European Purse Wars Dispatches from the trenches

Transcription

1 European Purse Wars Dispatches from the trenches by Dave Birch Hyperion < The electronic purse (e purse), taken here to mean a smartcard holding some form of electronic cash (e cash), has been seen as a crucial pivot for the finance sector because it can provide the final link between physical and virtual commerce: the cyberspace equivalent of notes and coins. In Europe, the deployment of e purses has followed many different routes founded on different objectives, business models and technologies to the point where a number of competing blocs are now discernible. While the e purse landscape is far from mature, I think that it is already possible to take a look at what has happened in e purse deployment to try and deduce some general results. We can then make some realistic assumptions to replace guesstimates as input to the business planning process in different sectors. Out There The first point to note is that e purse deployment across Europe is both heterogeneous and at very different points in the product lifecycle. As the table shows, while most EU countries have e purses in use, the deployment ranges varies wildly. Country E Purses (end 1997) Notes Austria 3,500,000 Quick Belgium 3,000,000 Proton: another 4 million cards deployed in Switzerland in the CASH scheme. Denmark 1,000,000 Danmønt Finland 1,200,000 Avant France 500,000 Germany 40,000,000 GeldKarte, P Card, Paycard Greece 10,000 Opera Ireland Visa Cash launch planned Italy 700,000 MiniPay (CLIP), VisaCash, Cassamat Luxembourg Netherlands 11,000,000 ChipKnip (Proton), Chipper Portugal 300,000 SIBS Spain 1,600,000 SEMP, CECA, 4B Sweden 100,000 Proton United Kingdom 200,000 Mondex, VisaCash (campus schemes as well as public pilots) Source: Retail Banking Research, British Retail Consortium, Scheme figures, Hyperion estimates. Hyperion Systems Limited (1998) Page 1 of 5 (May 14, 2000)

2 Throughout Europe (not just the EU) there are some 100 million stored value smartcards already in circulation 1, of which more than 60 million are e purses. To put these figures in context, note that Europay has some 123 million debit cards and 37 million credit cards in circulation. The figures are an indication of the deployment of national schemes in relationship with respect to international schemes. It s unsurprising that the schemes with the highest penetration rates are national, since almost all retail consumer purchases are local. The cost of implementing cross border compatibility is judged, by the national schemes, to be prohibitive given the small number of transactions: I m sure that this is true right now, but perhaps monetary union the rise of the Net will change the equation in a few years time. A representative example of the current generation of e purse schemes is the Swiss CASH scheme, based on Proton technology. Cool Britannia In the UK, both Mondex and Visa launched with geographic schemes. Mondex s Swindon pilot began in. While the Swindon pilot was certainly successful for NatWest and Midland (MasterCard subsequently paid a significant sum for a 51% stake in Mondex), transaction rates never set the world on fire and some merchants have stopped accepting the cards. The Visa Cash pilot in Leeds is on a much larger scale (there a now six banks involved) with some 70,000 cards going into circulation [1]. As expected, car parking has proved the most popular application. Of particular interest in the UK is the way in which closed environment schemes ( campus schemes ) have developed against these geographic schemes where only a fraction of the population have e purses (and a smaller fraction actually use them). Campus schemes, such as the schemes in operation at Exeter and York universities, launched with almost full coverage because the e purse was on a card that had a variety of other useful functions (student ID, voting, library access and so on). At Exeter, the e purse has already displaced some 20% of the cash on campus and is expected to displace 40% over the coming year. In two years time, some parts of the campus will be cash free 2. By and large, the consumer reaction to the UK schemes seems to be much more positive in the campus environment. This would tend to suggest that issuing e purses as stand alone items will not be as successful as issuing them for multiple functions (which, note, is distinct from issuing multi application smartcards). There are bounds to this proposition, of course. To me, one of the attractions of an e purse is that it is just that. I can give it to my son to go and buy a burger and if he accidentally loses it (or eats it or sets fire to it or whatever), I ve only lost a few pounds: I don t have to get a new passport or drivers licence. Nevertheless, the chips used on e purse cards are clever, so they can be made to do other things. Using them in loyalty schemes, ticketing systems and so on enhances their appeal to the e purse consumer. In Belgium, the almost 2 million e purses in circulation which are mounted on magnetic stripe debit cards function as Belgacom calling cards and will soon be used for internet payment, for a variety of loyalty schemes, and for electronic benefits transfer 1 Brown Hughes, C. Plastic out to achieve a triumph in Financial Times Economic & Monetary Union Supplement, London, p.2 (21st November 1997). 2 Woods, K. University case studies at Aston University Smart Card Workshop (Rugby: October 1997). Hyperion Systems Limited (1998) Page 2 of 5 (May 14, 2000)

