Ethereum- A summary

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Part 3

In this third and final post on the topic of Ethereum, Dr. Neeraj Oak sums up his thoughts on this potentially ground-breaking decentralised contracting system and considers the issues and benefits he thinks should be highlighted before Ethereum is launched.

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To summarize my view in the previous two posts, Ethereum is a good idea but one that is far more complicated than even Bitcoin was at its inception. This is an admirable thing, but it is important to provide credible solutions to the rather fundamental legal and technical issues that Ethereum faces before it is officially launched. Without these, Ethereum seems a risky proposition for any investor.

 

One vital part of creating a sound market proposition for Ethereum is in crafting a cohesive argument for why their service is better than a centralised, non-pseudonymous alternative. If the argument centres on the idea of a safe means of transferring data or value, then eliminating pseudonimity is a good way of achieving this. On the other hand, if the goal is to eliminate the need to trust a single central authority then this could be achieved in easier ways. For instance, making several independent organisations responsible for maintaining copies of the ledger would preserve a part of the checks-and-balances of full decentralisation without exposing ordinary users to the hassle and potential threats that could come from holding a copy of the ledger themselves. Without explicit reasons for including the design features of pseudonimity and decentralisation, Ethereum risks looking like a purely ideologically motivated experiment rather than a practical alternative for mainstream users.

 

It is also worth considering the merits and drawbacks of making the Ethereum project fully open source during development. While this certainly increases the confidence and engagement of the cryptocurrency community, it also makes it hard to keep competitors and clone services out of the market. Ethereum will live or die by its ability to get third party developers to utilise its smart contracts and scripting language. If Ethereum’s code can be easily reproduced, then it faces a real risk of being outcompeted by a cloned or forked service with a better marketing department. In response to this issue, supporters of Ethereum have made the argument in the past that the best guarantee of a quality service is the participation of its creators. I’m afraid I don’t subscribe to that view; the very fact that Ethereum is being developed a mere 6 years after the launch of Bitcoin suggests that open source projects are very susceptible to competition from new innovators from outside the immediate circle of their creators. More to the point, the effort of fighting off forks and clones will be a distraction to the Ethereum team, win or lose.

 

I’ll finish with this thought: the reasons why Bitcoin is the dominant cryptocurrency today is not only that it was first. It is also because it launched at a time when hardly anyone had heard of the concepts it espoused, and fewer still believed in them. Through its early years, it was obscure and barely capitalised. I believe that it was this period of insignificance that gave the Bitcoin community the time to find answers to its early critics in a relatively technical, low-stakes environment. In contrast, Ethereum will be launched with its coffers filled and in the full glare of the media spotlight. Its creators should prepare for a rocky few months after its launch.

Neeraj Oak

Chief Analyst, Digital Money

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Author of Virtual Currencies – From Secrecy  to Safety, co-author The Digital Money Game

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Join us to explore ideas at The Digital Money Group on LinkedIn

Ethereum- Opportunities and challenges

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Part 2

In the second post on the topic of Ethereum, Dr. Neeraj Oak examines some of the outstanding technical and legal challenges that Ethereum faces.

In this post I’m going to give a brief outline of the kinds of challenges and obstacles that Ethereum will have to overcome before it launches. But before I do that, I want to consider some of the advantages that Ethereum could bring to the virtual currency community.

Bitcoin was designed to be a value transfer mechanism, but in its original form it only supports the transfer of one commodity: Bitcoins. In recent years, the idea that other commodities could be traded on the Bitcoin blockchain has grown in popularity. So-called coloured coins have been proposed that can be used to represent other items on the blockchain, using the benefits of decentralisation to record ownership without the need for a trusted third-party registry.

If Ethereum achieves what it has set out to do, it would represent a far more flexible implementation of the coloured coin concept, not only allowing other commodities to be traded but also enabling the creation of complex trading instruments like derivatives and options. It would also open up the possibility of decentralised versions of existing services such as Dropbox.

If it succeeds, Ethereum holds a great deal of promise in terms of the opportunities it would open up for entrepreneurs in the blockchain technology space. But for this to happen, Ethereum must tackle a few serious concerns about its technical operation and the legal ramifications users may face by using Ethereum contracts.

Technical issues

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Bitcoin’s creators are believed to have purposely left Turing-completeness out of their service because of the unnecessary hassles it creates. For instance, when code is executed in a pseudonymous decentralised system, the processor of that code is unaware of its origin. This is dangerous, since the code could be malicious, both in its operation on the funds it is given and its interaction with the computer on which it is being processed.

As an example, imagine an Ethereum user who decided to upload a virus to the blockchain. This virus would be contained within a smart contract and would eventually reach a processor for execution. If the processor attempts to execute the code without any safeguards, they could risk infecting their own computer. However, if they were to somehow screen the code before processing, they may have to perform considerably more computations (in verifying the code is secure) than they are being paid for. Further, even the most sophisticated screening process cannot guarantee that any piece of code is safe to execute, so processors would still run a risk of infection even after they take due precautions.

Ethereum partially addresses this problem by forcing a finite execution time on all contracts by charging the contract ether for the computational time it takes up. This makes infinite loops impossible, because they would require infinite money to perform. Unfortunately, this does not tackle the security challenge of finitely long malicious code.

Legal issues

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An immediate problem with the idea of smart contracts is that in practice it is hard to hold anybody to account for their actions. Because the contracts execute autonomously from their creators once deployed, their activities are hard to stop should they become destructive or malicious. Moreover, one cannot track down the creators of the code easily because Ethereum upholds the principle of pseudonimity, the representation of users with account numbers or public keys. Even if the creator of a piece of malicious code were located, it would be difficult to punish him/ her for the potentially unintended or unforeseen actions of their autonomous code.

