Customer control in the ATM world

Customer control in the ATM world
I wanted to build on my earlier blogs about customers getting more control over their card transactions. I do think it’s a genuine trend, although I am conscious that the more you think about something, the more you tend to notice things which seem to support your argument, yet otherwise perhaps wouldn’t have caught your attention. This is one such example. I just came back from a long weekend in Brugge, Belgium. Just as an aside – if you haven’t been to Brugge, you should pack your bags and go as soon as you have a chance. Many years, before I even heard of it, when people described it to me as “Venice of the North, prettier than Paris, etc”, I could not believe it, but I’ve now been there three times and agree with all those accolades. Beautiful litte town. Back to cards though. Card acceptance is broad and you can use your plastic pretty much anywhere. You can also see the signs of Bancontact/ Mr Cash, a local debit scheme, all over the place, with the plans to migrate Mr Cash to Maestro having been shelved a few years ago. As a tourist though, you still feel the need for the safety of cash sometimes. So I went to BNP Paribas ATM, which if I remember it correctly was one of the Diebold models. Most ATM transactions, especially abroad, tend to suprise you only when for whatever reason they refuse your card and you can’t get your money. However, here I was positively surprised – after I entered the amount, I was given a choice of notes denomination. For 150 Euros I was given a couple of options – 3×50 or 5×20+1×50. As I changed the amount, the options changed accordingly, e.g. for EUR160 = 2×50 + 3×20 or 8*20. I am not sure, perhaps it is a standard ATM feature in some other countries as well, but I haven’t seen that in the UK or in any other countries I travelled recently and I thought it was a nice bit of functionality, making me feel that I have influence and control over the outcome of the transcation.

Customers getting in control of their cards

Customers getting in control of their cards
In my last blog post, I talked about a Lloyds TSB Airmiles Duo card, which gives the customers a choice of using either MasterCard or American Express card for their purchases. I believe this is an example of a broader trend in card issuing – giving the customers more control. Here are a couple of other examples of card issuers giving customers more control: – Control of funding and settlement timing. Chase Blueprint card is a product combining a traditional credit card with debit, installment loan and financial planning functionality. It allows the customer to bucket payments into different categories – for example, everyday payments to be cleared in full or large one-off items to be paid off over time. It also offers tools to assist the cardholder in managing finances, such spending trends analysis and ability to set goals and set up payment plans. – Control of spending patterns and limits. Barclaycard and Orange have implemented the MasterCard’s inControl technology for their contactless card – the first deployment of this functionality for consumer cards. It lets cardholders set personalised controls, such as blocking a transaction made abroad. The customers can also set spend budgets and choose to receive instant SMS alerts or e-mails when these are exceeded. Regulation is also pointing in the same direction – Reg E in the US requires banks to let their customers choose whether they want to use the overdraft facilities on their ATM and one-off debit card transactions or not. I expect to see customers taking more control over their cards in the coming months and years.

American Express customer in a small village? Lloyds TSB might have just the answer

American Express customer in a small village? Lloyds TSB might have just the answer
It was my wife’s birthday this last weekend, so as a special treat, I arranged a romantic getaway, just for the two of us, without the kids. On the way to our weekend destination, we stopped for lunch at a rural ‘gastropub’, a very nice place with some excellent if slightly exotic dishes (haggis cottage pie anyone?). At the end of our lunch, I wanted to pay with American Express. Now, I do have a few cards in my wallet, but my Amex card collects points with Nectar, one of the UK loyalty schemes, so I quite like using it when I can. However, the owner of the place who came to collect my payment said, “I am sorry sir, we don’t take Amex. They still charge us for taking their cards”. The fact he wasn’t accepting Amex was not too surprising – while the gap is narrowing, there are still quite a few more places accepting Visa or MasterCard than American Express, especially among the smaller merchants. What I did find interesting was the phrase “they still charge us”, as if it was something unique in the market. I challenged that he surely got charged by his acquirer for accepting other cards as well, but he said it was a lot less, and generally sounded as if he has fully accepted that charge as a cost of doing business. Given the occassion, I wasn’t in the mood for an impromptu market research on MSC rates across different schemes, so I just simply paid the bill with my Visa. Lloyds TSB, one of the top UK banks, have an interesting solution for situations such as this – Airmiles Duo Credit Card. Anyone signing up for this card gets in fact two cards – one American Express and one MasterCard. What’s interesting is that the rewards the customer gets from spending on Amex is five times better than the ones on the spend through MasterCard. In other words, the customer is incentivised to use his/ her Amex card wherever it is accepted, yet they have a MasterCard as a fall-back option in those places where it’s not. Both cards are linked to the same account, one credit limit and one statement. And both cards do earn rewards, albeit it at different rates. I might have to consider getting one myself next time.

Payment infrastructures – do we care enough about their risks?

Payment infrastructures – do we care enough about their risks?

This week I attended one of The Financial Services Club events in London – a debate on whether payments infrastructure risk has been largely forgotten. The debate’s outcome was “no, it hasn’t been”, but the discussion raised some interesting points and provided a lot more colour to the answer.

The general consensus was that operational risks are well understood and mostly well managed. At least in the UK, the interbank infrastructures for BACS, CHAPS and Faster Payments schemes are very resilient with glitch events extremely rare. The very fact that the payments infrastructure works so well can lead to complacency and the impression that the risks they pose might be forgotten.

Layered resiliency is certainly one way of managing business continuity risk; the other is to have multiple providers with easy interchangeability between them – currently, that’s not the case in the UK, as the schemes are too different to just simply redirect say BACS traffic to Faster Payments infrastructure and vice versa. Could and should these schemes converge going forward?

On the other hand, liquidity risk certainly can generate shocks in the system. Do banks know how to manage counterparty risk from the operational perspective? What happens if one party cannot settle intraday? How do you know if and when to pay out? In crisis situation, is straight through processing (STP) really that good or would you rather approve outgoing payments manually?

Again, the participants were confident that banks would know what to do, but all agreed that many of them would rely on individual rather than institutional knowledge, i.e. on those deeply experienced people that all banks have somewhere deep in their payments and risk departments. But will this enough to satisfy FSA and other regulators? Banks have to take stress testing seriously and put their payments infrastructures through challenging but realistic scenarios to increase confidence in the whole system.