3 to social security recipients 3. Using e purses to implement multiple opens up a whole set of issues that are outside the scope of this article, such as which brands are visible on the card, who runs customer service desks and so forth. If implementing multiple applications is necessary to make the economics work then these issues will have to be addressed as a priority. Euro Purses What of the European e purse landscape as a whole? It s reasonable to observe that none of the deployed schemes seem to be making money in their own right. The business case for e purses is weak (to say the least) and this is true so long as the e purse is viewed as a cash replacement mechanism for consumers to use at retail point of sale (POS). There are two main reasons for the weakness of the business case from this perspective. Firstly, retail POS is the least useful place for consumers to tender an e purse because it does nothing that they can t already do with notes and coins (and it s less convenient). Secondly, the reduction in cash handling overheads that could allow banks and retailers to incentivise consumer use of e purses does not become dramatic until e purse penetration rates are high. This cost reduction is highly non linear: banks can t, for example, reduce the number of ATMs, night safes and counters out there until a high proportion of customers are using their e purses and telephones instead. This situation is just the same as for Net banking in general: it will lose money for some time because (as US experience suggests) it only brings real savings when customers no longer use branches [2]. Without external pressures for change (such as legislation prescribing e euros, for example [3]), banks might naturally be reluctant to move more quickly. Incidentally, an example of what these external pressures might be came last month when Belgian police used helicopters to ferry cash from supermarkets to National Bank vaults because of fears that supermarkets would be robbed [4]. The crisis came about because of a strike by security guards following a series of armed assaults on cash transports, culminating in the killing of two guards on a motorway near Brussels. Supplies of cash dried up raipdly, leaving customers unable to obtain banknotes from cash machines one illustration of the advantages of e cash over physical cash. The use of e purses is therefore currently more attractive to consumers in places where notes and coins are inconvenient: vending machines, parking meters, subway tickets and so on. If I were to single out one lesson that has been learned from the initial wave of e purse deployment in Europe, I would say that the relative importance of unattended POS (versus retail POS) was underestimated. In Swindon, as I recall, it was some months after the Mondex launch before working Mondex compatible ticket machines began to appear in car parks Whereas e purses have benefits over cash in some areas, then, the competitive advantage of e purses is in areas where notes and coins cannot compete at all: in the area of remote payments. It s in mobile phones, digital TVs and on the internet that e purses may have their biggest impact [5], especially when combined with other desirable functions on the coming generation of multi application smartcards based on MULTOS and JavaCard. Mondex intends to launch just such a product in the UK, on the MULTOS platform, this summer [6]. The so far unnamed Mondex loyalty 3 Proton Business Newsletter (October 1997). Hyperion Systems Limited (1998) Page 3 of 5 (May 14, 2000)

4 scheme will allow retailers to target individual shoppers based on personal information stored on the card, rather than within a central computer. This means that special offers can be made on the spot, rather than relying on, say, targeted mailings of money off vouchers to carefully selected customers. Front Line The Netherlands is a particularly interesting case study for students of e purse deployment. As the chart showing e purse penetration (below) indicates, the Netherlands has by far the highest penetration of e purses into the general population in Europe. Here there are two consortia going head to-head: the bank led ChipKnip (based on Proton technology) and the telco led Chipper 4. ChipKnip has some 6 million cards issued, added to the standard magnetic stripe debit card, with 120,000 POS terminals deployed. It has seen some 1.8 million transactions over its first 9 months of operation (which works out to quite a low usage rate). Chipper has 5 million cards in circulation: the Dutch PostBank is part of the consortium and plans to issue cards to all its 7 million account holders. At this instant, the balance of opinion from persons I ve spoken to on the ground is that Chipper looks in better shape. It already has some multi application capabilities and its use in campus schemes has helped deployment. What s more, since the Dutch PTT is converting payphones and plans to give away home smartcard terminals (for consumers to connect to their telephones or PCs), Chipper acceptance points could become a common sight. E Purse Penetration, end Greece France UK Sweden Italy Norway Spain Denmark Finland Belgium Portugal Austria Germany Switzerland Netherlands 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Hyperion estimates, scheme figures. The telcos intimate relationship with the e cash delivery channel (the Net) is a real challenge to the banks. In Finland, the PTT has already begun a pilot service whereby consumers can pay at unattended POS locations using their GSM phone, with the transaction simply being added to their mobile phone bill at the end of the month. BT has been trialling the use of phonecards in parking meters. The Smart consortium 4 Ebbeling, H. The application is for profit, the infrastructure is common in proc. of Multi Application, An Opportunity for Profit. Philip Andrae & Assoc. (Brussels: November 1997). Hyperion Systems Limited (1998) Page 4 of 5 (May 14, 2000)

5 As in the Dutch environment, these are developments that throw the real e purse war into sharp relief: it isn t about Bank A versus Bank B, or MasterCard versus Visa, or single application versus multi application: it s about banks non banks. References 1. Seventh Bank Joins Visa British Test in Card Technology. (25th May 2. Pritchard, S. Put it on my account in Independent on Sunday : p.15 (7th June 3. Birch, D., European multiple currencies. DEMOS Collection, 1998(13): p Helm, T. Strike by guards causes cash crisis in Daily Telegraph (24th January 5. Luhby, T. Credit Card Dominance of On-line Payments Waning in American Banker. (6th January 6. Ody, P. Your money and your life in The Daily Telegraph. : p. 5 (16th April Hyperion Systems Limited (1998) Page 5 of 5 (May 14, 2000)