It may also be the case that a smart contract created between two people was the result of deception or coercion. Ordinarily, a physical contract drawn up by two parties is witnessed by independent signatories to minimize the risk of coercion. However, in the digital world there is no way of knowing if one of the parties signing the contract is doing so against their wishes. Moreover, neither party has any recourse to a court of law should the contract have been misrepresented, since it is unclear which nation’s jurisdiction applies. After all, the contract signatories may be in different countries, as may be the processor who executed the contract code. As a further complication, the execution of the contract cannot be stopped once it has been deployed, so in practice the only law that counts in the world of Ethereum is the computer code that resides within each contract. This leaves users of such contracts dangerously exposed, something that they should be made aware of before they put their digital signatures to any smart contract.

Ethereum is an innovative idea, but one of the problems with innovations is that they stretch the institutions that already exist in our societies. This would not be a problem if the idea was to remain experimental, but as things stand at least $15 million worth of investment has been put into Ethereum and several million more may follow once the service is brought to market. If credible solutions to the legal issues that Ethereum could face were not made public by then, the creators of Ethereum should probably prepare to face some stern criticism.

Join me for my next post, in which I sum my views on Ethereum and the possible risks and rewards it offers to investors.

Neeraj Oak

Chief Analyst, Digital Money

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Author of Virtual Currencies – From Secrecy  to Safety, co-author The Digital Money Game

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Join us to explore ideas at The Digital Money Group on LinkedIn

Ethereum- Bitcoin 2.0?

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A great deal of publicity has surrounded the development of Ethereum, the decentralised contracting platform. Over the next few posts, Dr. Neeraj Oak considers what Ethereum offers, and the benefits and obstacles it might face as it is brought to market.

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I’ve had a lot of people asking me about Ethereum lately. It has been a hot topic among virtual currency enthusiasts, partly due to Ethereum already claiming to have raised around $15 million worth of Bitcoins from its initial sale of Ether, the value unit of the Ethereum system.

In this post, I’d like to cover the basics of what Ethereum claims to be and what differentiates it from existing virtual currencies such as Bitcoin. But before I begin, it’s worth stressing that Ethereum has not yet launched so we can’t know for sure if its final feature set will live up to the ambitions of its developers. Consequently, we can only base our knowledge of its features on the project yellowpaper and public code.

What is Ethereum?

Bitcoin, the first and largest of the cryptocurrencies, works on the principle of a decentralised blockchain in which transactions are registered. When a user requests a transaction, the system bundles it up with a set of other transactions into a mathematical puzzle called a block. This block is solved by transaction processors (or miners) who expend computational effort on the problem in return for a monetary reward. This system makes the history of Bitcoin transactions tamper-resistant, an important feature when dealing with people’s money.

Ethereum will also be a decentralised exchange system, but with one big distinction. While Bitcoin allows transactions, Ethereum aims to offer a system by which arbitrary messages can be passed to the blockchain. More to the point, these messages can contain code, written in a Turing-complete scripting language native to Ethereum. In simple terms, Ethereum claims to allow users to write entire programs and have the blockchain execute them on the creator’s behalf. Crucially, Turing-completeness means that in theory any program that could be made to run on a computer should run in Ethereum.

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As a more concrete use-case, Ethereum could be utilised to create smart contracts, pieces of code that once deployed become autonomous agents in their own right, executing pre-programmed instructions. An example could be escrow services, which automatically release funds to a seller once a buyer verifies that they have received the agreed products.

Because the execution of code costs time and computational capacity, the people who process Ethereum contracts (analogous to Bitcoin’s miners) must be compensated. As such, Ethereum contracts are issued along with a finite amount of ether, the value token of Ethereum. When the code is processed, the processor receives a predefined amount of ether from the contract for the work they put in. By making code costly, the designers of Ethereum also hope to limit the size of their blockchain, since it could quickly balloon to a size that dwarfs Bitcoin’s if safeguards were not put in place. In the short term, it also creates an income for the creators of Ethereum: the money they have raised so far has come from the pre-sale of ether.

Ethereum contracts are designed to be ‘fuelled’ by ether, so the designers of the system have chosen to inject 18 million ether units into circulation through mining each year in perpetuity. This is unlike the Bitcoin model of mining, which has diminishing returns that result in a long term limit in the quantity of value tokens in circulation.

Join me for my next post, in which I look at some of the outstanding technical and legal challenges that Ethereum must overcome before it reaches the market.

Neeraj Oak

Chief Analyst, Digital Money

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Author of Virtual Currencies – From Secrecy  to Safety, co-author The Digital Money Game

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Join us to explore ideas at The Digital Money Group on LinkedIn

Ria Digital – Innovation in remittances within the Euronet group

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Today I am speaking to Darren Bruce, who set up Ria Digital at Ria Financial Services, the third largest money transfer operator in the world. Darren shares with us what it means for remittances to go digital, the trends he observes and the outlook for 2015. Enjoy!

 

Darren, it is a pleasure to speak to you today. Could you please tell us a bit about yourself and your role at Ria Digital?

RMT-Mobile-Nav-in-Android-PhoneI joined Ria two years ago as Vice President and General Manager to create Ria Digital as a startup within Ria Financial Services, the money transfer division of Euronet. I oversee Ria’s digital business including the ground-up development and expansion of Ria’s digital products and services across the globe.

