion. In the computer hardware and software category, 34 percent is expected to come from online transactions. Sales of all online tickets, including travel, events and movies, are expected to capture 20 percent of all ticket sales, while 15 percent of all book sales are anticipated to be online, according to the study.

May 14, 2003

Princeton student devises new smart card attack

CNET reports on a new attack on certain types of smart cards developed by a Princeton student.
The attack requires physical access to the computer, so the technique poses little threat to virtual machines running on PCs and servers. But it could be used to steal data from smart cards, said Sudhakar Govindavajhala, a computer-science graduate student at Princeton who demonstrated the procedure Tuesday. "There are smart cards that use Java that you could shine a light on, flip a bit and get access to the card's data," he said. The technique relies on the ability of energy to "flip bits" in memory. While cosmic rays can very occasionally cause a random bit in memory to change value, from 0 to 1 or from 1 to 0, Govindavajhala decided not to wait. He used a lamp to heat up the chips inside a computer and cause one or more bits of memory to change. By doing so, the researcher broke the security model that virtual machine's rely on--that the computer faithfully executes its instruction set.

May 13, 2003

Nokia turns phones into credit cards

CNET reports on a trial by Nokia and MasterCard of MasterCard's new PayPass technology.
In the Irving, Texas, trial, which is scheduled to last six to eight months, consumers can wave their SmartCover Nokia phones in front of the reader instead using a card. Both PayPass cards and SmartCover phones come with hidden computer chips and radio frequency circuits, which transmit payment details through the air rather than via a magnetic stripe.

Wells Fargo tops Gomez survey

Chris Musto from Gomez reports on Wells Fargo topping its most recent survey of online banks.
Always high ranked since the Scorecard's 1998 debut, Wells Fargo takes the top spot during a review period in which it launched an online deposit statement archive and more extensive bill presentment services, among other enhancements. On the surface, the pioneering Web bank appears to have left elements of its eight-year-old online offering untouched. But in actuality, the breadth of products supported with education, applications, account look-up and money movement is industry-leading. Meanwhile, additional attention is paid to how customers use the offering; the bank exquisitely pre-fills applications and delivers extensive help, online banking demos and reliability guarantees. Wells Fargo, moreover, has jumped to the front car of the online document delivery bandwagon, joining other large retail banks -- Bank of America, Wachovia, Wells Fargo and Bank One -- which all offer either online check images or online statement copies to most retail deposit customers. Wells Fargo's offering, however, goes one step further: it makes available seven years worth of online statements.

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