Tag: payments

The Future of Money

I took offence when I looked at the picture included in the article published on Wired.

http://www.wired.com/magazine/2010/02/ff_futureofmoney_move/

The arduous path that he has carved out for a card transaction assumes a lot of unnecessary intermediaries that have included themselves within the picture.

For me the story can be simplified.

Credit card processing involved a minimum of five parties.  The Issuing bank and its technology arm, the acquirer and its network and the scheme (Visa, MasterCard … ).  Everyone else is about the realities of the ISO marketplace and the proliferation of parties offering added value services along the transaction path.

 

 

Remember a credit card transaction is simply

 

Swipe/Tap/Dip/PIN.

Add transaction amount, time, merchant etc.

Ask Acquirer for approval.

Acquirer passed to scheme

Scheme routes to Issuer

Issuer approves and sends back the authorization.

then if necessary sign receipt

That night batches of requests for payment are sent from the acquirer to the Issuer with the Scheme, reconciled and settled.

 

Then there is ACH.  Yes the technology needs a modernization the functionality must be stream lined and ubiquity must be embedded in the pricing model.

Electronic checks that are facsimiles of hand written checks cleared through the Check 21 system should not be eliminated, they are efficient and provide a great personal audit trail.  handling the paper should be pushed as close to the original transaction as possible so that personal accountability is induced.  The person I handed the check to has the check.  So if there is a problem I have to deal with him.

Otherwise all the necessary transactions are possible and with the move to STP “straight through processing” the ability to assure availability of funds can be assured.

What are most of the other schemes.  First like American Express they are three party solutions with a man in the middle holding funds on account in a pre-paid scenario or capable of submitting as your proxy transactions into the ACH and card systems.

Yes the three party system is the most efficient.  Unfortunately it has one problem, it is not open.

Visa and MasterCard, although viewed as restrictive, are open systems.  They accept; any properly sanctioned bank as a member willing to abide by the rules and maintain sufficient reserved.  For a new system to acquire this status either means they become a bank and meet those incremental regulations or they focus on building critical mass as American Express has proven can be done.

So as this next article concludes, what is can improve and probably is better than something new.

http://www.wired.com/magazine/2010/02/ff_futureofmoney/all/1

The Future of Money: It’s Flexible, Frictionless and (Almost) Free

This is what I have done as the following snapshot indicates:

www.andreae.com/presentations

Alternative Payment Methods

Ed Kountz of jupiter in his recent blog on Alternative online Payments offers an opinion that credit and debit cards where not designed for the Internet. It is interesting to reflect back in history and remember when it was not the magnetic strip that was important to the execution of the transaction but the numbers printed on the front of the card a merchant could simply would say into a phone or type onto their telephone keypad to get an authorization.

Move to the Internet and instead of asking the merchant to type in the account number and expiry date we ask the consumer to fill in an Internet form. How can one argue that ISO7810-3 cards where not built for the Internet.

Back in the day, circa 1993, when we began to think about how we would secure payments over the Internet and address words like dis-intermediation. It was clear that by any definition the ubiquitous credit card was already a vehicle for enabling eCommerce. All the internet did was to take mail order and catalogue business and give it the power to become a global operation; no longer limited by the cost of a telephone call or postage. Nowadays, of course, the internet has become such a vital part of our everyday lives, with people looking up things like “internet in my area” to make sure that they are getting the best deals possible so that they can be confident that their connection won’t let them down.

And, of course, Mr Kountz is correct, there is a real issue with security and the Internet. Yet the issue is no greater than what was faced when Card Not Present transactions started happening as telephone ordering became common place. Did the payment associations attempt to keep up? MAYBE!

First we saw the introduction of CVC2/CVV2 and address verification as tools to address the risks of someone who had captured the data on the face of the card from employing that card maliciously. Not a bad solution, if the merchant was willing to make the changes to their web sites and call center procedures.

Next came SET, now here was the perfect solution, yet at a cost that simply did not offer anyone a reason return on investment; even if Card Not Present Fraud was an issue. Since then the payment associations tried to develop a simpler yet equally secure solution called 3D-Secure, Verified by Visa or SecureCode. The idea is sound. The issue of adoption came down to the simple issue of figuring out how to get the consumer to go through the additional step of activating their 3D-Secure password and better yet remember it. Versus what became the reality, they simply said this is too difficult, I don’t need to buy that today, so they abandon the shopping cart. Merchants saw 3D-Secure as a way to lose potential business and at a rate alarmingly larger than the cost of fraudulent transactions.

So what is the answer? Create new means of payment that are designed for the specific trading environment (mobile, Internet, Mail Order, telephone Order, face to face …) or figure out how to get everyone to work together to come up with a workable solution that exploits the power of the Visa, Discover, MasterCard and American Express Brands.

In my opinion it is about communications and working together as a team. Not once has the merchant been asked to participate in developing more secure solutions to payments. They are simply told through compliance and rule changes this is what they shall do.

Maybe the new Visa and MasterCard will find that merchants are now shareholders and bringing them to the table is in the interest of everyone especially the consumer. Or is it time for a new payment Brand that is built to serve the merchant and operated by the Banks?