Is Cash Still King? - Cashless Society Update - 10.19.2014

10/18/2014 @ 7:11AM
Cash Is King No More As Mobile Payments Soar

Debit and credit transactions are taking the place of cash around the world — faster in developing countries than in North America and Europe, according to a recent report by Cap Gemini and RBS, the UK bank. Total non-cash transactions will reach 365.5 billion in 2013, growing at more than 20 percent in developing markets but only 5.6 percent in mature markets.

In some cases, developing countries will be able to leapfrog mature markets by moving directly to newer, more flexible technologies in payments, similar to their rapid adoption of wireless without the burden of wire legacy systems.

“Developing markets are establishing initiatives and upgrading infrastructure in order to boost non-cash volumes,” the report found. Mobile phones are making a huge impact and that will only increase as inexpensive smartphones proliferate.

“M-payments are expected to grow by 60.8 percent annually through to 2015. E-payments will decelerate to 15.9 percent growth during the same period. There is a gradual convergence of e- and m-payments as the distinction between the two diminishes.”

Although the report doesn’t hesitate to takes its measurements and projections to a single decimal point — that always suggests such precision? — the consultancy and the bank admitted being unsure of how to measure hidden payments.

“Unreported payment niches are being formed as payments move away from the highly regulated banking sphere. Although non-banks continue to pursue digital innovations and capture more of the payments market, we are yet to witness any concrete action on improving and reporting of data for the hidden market.”

The future of cards should be interesting as the study found that direct debit continues to grow, although cards still contributed most of the growth in non-cash transactions at 12.3 percent in 2012.

more here:
http://www.forbes.com/sites/tomgroenfeldt/2014/10/18/cash-is-king-no-more-as-mobile-payments-soar/

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Apple Pay And Digital Currency Mean Time Is Running Out For Physical Cash
Posted Oct 11, 2014 by Ilya Subkhankulov (@ISubkhankulov), Contributor



Editor’s Note: Ilya Subkhankulov is the COO of BTX Trader, the digital currency trading platform. He has also recently launched a consumer-friendly bitcoin and dogecoin buying service called Celery.

Since the advent of electronic payments, there has been a clear shift away from cash and checks. Credit and debit cards, and more recently prepaid debit cards, have been a staple of many consumers’ daily lives.

With the announcement of Apple Pay, Apple is betting that consumers want an even more convenient way to pay in person. Many in the payment space have attempted to make this evolutionary leap, but it seems that with Apple’s dominance of the easy-to-use mobile device market, it is uniquely positioned to become successful. There are existing examples of similar, successful implementations, with consumers in South Korea and Japan having long used mobile phones at the point of sale.

Glenbrook Partners, a payments strategy and consulting firm, believes that consumer adoption of new payment mechanisms comes down to two things: significant increases in convenience and/or perceived financial gains.

Apple Pay has internalized these two main drivers of consumer adoption and will likely be successful given its relationships with major card networks and banks. Similarly bitcoin, once past the learning curve, has significant conveniences over other payment methods and as the software evolves, will become more so. However, the financial benefits have not yet materialized.

Another parallel between Apple Pay and bitcoin is security. Apple Pay employs tokenization of information across the network and so is one of the most secure ways to pay in person, along with cash.

Apple Pay is well-positioned to make mobile payments pervasive with 220,000 merchants already signed up, an estimated 5 to 10 percent of the millions of merchant locations in the U.S.

It’s important to note, though, that Apple Pay has a dozen partner banks representing 83 percent of credit card spending in the U.S. but makes no mention of debit cards, which are issued by 14,000 merchants. As Generation Y is considered the debit card generation, hopefully Apple can cover that market, as well.

How does bitcoin benefit? Bitcoin depends on only one network — the Internet. Consumers are required to use mobile devices to initiate payment. Apple will shift consumer behavior to their devices and will make security a major consideration when consumers choose payment methods, especially after the recent parade of cyber intrusions of banks and merchants.

Bitcoin, as a payment network, is unmatched in its global design, affordability and security. Apple Pay is helping to lead the charge, and as bitcoin matures it will benefit from it. Rather than being a threat to bitcoin, as some commentators have rhetorically suggested, Apple Pay should provide digital currency with a boost — it could be the killer app that digital currency has been waiting for.

With digital currency, there’s nothing to jangle in your pockets and weigh you down as you walk. You can’t lose digital currency down the back of the couch. There’s no paperwork required and it supports online payments. Other advantages that digital currency has over physical, which may not be so obvious to the casual observer, are the lower transaction fees and the lack of a central issuer – so the user doesn’t have to put their faith in a banking system that may have let them down in the past.

