Squaring the Circle in
Payment Processing
Opportunities for emerging and
distressed economies to achieve
significant fiscal leverage from
Central Clearing Capability
A walk through the ages…..1980’s and beyond
•
Credit cards authorized using zip zap machines against
local floor limits
•
Dial up telephones to verify card
number against negative file list
•
Payment guaranteed by issuer
in exchange for fee (interchange)
The move to Debit Cards
•
Debit cards launched along same processing train
tracks, but different commercial model
•
Per transaction fees,
linked to buyer’s bank
account for real time
debit
A period of barriers to entry...
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Bank membership card schemes
•
Bank owned / controlled domestic schemes
•
Issuing / Acquiring only by domestic Banks within
their own markets
•
Service chain tightly controlled by traditional players
•
Only non face-to-face were moto transactions (mail
order telephone order)
The birth of e-commerce
In 1979 Englishman
Michael Aldrich
invented online shopping to enable
commerce between consumers and
businesses, or between one
business and another, later to
become known as e-commerce
Other early landmarks
1981:
Thomson Holidays, UK is first B2B online shopping [citation unavailable]1984:
Gateshead SIS/Tesco is first B2C online shopping and Mrs Snowball, 72, is the first online home shopper [citation unavailable]1990:
Tim Berners-Lee writes the first web browser, WorldWideWeb, using a NeXT computer.1995:
UK’s first national online shopping service secure transaction involving WH Smith, Tesco, Virgin/Our Price, Great Universal Stores/GUS, Interflora, Dixons Retail, Past Times, PC World (retailer) and Innovations1995:
Jeff Bezos launches Amazon.com and eBay is founded by computer programmer Pierre Omidyar as AuctionWeb2002:
eBay acquires PayPal for $1.5 billionThe Emergence of m-Commerce
“
Mobile Commerce
, also known as
m-commerce
, is the ability to conduct
commerce using a mobile device, such as a
mobile phone, a Personal Digital Assistant
(PDA), a smartphone, or other emerging
mobile equipment such as dashtop mobile
devices.”
"Mobile Commerce is any transaction,
involving the transfer of ownership or rights
to use goods and services, which is initiated
and/or completed by using mobile access to
computer-mediated networks with the help
of an electronic device."
Some m-Commerce landmarks
1997:
First two mobile-phone enabled Coca Cola vending machines wereinstalled in Helsinki , Finland. Accepted payment via SMS text messages
1997:
First mobile phone-based banking service by Merita Bank of Finland, also using SMS1998:
First sales of digital content as downloads to mobile phones with the first commercial downloadable ringtones from Radiolinja (now part of Elisa Oyj) in Finland2000:
Norway launches mobile parking payments. Austria offers train ticketing via mobile device. Japan offers mobile purchases of airline tickets.2007:
Launch of the iPhone; mobile commerce moves away from SMS systems and into actual applications.Convergence...
Central Interoperable Hub
m-Commerce e-Commerce Traditional card processing
Core Processing Hub needs to be…
Payment type agnostic
• accept and process any data string
Channel agnostic
• take any data string from any source (input channel) and send relevant value to any designated end-point (output channel)
Geography/Market agnostic
• be able to take any payment from any seller to any buyer in any market according to the rules set within either the buyer or seller market
Rules/Parameter driven
• support any rules stipulated by any regulatory authority and/or any payment scheme/ payment operator, regulated within the defined market(s)
Core processing hub needs to be…
Secure
• supporting SSL communications, PCI, data encryption, 2 factor authentication, intrusion detection and application firewalls, at a minimum...
Fraud Resistant
• Seeing every transaction enables interrogation and audit, with option to flag or stop payment, build up data base for neural network anlaysis
Portable
• easily ported/replicated in any domestic market
Redundant
The New Environment...
•
Increasing wealth in the developing world bringing in
very many new stakeholders
(est.5 billion mobile phone
users vs 2 billion bank account holders)
•
Electronic communication over the web and by mobile
creates connectivity and data…
Data Is Knowledge!
•
Banking systems are developing, but many new players
are entering
(MNOs, online payments providers etc.)
Fraud
•
New applications and new technologies create greater risk
•
Money laundering is on the increase
•
New payment providers may not be covered by banking
regulations (KYC, AML etc.)
•
The scale of online fraud worldwide ($380 billion) now
approaching that of reported organized crime ($440 billion)
Opportunities for governments
•
Risk sharing and PPP approach – helps to keep costs down
•
Collecting, analysing and storing data centrally – and in real time – enables
efficiency and auditability
•
Encouraging cash-lite society reduces costs, decreases fraud and increases
efficiency
•
Tax collection and benefits
payments can be routed through
the central hub
•
Anti-fraud and anti-money laundering
measures centralized and immediate
Parallel silos of financial activity....
Wage Earner / Buyer Employer/ Seller Saver / Pensioner GovernmentWage Earner / Buyer Silo
Wage Earner / Buyer
•
Receives income as initial financial
transaction
•
Taxes collected automatically
•
Net amount paid into electronic
account
•
Bank, stored value card, electronic
wallet, mobile phone account etc.
•
Regular payments for pensions,
health care, utilities etc.
•
Savings
Employer/ Seller
Employer/Seller Silo
•
Can pay gross payments to central
hub for deductions to be calculated
•
Taxes collected automatically
•
Transaction fees deducted
•
Administrative savings
•
Online access to audit trail makes
accounting simpler
•
Accountable and verifiable data on all
transactions
Saver / Pensioner
Saver / Pensioner Silo
•
Deduction from gross salary for
national / private pension schemes
•
Protection of accumulated pension
funds
•
Government / Central Bank
guarantees on security
•
Access to savings / pension through
electronic transactions
Government
Government Silo
•
Collection of Income Tax on wages
•
Collection of VAT / Sales Tax on
purchases
•
Payment of benefits and microfinance
•
National pensions investments
interest
•
Auditability and fraud resistance
•
Reductions in administrative costs,
increases in efficiency and income
The Central Hub Model
The Central Hub Model
ITPS Banks Credit Card Associations Local card issuers Mobile operators Non-traditional Online PS Licensed ETPs Fraud scrub Calculation of taxes and benefits. Automated payment of taxes and benefits. Payment for purchases. Payroll Payment Access to account information / book-keeping Banks Credit Card Associations Local card issuers Mobile operators Non-traditional Online PS Licensed ETPs PAYER Government accounts Calculation of fees and deductions.Summary
•
The credit card industry has established strong control and
processing capability
•
Learning from and matching this is important for all innovative new
payments
•
Interoperability is essential for competition, data availability and
consumer choice
•
By 2016 there will be
1 bn
smartphones and one third of spend in
the tech economy will be via mobile, a total of
$1.3 trillion
(Forrester Research)
•
Moving from cash to any electronic format has multiple value-adds
for governments
•
It is essential to manage this evolving landscape securely, and in a
controlled centralized fraud-resistant environment