Prior to joining Ria I spent 4 years with the Western Union Company in Denver, Colorado, as Head of Global Emerging Product Operations. In this capacity, as you know Charmaine, I oversaw the strategic management and operational direction of the company’s new/emerging products consisting of e-commerce, account based money transfer, prepaid cards and mobile money transfer. Prior to Western Union, I lived in the Netherlands for 10 years where I worked for Canon, Cambridge Technology Partners, and Nike mainly focussed on web/e-commerce capacities.

I started Ria Digital to lead the company into the fast-paced world of customer needs in the digital age including linking the physical world, which Ria is already very strong, to digital world where the opportunities are endless.

 

 

Please could you give us some background about Ria Financial Services and how Ria Digital fits in, as well as how HiFX which you just acquired fits in. As a Group how do you work? I understand Euronet has become a big prepaid issuer in Europe

rialogoSince opening our first storefront in 1987, we have grown into the third largest money transfer service in the world. Ria has over 240,000 locations in more than 130 countries—and growing very quickly—as well as connections to over 50k banks across 100 countries.

In addition to money transfer services, Ria also offers bill payment, mobile top-ups, prepaid debit cards, and check cashing. In every service that we provide, we work hard to ensure a clear, simple and valuable experience.

 

In April this year imageWalmart and Ria launched a retail industry first – Walmart-2-Walmart Money Transfer Service. Walmart-2-Walmart offers a clear fee structure with just two pricing tiers: customers can transfer up to $50 for $4.50 and up to $900 for $9.50. This leverages Walmart’s existing footprint and technology, with Ria being the licensed money transfer operator for all Walmart-2-Walmart transactions, and Walmart the authorized agent of Ria.

 

imageIn May this year Euronet acquired HiFX, this has been a great addition and very complementary to our core business. It is a UK-based mainly online initiated international payments and foreign exchange services provider that enables us to extend towards delivering an account-to-account international payment service to high-income individuals and small-to-medium sized businesses. HiFX transferred over $15bn for customers in the UK, Australia, New Zealand and Europe during 2013.

 

imageLooking at the Euronet level, our global payment network is extensive and it now includes over 19,000 ATMs, approximately 72,000 EFT POS terminals and a growing portfolio of outsourced debit and credit card services which are under management in 47 countries. We have card software solutions, a prepaid processing network of over 600,000 POS terminals at approximately 295,000 retailer locations in 33 countries. So in short, we have a lot of great products and capabilities as a group as you can see.

 

How much of Ria business is cash-to-cash and how much is digital?

As far as Ria Digital goes, we celebrated 2 years in October this year, so we are still quite new and have been focused on building the foundational elements needed to compete in the digital space. The vast majority of Ria’s business is still cash from the send side, delivered into accounts or as cash around the world.

As you can see, Ria has a robust set of products and capabilities, and at Ria Digital we are “digitizing” these products and services so we can offer our customers more convenience and choice. We are very complementary to our core business. Digital builds on the values and tradition of our core business while looking to target customers that have become accustomed to an easy, efficient online consumer experience. We get to innovate and push for change in this industry while standing on Ria’s solid foundation which is a big advantage—we have the network and the experience behind us.

It is also important to note that “customers” are not only end consumers, they are also our key partners, those who are looking for a company to help power their financial services in an easy, simplistic way, and can move quickly to deliver – this is a very important part of our strategy.

 

What are some of the key trends you observed in the remittances industry over the last year?

Well, I guess sending money using the digital channel is old news now, and the mobile trend has also been obvious for years, but specifically around “digital”, it is the experience within the channel that has continued to evolve. There are so many new technologies that remove, or at least improve, the friction at various points throughout the customer experience. It has made sending money online a lot easier and safer than in the past.

I mentioned key partners already, and the truth is there are more and more companies looking to add money remittance to their current offerings or product sets. Companies that have not been involved in remittance are jumping into the mix, a lot of them up the game from a user experience or brand perspective, but money remittance is not an easy business to enter, therefore these companies look to partner with companies like Ria who know how to do it, we’ve been talking to immigrant remitters for 30 years.

At Ria Digital we move at the pace of a startup, within days rather than months and years!

 

How do you see the recent entrants such as Apple Pay and Google Wallet and what this may mean to MTO business?

There is a lot of talk about these new entrants recently and I see this really reaffirming and validating digital payments. People have been mainly taking about what’s happening at the POS but there is a lot happening in the online experience as well by removing friction, for instance, on-boarding of new customers is becoming easier.

Anyone who has anything to do with commerce or financial services on the handset and pushes the envelope on the experience really helps all of us get better.

 

How are people taking to digital channels around the world – are there some interesting regional differences?

There are definitely regional differences when it comes to money transfer in the digital channels, no two global markets are identical; each is driven by local conditions of environment (economic, technological, and demographic elements such as a market’s average income, and access to the Internet), infrastructure (broadband and/or mobile phone penetration), regulation (legal and governmental areas such as compliance and eKYC), financial services (the accessibility of financial services, the options for paying online), and most important of all – consumer readiness (their familiarity with, and willingness to use digital channels).

 

How has the advent of smartphones affected how people transfer money?

Today, out of the seven billion people in the world, approximately six billion are cell phone subscribers. Not all of these own a “smartphone”, but smartphone penetration is growing very quickly. For many people, the phone is the primary or sole internet connection, no need for a PC. The point is that these connected devices put a lot of power in the hands of the consumer and provide them a great deal of choice and convenience.

