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Thursday, April 30, 2009

Leveraging the bank's ATM network for cardless money transfer

For some time I have been intrigued by banks' lack of interest in, or inability to leverage their ATM networks to gain a competitive edge. Traditionally used for cash advances and balance enquiries, ATMs have turned into more of a multimedia kiosk capable of providing a wide range of services. One area of particular interest, in my mind, is money transfer, a high-margin banking service largely dominated by two non-banks, notably Western Union and MoneyGram.

I was therefore pleasantly surprised to discover a solution at the recent Cartes Afrique conference in Tunis that exploits a bank's ATM network for such purposes. A Tunisian bank proposes a simple, innovative, cost-effective service for local money transfer. In simple terms, it works as follows:

  • The sender initiates the transaction in the bank branch, in the online bank, or at the ATM. In the branch, the sender may pay by cash or card, in the two other channels the sender uses a card (any bank card) to pay for the transfer.
  • At the point of interaction, the sender selects a unique PIN code for the transaction, and registers the recipient's mobile phone number as part of the money transfer transaction.
  • The sender then contacts the recipient (typically by phone) to communicate that a money transfer has been initiated, and the PIN code for the transaction.
  • To receive the money, the receiver simply goes to one of the bank's ATM, and keys in his mobile phone number and the PIN code for the transaction. The information is then verified by the bank system, and if correct, initiates a call to the mobile phone. The customer is asked to accept the call and place the phone in proximity of the ATM's loud speaker. The ATM then sends an encrypted signal to the mobile phone to authenticate the mobile phone.
  • Upon verification, the cash is dispensed to the receiver as a regular cash advance.

The advantages of this solution are several:

  • The bank may leverage its existing infrastructure to propose a new service, and generate additional income.
  • The service may be proposed to non-bank customers, as even customers without a card or bank account may utilize the service. All you need is cash and a mobile phone. It can even be leveraged as an acquisition channel for new customers, and you already know their phone number, so it is easy to make contact.
  • The service is secured using two factor authentication at point of reception. The receiver can only access the money if (s)he is in possession of something(s)he knows (the PIN), and something (s)he owns (the mobile phone).

One area to look into in more detail is how the model stacks up against the relevant market's anti-money laundering (AML) regulations. However, I personally don't see too many barriers in this regard. The sender is known, as the transfer will have been paid using a card (online or in ATM), and thus traceable, or over the counter in the bank branch, with the possibility to ask the sender to provide identification. On the receiver side, the receiver's phone number is known, and the user may thus be known. However, there are of course ways to obtain an anonymous, prepaid mobile phone number. Some additional measures should however mitigate the risk of large scale money laundering.

Such measures would include setting transaction limits on each money transfer transaction, monitoring velocity, and track abnormal transaction activity on both the sending and receiving side of the transaction. Excessive use of the service by a sender or a receiver may subsequently be suspended or blocked. Limiting the service to small amounts –the average money transfer transaction from France to African destinations is in the €200-300 range, as an example – combined with the need to be physically present at the ATM with a mobile phone to receive the funds, would make the service unpractical for money laundering of large sums of money.

But the service would still be highly attractive for customers in the target segments wishing to transfer funds to friends and family.

Wednesday, April 22, 2009

Card conference in Tunisia

I recently decided to take a look at what's going on in the cards industry in some of the French speaking countries of Western Africa. The Cartes Afrique conference, which takes place in Tunis over the next two days, is thus a good opportunity to meet people, and find out what's on the local banks' mind and to-do list.

In preparing for the trip, I had a look at card statistics in both Morocco and Tunisia, and I found at least a couple of issues that should be on their minds (and on the conference agenda as well, for that matter). One is card issuing, full stop, and the other is card usage.

The card industry in both countries seem to be suffering from the same problem as quite a few markets in the world, namely consumers' preference for cash and checks. Not only is card payments a minuscule part of the overall use of payment tools (0,2% of total payments in Morocco, for example), but even when a card is used, 9 out of 10 times it is to withdraw cash.