According to a 2014 report on the use of cash by the Federal Reserve Bank of San Francisco, cash is still king when it comes to retail payments under $25 in the United States. The report states that the fact that debit cards tend to be used frequently for person-to-person transfers and several other categories of expenditure such as gifts, food, transportation and  entertainment indicates that cash usage likely is not the result of a lack of access to alternative payment options.

The average transaction size for many of these expenditure categories is relatively low, suggesting that the reason cash is the most or second-most frequently used payment instrument is because small value transactions tend to dominate these categories.

The conclusion I draw from this is that cash is encouraged by merchants and retailers for small transaction sizes either through minimum transaction sizes or with higher prices by including taxes. Who can blame them? The transaction fees for credit and debit cards erode profits for smaller transactions, 30 cents + 3 percent for each transaction.

As bitcoin grows and Apple Pay extends its reach over the next few years, cash will shrink. The governments are incentivized to promote digital currencies because of the visibility they can glean from their public ledgers. Bitcoin analytics startups such as Blocktrail and Coinalytics are receiving funding to help the world understand what’s going on in the payment network, much the same way the traditional banking system has been monitored.

Apple Pay and digital currency will play a massive part in changing how consumers perceive — and make — low-value payments. The businesses that are quickest to realize this will be the ones that benefit – but believe me, the days of physical cash are numbered.

more here:
http://techcrunch.com/2014/10/11/apple-pay-and-digital-currency-mean-time-is-running-out-for-physical-cash/

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 2:03 pm ET
Feb 6, 2014
By  TOM GARA
October 2015: The End of the Swipe-and-Sign Credit Card


(We have corrected this article to reflect the fact that customers will still be able to sign for credit card payments after October 2015.)

It’s a payment ritual as familiar as handing over a $20 bill, and it’s soon to go extinct: prepare to say farewell to the swipe-and-sign of a credit card transaction.

Beginning later next year, you will stop swiping the credit card. Instead, you will insert your card into a slot, just like people do in much of the rest of the world, where the machine will read a microchip, not a magnetic stripe. You’ll still be signing for the time being, but the new system also enables the use of PIN numbers, if card issuers decide to add them to their cards.

The U.S. is the last major market to still use the old-fashioned swipe-and-sign system, and it’s a big reason why almost half the world’s credit card fraud happens in America, despite the country being home to about a quarter of all credit card transactions.

The recent large-scale theft of credit card data from retailers including Target and Neiman Marcus brought the issue more mainstream attention, leading to a Senate Judiciary Committee hearing this week. Executives told the senators that once the country transitions to the new system — which includes credit cards embedded with a microchip containing security data — these kind of hacking attacks will be much more difficult to pull off.

The shift is coming though: both MasterCard MA -0.53% and Visa V +0.35% have roadmaps for the changeover, and both have set October, 2015 as an important deadline in the switch. But why has it taken this long, and how will the changeover work for card users and businesses?

We spoke with MasterCard’s Carolyn Balfany, the company’s expert on all things related to the new payment system, known as EMV, that will lead to the end of the swipe-and-sign and the beginning of the chip-and-PIN. Here’s what she had to say.

more here:
http://blogs.wsj.com/corporate-intelligence/2014/02/06/october-2015-the-end-of-the-swipe-and-sign-credit-card/

article above found here:

Why Apple Pay could succeed where others have had underwhelming results
Not because Apple is a huge and influential company, but because the timing is right.
by Megan Geuss - Sept 14 2014, 1:00pm CDT


"Apple Pay beta"

A couple of months ago I was visiting New York City and had to catch an early flight out of LaGuardia. At 4:30am I hailed a taxi on Houston Street and the driver and I sped to the airport over dark, empty streets.

On the way, I found a Samsung Note 3 in my bag that Review Editor Ron Amadeo had sent me a few weeks before. The thing had a Near-Field Communications (NFC) chip in it, and I had set up my Google Wallet account on it earlier. I also noticed that the taxi I was in had a tap-to-pay terminal displayed in the backseat. I am a consummate morning person, and a rush of new-day adrenaline told me that it was time to make my first Google Wallet purchase in three years—my last one occurring in 2011 when I reviewed the service at its debut for PCWorld.

As we pulled up to the curb, the driver continued to ignore me as I got out my phone. I touched the Note 3 to the terminal. The phone vibrated, but nothing happened. At this point, the driver turned around. I gave an embarrassed laugh and he said a few polite words but he had no idea how to help me. “Nobody ever uses their phone to pay,” he said. I tried again. Nothing. But the driver was curious now, and maybe because it was so early in the morning and he had nothing else going on, he got out of the taxi and came around to my side.