Aside from sending an actual money transfer, customers can easily check exchange rates, compare service providers, view the status of their transaction, and even find a physical location where they can send or pick up a transaction, which is a great example of how smartphones are connecting the physical world to the digital world.

Another obvious area related to phones is stored value / Prepaid debit cards and mobile wallets which empower the “un” or “under” banked, and allow these customers to take part in the ecommerce and/or digital financial services world. Specifically in regards to money transfer, these customers had no other choice in the past but to travel to a physical location with cash in order to send money to loved ones back home, now they can send from the palm of their hand easily and securely.

 

Are there some key opportunities you see in the evolution of money transfer?

Specifically when it comes to money transfer in the digital channels I think there are many opportunities in terms of taking more costs out of the process. Performing electronic verification, taking payments online, and mitigating fraud are all necessary but add cost to the process.

At Ria we pride ourselves on providing a fair price to consumers, it is very important to us, and the more costs that can be reduced in a transaction, the more savings that can be passed on to the customer.

 

What are some of the challenges faced by providers?

As you know Charmaine, we are in a highly regulated industry, and therefore we have some very important responsibilities to ensure we provide safe, reliable, and compliant services for our customers. There is a lot of work, and skill required to ensure this, and at Ria compliance is number 1, we have a great team of people who focus on this day in and day out, and that extends far beyond our Compliance team.

Everyone at Ria is responsible for compliance, it is in our DNA. So I would say compliance is both a challenge and an opportunity.

 

What is your vision for 2015?

That’s just around the corner isn’t it!

Over the past 2 years we have built the foundational elements, and developed the key capabilities that are required in the Digital space, in 2015 we will start to capitalize on these efforts as we accelerate our current US business, expand our service globally, and deliver on our Partner Program, which as I mentioned earlier is an important part of our strategy. We are in a very exciting time, the space is buzzing.

 

It has been a real pleasure to speak with you Darren, thanks for sharing your thoughts with us and wish you the very best for the ambitious plans you have going forward.

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Darren Bruce is Vice President and General Manager of Ria Digital for Ria Financial Services, the money transfer division of Euronet Worldwide, Inc. He has held this position since October 2012. Darren oversees Ria’s digital business including the ground-up development and expansion of Ria’s digital products and services across the globe. Darren has a Bachelor of Science Degree (Physics, Math, and Engineering) from Mount Allison University in Sackville, Canada. He also has a Diploma in Applied Information Technology from the Information Technology Institute in Halifax, Canada.

Ria Digital Website : https://www.riamoneytransfer.com

Charmaine Oak is Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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http://www.linkedin.com/in/charmaineoak

Join me on Twitter @ShiftThoughtDM and The Digital Money Group on LinkedIn

Thank you for reading, and thanks in advance for sharing about us to your network!

 

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SMART unlocks mobile operator revenues in the Philippines with multiple World firsts

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For the Philippines, remittances is a game-changer, showing healthy growth over the last 5 years and a highly competitive set of services from players across a wide range of industries. Philippines became the first country to introduce mobile money in 2000 and is a pioneering example for many different digital money services today. It is therefore highly instructive to hear from the experiences of Smart (PLDT), the largest mobile network operator in Philippines, and one of the very first to launch Smart Money as a mobile operator-based solution.

 

UN ban ki-moon2Today I am delighted to share with you some brilliant examples that use the concepts of digital money to unlock revenue streams.

I have with me Lito Villanueva, Vice President and Head, e-Money Innovation, Digital Ecosystem Build & Global Engagements at Smart Communications, Inc. Lito shares how 14 years down the line, SMART is launching innovative services to create new revenue streams.

 

 

Mobile Operators in Financial Services

Financial services were once seen as a certain business model for new revenue streams for mobile operators. However this has proved to be harder than expected. This year Host Card Emulation (HCE) has sharply focussed on the fact that mobile operators are no longer the sole gate keepers to Mobile Payment NFC revenues. The GSMA has this year promoted Interoperability initiatives that hold a promise of better mobile money adoption, but this is not an easy solution as mobile operators do need to make the business model work through better churn reduction.

 

The Filipino Context

Although 12th in terms of population, The Republic of the Philippines is the third largest receiver of remittances in the world, with $22.7b for 2013, forecasted to rise to $28 million in 2014. Remittances touched a new monthly high of $2.286 b in Nov 2013, 7.5% higher than previous year due to Typhoon Haiyan (Yolanda), giving a boost to the new aid-oriented services.

 

Makati_skyline_j_0_n philippines

 

SMART Money evolves into a “surround” experience

 

At Shift Thought we have for some years described how mobile phones are the magic sauce, but not the sole ingredient in a mobile operator’s toolkit for succeeding in financial services. It is important to create rich customer experiences across multiple channels and services, that I have termed a “surround” experience.

I think one of the markets in which we see good examples of a diverse set of services is in the Philippines. On a visit to the country to trial the service I found it delightfully simple to use my SMART Money card to pay for provisions at a department store as well as transfer money to other users.

I was interested to see the new Smart Postpaid app that was launched a few days ago as a one-stop portal to manage postpaid accounts. For use on Android and iOS devices, this makes it easy to access a range of features through one number *121#. It is products like this that can create consumer experiences that put the customer in charge.

Now this month SMART launches something revolutionary: A unique solution branded as  LockByMobile. I was delighted to hear all about it from Lito.

My interview with Mr. Lito Villanueva follows. Enjoy!