It leads me to believe that the local banks probably should focus even harder on getting more cards out in the market in the first place, and secondly, driving cardholders to pay with cards for purchases instead of using cash. And there is probably also opportunities to increase card acceptance significantly as well, although I haven't gotten to that piece of the puzzle yet.

And what about the corporate market? I would guess that there is a large number of companies that would need a card solution to pay for travel and other business expenses, similar to what we see in other markets across the world? I would not be the least surprised.

There is work to be done in this part of the world as well, in other words.

I will keep you posted!

Friday, April 3, 2009

New Report on the Nordic Card Market

MACAW research recently launched a new report on the Nordic Card market, and the trends and forces that will shape the dynamic markets in 2009 and 2010 in the wake of the global economic recession.

Besides estimating the impact on the global economic downturn on the size of the payment card markets in Norway, Sweden, Denmark and Finland, it also explores 20 card trends and opportunities in the Nordic region. Key concepts are card innovation, optimization and risk management. Card products that stimulate cross-selling of savings products, redesigned card loyalty programs, new constellations in telecom and banking, the challenges of open loop prepaid cards, and new card pricing models are only a few of the topics explored in this report.

For more information, visit www.macawresearch.com.

Tuesday, March 31, 2009

A Unique Setting to Build a Performing Management Team

Organize your next team building event on a sail boat in the most astonishing fjords and coastal areas of Norway.

A company’s success is largely dependent on talented individuals and their ability to build effective, performing teams. Successful teams can accomplish results far beyond a group of people working on their own. In our daily routine it may however be difficult to get the sufficient distance from day-to-day activities, and review what we do, and how we work together as a team.

This is the reason why we wanted to give companies an opportunity to take a “time-out” with their key people, and spend two or three days in a unique setting—as a member of the crew on a sail boat—to work on team related issues.

The sailboats, a German Frers 44 feet ketch and a Swan 51, are situated in Ã…lesund on the Western coast of Norway, in the heart of the Norwegian fjords. The tours take place in late May, June, late August and early September, and is organized by Thorleif Thorleifsson (Storm & Stille AS). Thorleif an avid sailor with more than 20 years experience as a consultant in organiza-tional management.

See http://smallchange.fr/Events.aspx for more details and reservation.

Thursday, February 26, 2009

Will WooGroup Succeed in Taking on Western Union?

A new challenger to Western Union recently emerged in the money transfer area.

The WooGroup, based in Paris, was recently listed on the Paris stock exchange (Nyse Euronext, ticker MLWOO). After a somewhat chaotic start – the listing was postponed a week following liquidity problems by Europe Finance et Industry, tasked to manage the introduction – the company came into play on January 28th. By proposing low cost money transfer services, it aims to compete with the industry heavy weights, and most notably Western Union, by proposing self-service money transfer kiosks (a sort of an advanced ATM) in combination with prepaid cards, e-wallets and mobile phone services. It plans to develop its first money transfer corridor between the US and Mexico, followed by other high-traffic corridors such as Europe – Morocco.

Philippe Erb, the WooGroup’s CEO, made his fame as a professional day trader under the nick-name “The Player”. So far trading in the new stock has been virtually non-existent, and it will be interesting to see if The Player will succeed in changing the game in the money transfer industry. More to follow on the WooGroup and this industry in future blog posts.

Wednesday, January 28, 2009

Contactless PayPass Cards at Carrefour in France - a Transaction Limit Enigma

To my great satisfaction I read recently that Carrefour will issue it's PASS card with contactless technology in collaboration with MasterCard.

The new card will be on the cutting edge of current card technology,including multiple accounts on the same chip, giving consumers the choice to pay with their own money (debit) or funds made available by their bank (credit). It also includes extended purchasing guarantees for electrical/electronical goods, and Carrefour's loyalty scheme.

I was all in all quite pleased about the prospect of paying using the contactless card, and benefit from increased speed and convenience when checkouting out of Carrefour stores. That is, until I realized that someone had decided to out a max limit of €25 for contactless transactions, which means that I will have another factor to consider when paying my groceries: tap&go or dip&PIN?

