Cash counts. Cash still matters enormously and no amount of "e" changes the idea that merchants, banks and service providers all still value cash as the most tangible result of commercial engagement with their target customer base.
Cash counts, yes, but cash also costs. Taking it in, teaching people to deal with it, building trust, counting it, storing it, moving it, even banking it ... all this costs, and these costs are growing faster than you can say "e-commerce is the solution".
The phenomenon of electronic commerce actually started with the proliferation of plastic cards, and the point-of-sale terminals and bank teller machines that talk to them. By now most of the world - developed and under-developed - understand the concept of portable credit or debit tokens which can be used instead of cash for making payments. Most of this physical world commerce so far has happened around magnetic stripe based tokens and the wired infrastructure of card acceptance devices and on-line back end processing systems. These box consumer accounts into neat one-to-one relationships where banking products are clearly distinguished from retail products.
The ground is shifting under this established commerce and payment model, and the changes that are coming threaten to fundamentally disrupt the neat one-to-one customer relationship paradigm.
- Factors driving these changes include:
- The continuing shift from cash to cards
- The move from mag-stripe to chip
- The move from on-line to on- and off-line
- The wireless phenomenon
Let`s take a look at each of these...
Increasingly cards simply make more commercial sense than cash. This is particularly true when the majority of the population - including those who are not good credit risks - move to debit instruments rather than cash for personal convenience benefits.
Cards cost less than cash and until recently, they represented considerably reduced risk at all points in the transaction value chain. Although the price levied for processing debit transactions is still a bone of contention between merchants and financial institutions. There has been a credit-card type mind-set that cards cost a "buck per transaction" to process which has stunted the growth of debit card usage. Now, there is growing realisation that debit does work better than cash. So cash is moving to cards, and this move is accelerating.
The growing problem with cards is that in today`s world, mag-stripe is simply no longer secure enough. Enter chip. Fraud - and in particular Internet fraud - is forcing the world to recognise that the whole payments infrastructure needs to move urgently to the issuing, personalisation, acceptance and processing of smart card rather than mag-stripe. The world`s largest card associations have mandated this move and already most developed world POS equipment, most modern bank ATMs and many transactive kiosks and self-service devices are geared to accept and pass transactions to the emv (EuroPay, MasterCard, Visa) standard which has emerged for smart card transacting.
Chip brings enormous security benefits that simply could not be contemplated with a token as relatively dumb as mag-stripe. The chip card has got a processor, ROM and RAM, an operating system and even sophisticated co-processor power for handling crypto algorithms in real time. Moore`s law now applies to this ultimately portable computer - it`s getting faster and cheaper every day.
Carrying around this computing capability means that being on-line is no longer a pre-requisite to securely transact or pay. It`s now possible for a card to trust or distrust a terminal on- and off-line. A terminal can also intelligently interrogate a card and locally satisfy itself that the card is valid and trust-worthy. The card can record a transaction and carry that record to the next point of service, and wait for a more convenient or more cost-effective on-line session later.
This is exciting in regions where being wired is not always cost-effective or practically reliable. One reason that national ID and purse cards are exploding in Asia-Pac, but not generating great interest in the well-wired US of A, is that where you`re wired you`re not paying as much attention to un-wired solutions to practical day-to-day transacting issues.
The same is true for the emergence of wireless telephony - where you`re cheaply wired, wireless takes longer to take off. Wireless is increasingly about data rather than voice; data is about content and transacting; transacting wirelessly means changing the personality and functionality of the smart card you carry in your mobile phone to help identify you and authorise the movement of money that payment needs.
A really interesting question emerging in tomorrow`s payments world is: who will "own" the customer? Will the bank persist with the view that payment is its space and that payment token issuing and account management is its domain?
Will the retailer push that his merchandise and brand pulls the customer to transact, so he can and will issue his own loyalty tokens that may conveniently carry account details or actual real monetary value?
Or will the winners be the micro-billing-capable, customer-base exploding, brand-aware cellular network operators who see the mobile handset or wirelessly connected PDA as the personal trusted transacting terminal of tomorrow that you will use any and everywhere?
Time will tell...
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