 

It is great to have you here today Lito. Could we begin with a bit of background about yourself and the unique expertise you bring to the industry?

I currently lead initiatives at SMART to unlock the potential of e-money, extending beyond mobile money. Naturally we seek to leverage our unique capabilities with respect to mobile services.

Our mission is simple – to keep pioneering world-first solutions and unlock digital finance services to meet the unique needs of Filipinos including those in high growth and emerging markets.

Take for instance our world first anti-fraud and security solution. This month we are rolling out this solution to allow our customers in the Philippines to lock and unlock ANY ATM or credit card using its patented and proprietary LockByMobile.

We all know how important it is to control card security especially as online card-not-present use cases become more prevalent. Using our service people can finely tune what their card is allowed to do and lock down services themselves to prevent fraud.

 

You have been at SMART in the early days, back in 2007 – how has your strategy regarding financial services changed since then?

Well, for one thing, we did not have smartphones back then. Today over 10 million of our 70 million user base access our services via smartphones.

The Philippines is very much an Android market, and as the cost of handsets gets lowered we’re able to enhance the user experience of our services.

 

Yes, I’ve just been analysing implications of the launch of Android One, shortly planned for the Philippines. But what of the recent Apple Pay announcement?

Apple Pay is expected Q1 2015, but our NFC service will be launched ahead of that.

In November, we plan the first wave of a contactless payments rollout to our 2.5 million post-paid subscriber base. This is in partnership with Visa and Citi and will let people pay at Starbucks, McDonalds and other retail stores for face-to-face or via Paywave POS including our massive online merchant base such as Zalora, Easy Taxi, and a lot more in partnership with Rocket Internet for online commerce.

Remember that our parent company PLDT invested Euro333 Million into Rocket Internet representing approximately 10% equity share.

 

I understand you are also innovating with mobile loans services?

Yes, we offer salary loans via mobile to over 120,000 employees at 260 government agencies in Phase I.

This will extend in Phase II to include up to 20 million employees of private companies. They get access to what we believe is one of the lowest interest rates, at just 0.83%. This is touted to be the world’s first mobile-based paperless and fully electronic credit, savings and insurance in one.

 

What about money transfer and international remittance services?

At present domestic money transfer is big – it represents 70% of the volume, with international remittances accounting for 30%.

We’ve not so far made a big dent in this huge opportunity. One reason for this is the Philippines is a key market on which banks and money transfer operators in the key send corridors remain sharply focussed.

 

What are the differences that SMART Money has brought about in the Philippines?

Over 8 million of our 70 million subscribers use our services today. SMART is cited for being proactive and dynamically focussed on financial inclusion initiatives.

 

help.PH gsma2

 

Three innovations launched by wireless services leader Smart Communications, Inc. (Smart) and its subsidiary Smart e-Money, Inc. (SMI) were recently ranked among the world’s best by Telecoms.com.

Smart Money Padala was nominated this year as Best Mobile Payment Solution. It serves the domestic and international money remittance requirements of Filipinos. With this service, Pinoys can transfer funds to tens of millions of Smart subscribers at the speed of a text message.

Smart Money Padala boasts of a large remittance network, with 95,000 international and 27,000 local remittance partners.

 

What are the biggest challenges faced?

Since our last conversation, we continue to be very focussed on customer education, and increasing the number of value added services.

Customer education is very important in order to lift the percentage of active subscribers from the current level of around 20%. It is a steep learning curve for customers to change the way they pay and we continue to create campaigns to address this.

 

What is your vision for 2015?

Our vision is to harness digital commerce to support every customer’s digital lifestyle. The time is right – the time is now. Things have come together to let us move from mobile phone payments to a much broader spectrum and support across an entire set of use cases.

No less than our chairman Mr Manuel V. Pangilinan is a firm believer of democratizing data by making free and available across our prepaid base of over 66 million. This is a strategy to shift our customers to the digital marketplace!

 

Thanks very much for sharing your thoughts with us Lito. We wish you the very best for 2015 and beyond!

 

imageLito Villanueva is Vice President & Head for Payments Innovation, Digital Ecosystem & Global Engagements at Smart Communications, Inc.

Lito has unique expertise that crosses multiple segments and services from his work at SMART, IFC-World Bank and Visa. He is one of the few mobile money global practitioners to have a mix of experience in both banking and MNO sectors with a great deal of exposure in multi-market interventions and global best practices with established relationships with key stakeholders including international funding agencies.

 

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Shift Thought has recently published “Digital Money in Philippines 2014”, a detailed study on the complex Philippines market. We have also created a unique research document focussing in depth on the remittances opportunity with respect to the Philippines.

Contact us today at contact@shiftthought.com  to get access to this and other recent research on the Philippines and each of the emerging markets around the world. Each reports uses our proprietary Viewport format to create a highly interactive experience connected into our unique portal.

 

 

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Researchers claim potentially serious flaw in Visa contactless payments cards in the UK

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This morning a BBC report showed researcher claims of a potentially very serious vulnerability in Visa contactless payments. It is still not clear enough to what extent this could open the door for fraudsters around the world to use the flaw but from what was presented it seems this could be an expensive problem, most unwelcome at this time.

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Contactless payments cards allow people to make purchases below a certain value by just touching the card against a Point of Sale (POS) terminal. People do not need to enter a PIN except when prompted, after a certain number of transactions.Visa and MasterCard have been active in rolling out these cards across the UK, and indeed world-wide this trend has progressed strongly this year.

