Reporting from the field

Reporting from the field
Last week I attended “The Future of Cards and Payments” conference in London. Over two days, various speakers shared their perspectives on how they see the cards and payments market developing, particularly in the UK. Here is a selection of facts, which I picked up during the presentations and found especially interesting:
  • The crisis hasn’t changed the UK consumers’ behaviour that much. According to a study by Visa Europe, 56% of respondents in 2010 agreed with the statement “I save money so I have some protection in the future”, compared to 57% in 2008 and 24% are “open to borrowing to buy what I want today” (vs 23% in 2008). Having said that, more people are aware of their finances with 63% vs 45% two years ago “watching every penny they spend to avoid getting into debt”.
  • Cash is not going away. In the same Visa survey, 35% of people surveyed in 2010 stated that they “prefer to pay in cash for everything I buy”, which is down from 54% in 2002, but up from 18% in 2008.
  • Only ~50% of business accounts in the UK have a card
  • Identity fraud is up by 32% in 2009
  • Cheques are due to be phased out in the UK by 2018. However, it will only be done if by 2016 there are real alternatives in place, they are available to the users, well known and are being used. Heavy cheque users include charities (get 70% of their income via cheques) and elderly (may need another paper-based alternative, e.g. giro credit) among others.
  • UK market has ~4m prepaid cards.
  • Also, UK is on track to have 12m contactless cards in use by December 2011. Focus needs to shift now to acceptance.
  • Adoption of SEPA Direct Debit is partly an issue of interchange. 70% of euro-based DD transactions in the EU don’t have interchange, but the others do. The European Commission is firmly against having interchange for DD, but accept that a transition period may be required and there might be a case for it when dealing with rejected transactions.
  • To limit fraud, some online merchants and their PSPs are beginning to tailor availability of payment methods based on the consumer’s postcode, e.g. credit cards would be OK if you live in a premium address in Chelsea or Kensington, but only a prepaid electronic voucher (e.g. ukash) would be offered if you happen to shop from a council estate in Peckham.
  • And if you live with 20 other strangers in a room with no doors or windows in Asia or Africa and have no bank account, storing money is as important to you as being able to make payments.
I will be on vacation for my next blog post. See you in August!

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.

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.

Looking Through Suica-Colored Glasses

Looking Through Suica-Colored Glasses
Taking a short break from my research into mobile contactless payments, I recently made a private trip to Japan (I tend to go 4 – 5 times a year). However, with mobile contactless heavy on my mind, I couldn’t resist buying myself a prepaid Suica contactless card for use on the JR (Japan Railway) and subway lines around Tokyo. I simply inserted JPY 2,000 into the ticketing machine, entered some info, and a Suica card with my name printed on it came out (contactless card instant issuance, very nice). I thus joined the ranks of the 26,000,000+ active Suica cardholders. Armed with my Suica card, I began to casually observe the behavior of my fellow travellers. Despite Japan’s reputation as being the world’s most advanced country in terms of mobile payments, I can honestly say that I did not see a single commuter using a mobile phone to make a contactless payment. Japanese consumers seem perfectly content keeping their contactless cards tucked inside their wallets or card holders, which they wave at the turnstile — surprise #1. My new toy still in hand, I began to really pay attention to the non-transit merchants that accepted Suica as a form of payment — newstands, convenience stores, taxis and vending machines. However, it wasn’t until I returned to the States that I understood the magnitude of Suica’s non-transit payments. As of this year, there are > 44,000 acceptance locations in the Eastern Honshu region of Japan alone. More importantly, the number of non-transit transactions is rapidly approaching 1,000,000 per day (see figure below) — surprise #2. suica-figure What shouldn’t be surprising is that JR (the Suica Issuer) understands quite well that Suica’s non-transit business represents a viable, non-core business line and has designated Suica as a “pillar” of its corporate business strategy (some interesting similarities to eBay/PayPal…). JR’s near-term goal for Suica is 8,000,000 non-transit transactions per day. These transactions will be MasterCard’s and Visa’s to lose, meaning the JR/Suica has become a true disruptor (the same is true for Octopus Card in HK). As the U.S. has multiple population centers, I don’t envision such disruption occurring here. However, those countries with a dominant population center (e.g., France/Paris, UK/London, Canada/Toronto) are most likely to be chinks in the payment brands’ armor.

The Swiss (well, Japanese) Army Knife of Cards

The Swiss (well, Japanese) Army Knife of Cards
I was in Japan on vacation last week, and saw a payment card that would likely make any U.S. card expert’s head explode — allow me to explain. I’ll start with the easy stuff. This is a Visa-branded credit card, issued by Mizuho Bank of Japan. As such, it functions like any other Visa-branded credit card. Getting a wee bit trickier, the card is for “Electronic Use Only”, a fancy way of saying that it’s not embossed. So far, so good, right? Now things get really interesting… The card has a mileage points program, which can be used to automatically load a Suica e-money purse, which can be used at numerous public transportation systems around Japan (mainly Japan Railways) and merchants such as convenience stores and station kiosks. In the U.S., the only card that is similar is the Starbucks Duetto Card, with second purse use limited to one merchant (i.e., Starbucks). http___wwwmizuhobankco1 As Celent SVP Bart Narter often says, “But wait, there’s more…” The card is a chip-enabled for greater security at POS and ATMs. Very importantly, the Suica e-money purse is supported by contactless technology, an absolute necessity for use at railway turnstyles during morning and evening commutes. Also, the Suica purse can be auto-loaded from the credit purse once the balance drops below a certain threshold. No such combo payment-transit card has yet to take off here in the U.S. Finally, when used at certain merchants (i.e., Japan Railways stations and agents), the card functions as a View Card, a private-label credit card which offers more favorable merchant discount rates than Visa-branded transactions. There are very few, if any viable examples of dual branded-private label cards available in the U.S. today (I do seem to recall that Brooks Brothers once co-branded a similar type of card with GE Money). All of this without an annual fee — don’t hold your breath for a U.S. equivalent.

Bank of America Puts a New Spin on Cross Selling and Online Banking

Bank of America Puts a New Spin on Cross Selling and Online Banking
Bank of America recently introduced a new program called Add it Up. This creative program allows BofA credit or check card holders to receive cash back (on their credit card or deposited to their BofA checking account) when they shop online at a variety of merchants. It’s an interesting move as banks don’t typically tie themselves into other industries (retail in this case). The partnerships with retail merchants are certainly a creative way of marketing and relationship building. There is a long list of merchants to choose from and the cash back percentages are quite decent. A couple of things caught my eye: – This is a great way to cross sell.You need to enroll for this via BofA online banking. In other words, if you have a BofA credit card but don’t bank online with them, you must now open an account. Or vice versa (bank online, need to get a credit card). A good way to cross sell and tie complementary products together. – The offer is attractive since people are trying to save money. The rewards offered here are exactly what US consumers are looking for. Money is tight and folks will be more than happy to save wherever they can. – This is the time for banks to solidify customer relationships. Consumers are wary, banks are shaky. This is a move that cost-conscious consumers will appreciate and it can certainly contribute to the relationship stickiness factor. It is important to note that this is NOT a new concept. Receiving a discount or cash back for online shopping has been available for some time through a variety of consumer sites. Examples are www.fatwallet.com and Live Search. Users of these sites don’t have much incentive to switch to BofA. However, Existing BofA customers who are new to the cash back concept will find a lot to like.

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