Why complicate the process?
Honestly, I am not sure. Security? Could be. Someone in the card organization or the issuer might believe that it is inherently more risky to let me use the convience of a contactless interface.

I don't. Prove me wrong, but I am willing to take the risk. The card issuer should, as well, in my view.

War on cash, then? Well, maybe. MasterCard and Visa have always wanted to replace cash, and they are doing a decent job at it as well. However, the war will not be won by complicating the cardholders' lives.

The limit of €25 has apparently been set based on research indicating that 80% of all cash transactions are below this threshold.

Really? I actually checked out my grocery shopping transactions over the last 6 months, and here is what I found:
- I did 85 supermarket transactions, at an average of €58 per transaction.
- 80% of the transactions were above €25.
- My card payments ranged from a low €10 up to a solid €163.

So what did I miss re. Contactless payments and the imposed €25 limit?
At least not that most of my transactions are above the limit. Neither that I would be less than enthusiastic about contactless if someone imposes usage barriers and complicates my life. Not even the potential confusion at the "moment of truth" when cardholders must choose between tap&go or dip&PIN depending on the amount.

Now, maybe the press release about the new card did not tell the whole story. Maybe the limit only refers to the need for PIN verification of the transaction depending on amount, ie. Allows for contacless transactions without a PIN below €25, and contactless with a PIN code above the limit.

I certainly hope so. Otherwise Carrefour can look forward to some interesting times soon, with confused customers and frustrated employees at the check-out.

Wednesday, January 14, 2009

Guerrilla Warfare in Business - Armed with New Technology and Business Models

When the founders of PayPal and Skype appeared, they were heavily armed with new ideas, technology and business models. They established new paradigms by challenging existing companies and conventional banking and telecoms strategies. All the time with their customers' needs in mind. And the story continues.

The idea behind PayPal (www.paypal.com) when it started in year 2000 was to provide its customers with a simple and inexpensive method of sending and receiving money using an electronic wallet. Eight years later the company has in excess of 164 million accounts (of which 65 million are active), reaching customers in over 190 countries. It processes transactions in 19 different currencies, totalling US$15 billion in 3Q08.

To put PayPal's growth in perspective: American Express spent over 50 years to build a customer base of 80 million cardholders!

Skype has enjoyed similar exponential growth for its internet based phone service(www.skype.com) In five years, Skype has reached 370 million users who enjoy free phone calls, instant messages and video conferences via the web. The company is as such a serious threat to existing telecoms suppliers.

Disruptive Innovation Creates Business Earthquakes
Years before PayPal and Skype, Mr. Clayton M. Christensen launched the term ”disruptive technology” and ”disruptive innovation” to describe these types of business earthquakes. However, the phenomenon is by no means new. We could for instance have gone back to the introduction of the first automobile, and how transport has evolved since then.

Look at digital technology, and how it almost drove Kodak out of business. Our behaviour as consumers have changed dramatically since Kodak (!) introduced the first digital camera 17 years ago. We now take lots more pictures (lots!), we frequently "develop" them ourselves by printing them on our own printer, and the old-fashioned photo album is replaces by a giant flat-screen TV in the living room.

The similarity between these disruptive innovations is frequently the wish to offer simple, user friendly, inexpensive or even free services to the mass market. Niklas Zennstrom, one of Skype's founders, has more than once touted Skype's user friendliness - "if you know how to use a web browser, you know how to use Skype."

The Next Earthquake in Media
The competitors do whatever they can to retaliate and retain its customers. All resources are deployed to remain competitive, including technology, marketing, and price dumping. Other stakeholders also engage in the battle, such as the Indian government who announced that it would ban internet telephony for security reasons and loss of revenue.

Skype and PayPal have since joined forces under eBay's protective wings, and PayPal's e-wallet is widely used to pay for eBay purchases or top-up Skype for SkypeOut calls.

The founders of Skype have since launched Joost (www.joost.com), an interactive internet service for distribution of TV and video on the web. It's highly likely that Joost will contribute to another business earthquake, this time in the media industry. The guerrilla war is by no means ended.