 

Spend on contactless cards in the UK is expected to rise to £6.4 million a week in 2014, up from £3.2 million in 2013. UK is a leader in contactless payments world-wide, making the latest discovery a point for people around the world to consider and take into account in their own projects and testing involving contactless payments.

 

Today, a demonstration on BBC showed a mobile based contactless payment card meant to block transactions higher than £20 actually allowed an amount of $ 999999.99 to be put through as it was in a foreign currency. The claim was that the flaw is with Visa contactless cards, and not just payment via mobile phones, although the demonstration was of a mobile initiated transaction. Prof AAD Van Moorsel of Newcastle University made a statement about the research and vulnerabilities they found.

 

Due to the widespread roll out of these cards in the UK, it is possible that people have these cards without being aware of it. There are 48 million contactless cards in the UK today.

 

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Visa Europe responded to the BBC on this to say the research does not take into account the multiple safeguards put into place and in practice it would be difficult to complete such a transaction. Of course, the amount would go through only if the account had the money. They were already updating their system anyway to make this kind of attack difficult.

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This could be a potentially very big issue, but found by researchers before it was exploited by criminals.  BBC states that so far in the UK contactless card fraud was only £51,000  in the first half of 2014, but then most people have not actually begun to use the contactless functionality on the  cards.

This is an unfortunate setback at a time when contactless payments was at last set to take off. In the UK, with new rules having come into effect in July 2014, contactless cards were to be the mainstay of payments on London buses where cash is no longer accepted.

 

The question this raises for me is to what extent this flaw may be present in other cases of  contactless payments in Europe and world-wide. The reports so far do not make it conclusively clear at what level this flaw exists – whether only for dematerialised cards on mobile phones or for all Visa contactless payments cards.

 

A navigation guide into one of the most complex markets for Digital Money in the world

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Focus on India Series : Having recently completed our in-market analysis of the emerging payments market in India, I’m confident in saying the country represents one of the world’s most complex, yet promising, battlefields for digital money. India is poised on the brink of a huge economic transformation and making money digital is a crucial part of the solution.

 

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Digital money has a tremendous future in India, and I see a convergence of several factors that combine to create an unstoppable wave. Yet for this country of over a billion people, of which May 2014 World Bank estimates show 179.6 million live below the poverty line, money is going digital in a variety of ways and the savvy providers need to recognise this in order to make their business models work.

 

 

 

India’s Demographic Dividend

Even when services are designed to appeal to the under-banked, providers cannot take their eyes off India’s rapidly growing, massive and youthful middle class. Even if one assumes only 30% of the population of India’s population of 1.2 billion is reachable, this is still a sizable 360 million, considerably larger than the 5.4 million population of Singapore and 7 million of Hong Kong, for instance. By 2015, India’s middle class is expected to be in excess of 267 million. What is more interesting is the trajectory, as the size of the middle class (monthly household income ₹ 20,000-100,000)  was a mere 25 million in 1996.

 

Precipitating Factors

I grew up in India, travelled around the country for the introduction of MICR and worked with RBI, SBI and several banks in India to help computerise different areas of banking, in my early work at Wipro and my own company Visionix. More recently I have personally visited the country to attempt to implement financial services since 2006. It was, to say the least, a test of endurance. However, many recent developments favour payments going non-cash and give me cause to believe that 2015 will be an important year for India.

Firstly, mobile penetration is remarkable and is aided by the September release of budget Android One smartphones that appeal to a highly price-sensitive market.

Secondly, a highly thrifty, large population desperately needs convenient ways to save and spend.

And, last but not least is the will of the government. The recent meeting between Mark Zuckerberg and Prime Minister Narendra Modi highlights the opportunity that digitally connecting remote villages presents to businesses around the world from a wide variety of perspectives.

 

Evidence on the ground

The cash-centric Indian economy is at last moving towards non-cash payments. By end of September 2014 more than 53 million new bank accounts were added in India to disburse benefits and social security to recipients. This is one example of initiatives from the Modi government, strongly backed by the Reserve Bank of India led by Governor Raghuram Rajan.

India’s US$4 billion e-commerce market is set to soar to US$20 billion by 2020.2 E-commerce is being driven by cheap handsets and mobile data plans that enable consumers to buy from their increasingly smart mobile devices.

 

Born Digital Money

As in Africa, mobile money is poised to strongly support financial inclusion goals. But there is more.

In my book “The Digital Money Game” I describe how people expect a whole package of services across online, mobile, social and local situations, creating a multitrillion-dollar industry worldwide. India’s market is a perfect example and consumers are demanding convergent financial services from the start, as opposed to the mobile-centric services that took off in Africa.

This requires, for instance, the ability to provide a service not just using mobile phones but through multiple channels and the ability to offer not just one service but many. Our research this year confirmed that this is needed to compete in emerging markets, and India is a prime example.

 

Reaching previously unreachable markets

Underpinning the non-cash transformation is Aadhaar, the world’s largest biometrics project that goes across all segments of the population. This paves the way for middle-class consumers to make payments to their domestic help, for instance, while also using their new wallets to pay for higher-value airline tickets, goods and services. The rise of mobile Internet access aided by smartphone penetration is bringing young and highly connected shoppers online and is creating conditions for prepaid and digital wallets to thrive.

India’s 1.25 billion people are spread across 29 states and seven union territories and, as a consequence, the complexity of the market has been likened to that of all the European markets put together. Marketing in this highly fragmented environment is challenging due to differences in regulations, income, religion and culture and, notably, the lack of government-issued identification. With just 58% of Indians registered at birth, it’s no wonder that India is the largest user of cash among all emerging countries. With little to no ability to verify their identities, unsurprisingly, just 48% of people have access to bank accounts and traditional payment cards.