“Maybe you should select Debit from the screen first,” he suggested. I selected debit and re-tried the phone. Nothing. But there appeared a screen that asked me to select a tip amount. I chose 20 percent and held the phone back up to the NFC reader. It vibrated and finally on the phone’s screen I got a notice of success. Success!

more here:
http://arstechnica.com/apple/2014/09/why-apple-pay-could-succeed-where-others-have-had-underwhelming-results/

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UPDATED: (10.20.2014)

Obama signs “BuySecure” initiative to speed EMV adoption in the US
Home Depot, Target also promised to start using chip-and-pin terminals by Jan 2015.

by Megan Geuss - Oct 19 2014, 3:59pm CDT


A chip card and the inside of a card's chip.

On Friday, President Obama signed an executive order to speed the adoption of EMV-standard cards in the US. The transition to EMV—an acronym eponymous of Europay, MasterCard, and Visa, the companies that developed the standard—has been slow to gain traction in the US. The EMV standard will require credit card companies to stop relying on the magnetic stripe cards that are common today and move toward cards with embedded chips that will offer more secure credit card transactions.

Lawmakers and credit card companies confirmed earlier this year that the US would make the transition to EMV cards in October 2015. But over the past several months, retail stores like Target, Home Depot, Michaels, Neiman Marcus, and more have sustained major hacks that caused the retailers to lose credit card information and personal information of millions upon millions of customers, giving new urgency to the call for more secure credit cards.

Speaking at the Consumer Financial Protection Bureau on Friday, President Obama said that the federal government would apply “chip-and-PIN technology to newly issued and existing government credit cards, as well as debit cards like Direct Express.” The White House also said that all payment terminals at federal agencies will soon be able to accept embedded chip cards.

“The goal is not just to ensure the security of doing retail business with the government, but also, through this increased demand, to help drive the market towards swifter adoption of stronger security standards,” A White House press release said. “Institutions like the United States Postal Service have already made this transition across tens of thousands of retail facilities across the country.”

The White House said that Home Depot, Target, Walgreens, and Walmart promised to start activating EMV-compatible terminals by January 2015. American Express and Visa also pledged to start programs to acclimate small business owners and consumers to the changes that will occur next year.

The chip embedded on EMV cards creates a unique code for each transaction when the card is used, so stealing the card number is much more difficult for an attacker. In addition, EMV cards can require the customer to enter a PIN for each transaction, creating another level of security against fraud. EMV is not hack-proof, but it is considered far safer than the magnetic-stripe status quo. The standard was first adopted a decade ago in Europe where card fraud was rampant, and once the transition was complete, fraud committed by taking credit card numbers from point-of-sale terminals diminished significantly. But US retail stores and card issuers have dragged their feet in giving consumers the upgraded cards.

The president also announced some more minor initiatives to assist victims of identity theft. The White House said it was committed to helping the Federal Trade Commission build out their Identitytheft.gov page, which is intended as a resource for victims of card fraud. Calling identity theft "America’s fastest-growing crime," the executive branch asked federal investigators to “regularly report evidence of stolen financial and other information to companies whose customers are directly affected.”

The White House also said that it wanted greater credit score transparency so that consumers could monitor their own credit for fraud, but it was vague on implementation, aside from mentioning a handful of banks that currently offer or will soon offer free credit score information. Unfortunately for many Americans, credit scores are usually purchased, and credit reports can still only be had for free once a year through the major credit-reporting agencies.

Many banking and retail associations seemed to applaud the President's action. The Electronic Transactions Association said in a press statement, “EMV implementation is a vital step in addressing counterfeit card fraud, the single largest source of card fraud in the USA... The decision of the US government to support such cards will help drive further merchant upgrades.”

But others thought the move was too late and not forward-thinking enough. As the Consumer Bankers Association told BankInfoSecurity, "Many financial institutions and retailers already have a plan in place to adopt [EMV]—in addition to our own industry's stringent federal data security requirements. Other technologies are emerging to address online and mobile payments fraud, such as tokenization, which is being spearheaded by financial institutions and card networks in their effort to protect consumers."

here:
http://arstechnica.com/business/2014/10/obama-signs-buysecure-initiative-to-speed-emv-adoption-in-the-us/

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EMV

EMV stands for Europay, MasterCard and Visa, a global standard for inter-operation of integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions.

It is a joint effort initially conceived between Europay, MasterCard and Visa to ensure the security and global interoperability of chip-based payment cards. Europay International SA was absorbed into MasterCard in 2002. The standard is now defined and managed by the public corporation EMVCo LLC. JCB (formerly Japan Credit Bureau) joined the organization in December 2004, and American Express joined in February 2009. In May 2013 China UnionPay was announced as its latest member[1] with UnionPay now having an equal 1/6 interest in the standards body along with Visa, MasterCard, American Express, Discover[2] and JCB. IC card systems based on the EMV specification are being phased in across the world, under names such as "IC Credit" and "Chip and PIN".

more here:
http://en.wikipedia.org/wiki/EMV