 

The emergence of Cash-on-Delivery (COD)

Around 20% of Indians have Internet access, so online sales have only just begun to grow, but the opportunity is immense, particularly as consumers look for ways to digitize cash. So far Indian consumers have not given up their reliance on cash to shop online. Instead, cash-on-delivery (COD)—a uniquely Indian phenomenon—has penetrated many urban markets. This involves consumers ordering online and paying for the goods when they’re delivered, generally at home. Flipkart popularized this convenient way for consumers to shop online with confidence and without plastic cards, and the company has been rewarded with wave after wave of investment.

 

In pursuit of Cash-before-delivery

But launching truly digital money services requires that players connect the dots between the online and mobile worlds and the offline world. As the Indian e-commerce market matures, COD is giving way to CBD (cash-before-delivery). COD has caused some problems for e-commerce merchants because many consumers refuse to accept items on delivery, after the initial flush of an impulse buy has faded. To meet the demand of merchants and to fit into the increasingly mobile-centric consumer lifestyle of Indian consumers, mobile wallets and prepaid payment instruments have flooded the Indian market and challenged the prevailing COD model.

 

Connecting the dots

Our studies show that global e-commerce companies are busily pursuing their strategies to enter this nascent market and rub shoulders with the home-grown services, both categories of players must be mindful of competition from outside their immediate vision.

For e-commerce players, digital money solutions that incorporate CBD will be critical. The race is on between Amazon, Flipkart and Snapdeal. So far Amazon, which recently invested US$2 billion in India, spent this Diwali in hot pursuit of Flipkart consumers. Meanwhile Flipkart shut its payment gateway Payzippy within a year of launch and its recent acquisition, Ngpay, is expected to provide the next platform for its attempt to extend into digital money.

As what we term as a new “nationalised liberalisation” emerges and global players ramp up investment, taking advantage of new ease of doing business in India, Shift Thought offers a range of consulting services, research and portal access that offer timely and vital knowledge on how to navigate the still murky waters of building new brands in India.

 

Shift Thought offers a Navigation Guide

Recently released Shift Thought research explains why and how e-commerce strategies must evolve to compete in the new digital money industry. Our report provides facts and figures not just on the mobile wallet services that have been launched—and the unique way in which prepaid services are taking off—but on the whole set of services we term digital money. I believe that is the game that global providers will need to get right to capture the new opportunities presented by the Indian market.

Our Digital Money in India 2014 Viewport released this month explains how the competitive landscape is unfolding in India, with case studies of how providers are creating unique solutions, and this article is part of our Focus on India Series through which we share highlights of our research.

Whether you are interested in taking up the challenge of entering the market, or simply wanting to know more about what’s happening, just drop us a line today at contact@shiftthought.com and we will be delighted to talk you through some of the key trends that affect you and the various options available through which we can help.

 

Join us to discuss this further and add your valuable comments at my post on LinkedIn

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Some parts of the blog have been published in my blog “India’s E-Commerce Boom Paves Way for Digital Money” on PAYbefore Op-Ed. 

 

Shaping the Future of Payments in the Nordics, Baltics and beyond

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I recently caught up with Kristian T. Sørensen (KS), Senior Manager Corporate Strategy at Nets Denmark to seek his expert views on payments in Northern Europe.

imageAs a Member of the Board of Directors at Mobey Forum, Mr. Sorensen has helped to shape the direction of the development of mobile wallets and mobile payments in Europe. We discuss his experiences as Senior Manager, Mobile Payments and E-Commerce at Nets Denmark, and relating to his new portfolio. It was a privilege to understand more about the payments market in Northern Europe and his views on the future of mobile payments.

Founded in 1968, Nets is a key provider of payments, cards and information services in the Nordic market, as it manages key products including BankAxept, Betalingsservice, Dankort, NemID, Mobilpenge, eFaktura and Avtalegiro.

 

Please tell us a bit about yourself and your role at Nets

Kristian WalletAt Nets I was tasked with co-ordination of mobile payments and e-commerce initiatives across business units, and over the last couple of years those initiatives have matured and got absorbed into the appropriate business units. Recently Nets has been acquired by Advent International, ATP and Bain Capital and is in the process of growing the business, and I trust that mobile services including mobile payments will play an important role in this.

This is therefore an exciting time for me personally, as my current role in strategy includes direction for mobile payments. Things are really starting to happen, after many years of discussions, pilots and bilateral initiatives we are starting to see fundamental change and more interoperability.

Northern Europe has been in a leadership position in digital money. What changes have you seen in the way people pay?

Yes, Nets is fortunate to be working across the Nordics. In Denmark & Norway we enjoy a central position and we also operate in Finland, Sweden and Estonia.

The Nordic countries have been leaders in transformation to cashless payments. I was in one of the large Danish banks and part of the transition to digital banking. As people got access to the Internet at home, they found self-service useful and online banking really caught on. As smartphone penetration was also higher than in other regions we naturally expected to be leaders in mobile payments by default, but that proved not to be the case.

 

So, surprisingly regarding contactless card initiatives the Nordics were not first, nor the fastest!

This was because a number of the services we already have are so successful and cost-efficient. Card payment is widespread even for paying for just a cup of coffee. We needed more than just a new way to pay.

 

In Denmark it is not a problem living without cash.

I only carry currencies other than my own – I never need cash at home. With that in mind we had to deliver something that brings not just payments but also commerce to the next level. We had to look at mobile payments in a much broader context than just transactional payments.

 

We had to add context to payments to make the transition to mobile attractive to consumers.

This links well with the work I do at Mobey Forum, devising wallets to broaden the reach of issuers, and value added services including coupons, loyalty and membership benefits. Although coupons are not widely used in the Nordic region, this is changing with recent new legislation that allows for an increased use of coupons. But although coupons may present an interesting use case, we can’t stop there.

 

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One of the major drivers is IDENTITY, which underpins many use cases.

Identity services are important, and in this space Nets is a major provider as we run identity schemes in Denmark and Norway. All of a sudden once you solve the problem of digital identity, you start covering all the use cases the leather wallet supports: payment credentials, membership, loyalty, identity and more. In Denmark there is one identity all banks and authorities use and moving this to mobile is a key feature that will drive mobile adoption going forward.

 

Could you please share more about NFC, mobile payments and contactless payments using stickers in the Nordic region?

In Norway we are seeing mobile wallet solutions being brought to market – we are implementing a mobile wallet solution for Eika Kredittbank and in terms of contactless cards in Norway, more than 1 million are expected next year. In Denmark the first banks have started to issue contactless cards and recently an announcement was made to enable Dankort for contactless payment by Q3 2015. In Finland mobile payments have been widely used for some time.

Denmark and Norway were held back due to lack of acceptance infrastructure, as through a PCI compliance waiver terminals were not replaced. Over this year the situation has changed and 80-90% contactless terminals are contactless ready. Moreover, the kinds of terminals ready are those with very high transaction volume, at leading supermarkets for instance. So we expect a lot of initiatives to start now, and we expect contactless payments to pick up.

Sweden has been somewhat reluctant towards contactless & NFC. It has been different from the rest of the Nordics, with a more fragmented landscape, lots of trials and different concepts. This fragmented market has however impacted both issuers and merchants who are unsure and therefore reluctant to invest. With Apple committing to NFC now, Sweden is also expected to move in that direction. Nets have increased presence in Sweden through acquisition of a major POS provider and we are now in a better position to actively address the Swedish market.

 

Nets seem also well positioned to address Baltic markets including Estonia, Latvia and Lithuania. I see Nets has been chosen by Danske Bank as partner for entering the card acquiring markets in Latvia and Lithuania.

Yes, the Baltics have a lot of similarities to the Nordic countries, as well as being neighbouring countries. We find great benefits and synergies of working there as our services apply well to the Baltics.

 

Regarding the important issue of Tokenisation, I recently read an analysis from Mercator saying this may give more of the revenue to the network as opposed to processors. What is your opinion?

This is a natural evolution from the schemes for securing their place in the ecosystem. The whole card infrastructure was created to offer a convenient interface to bank accounts. To move money from bank accounts customers had to log in. Cross-border transactions in particular were a problem. Now with the spread of mobile devices we carry our own piece of infrastructure with us. The access to bank interfaces is not far. Card schemes need to consequently extend their business to remain relevant. This is where tokenisation comes in as it provides new level of convenience to payments and also makes secure transactions easier.

 

Does it fit naturally into existing payments? PayPal also has its own different way of securing online payments.

To reduce fraud we must readdress where we hold sensitive information to avoid incidents such as the Target breach. Consumers shop more online and need to pay but don’t want to leave payment information with merchants. In the physical world, you’d not want to leave your payment card at a store. Instead of leaving full credentials at merchants they can get paid conveniently without having to control all the payment data. Tokens can be limited in different ways, for instance by duration, amount and where used.

 

What are your views for the outlook of NFC and mobile payments?

Through the recent years there has been an on-going expectation, but now with Apple supporting NFC through the launch of Apple Pay and the iPhone 6 capabilities the outlook has improved. We are likely to see issuers and merchants driving many kinds of initiatives – not one size fits all. We see the confidence in the market and there will be a snowball effect on mobile payments and mobile commerce.

The estimates of mobile payments have so far exceeded the actuals, not unlike the time of the advent of the Internet. Yet looking back, even the most optimistic could not predict how big Google could be, how big e-commerce would be and how much we would end up today using internet and mobile. Similarly I don’t think we can even start to imagine how big mobile payments could be down the road!

 

What do you see to be the future of Nets & future of payments?

The growth of payments industry does not just hinge on the mechanics of payments. Moving money from one account to the other will be commoditised. But the general exchange of valuables in a connected world fuelled by mobile is the truly important thing.

In this, players like Nets have a significant role to play. Broader exchange of valuables includes coupons, loyalty points and more. What is required is a trusted broker of valuables: at a supermarket you could tap your phone and instead of paying £89 for grocery, you might pay 4,000 Avios points, some Starbucks points and store points– you may get the groceries without using money.

 

Thanks very much for this fascinating interview. Wish you the very best in your new role and for the exciting work planned at Nets.

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Kristian T. Sørensen (KS), Senior Manager Corporate Strategy at Nets Denmark. Prior to this, Kristian spent ten years working within online and mobile financial services at Danish Bank, Nykredit. Kristian holds a master’s degree in Communication and Psychology, and has worked with online solutions since the early days of the Internet in the mid-1990s and with online financial services since 2002. Kristian has participated in Mobey Forum since 2010 and has been an active contributor to the production of mobile wallet white papers. He was elected to the Board and Chairman of the Marketing Work group in 2012 and is a sought after Speaker and Thought Leader in the field of Payments.

Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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