e-Payment and e-Purse : a Reasoned Approach André-Jacques Selezneff Vice-President Low Value & Proximity Payment Solutions MasterCard Europe
Summary Review of electronic payment means for individual card holders An approach of costs Evolution Perspectives for payment techniques and consequences on costs
Review of electronic payment means for individual card holders
Existing electronic payment means MasterCard Credit Card : does not allow transactions anonymity “Classical” Maestro Debit Card : problem if no banking account Maestro “Pre-Paid” : communication cost might be too high for low value transactions
Market situation for e-Payment Means Market pulls card transactions towards low value amounts e-Purse World Market unclear: multiple incompatible national solutions no cross-border inter-operability e-Purse Choice too often technical Security is important when business exists
MasterCard's Low Value Payments offer Pre-Authorised Debit on M/Chip4: standard EMV debit transactions, no on-line authorisation Clip e-Purse: derived from existing transactions processing tools dedicated infrastructure Mondex: THE MasterCard solution for "electronic cash" dedicated infrastructure
Future for Electronic Payment EMV (M/Chip 4 in MasterCard) offers members multiple features for debit / credit and for low value payments M/Chip 4 incorporates known needs for face-to- face payments, as well as new needs like : distant payments (on Internet, through GSM, …) low value payments (e-purse type) payment means for new customers (youth, newly employed, partners' clients…)
Principle of cost structure per scheme type Total Cost Volumes The Dream !
Actual Cost Structure with successive scheme types Total Cost 1 1 2 2 The hard facts of life Learning Time Learning Cost
Actual Cost Structure with successive scheme types Total Cost Learning Time Learning Cost
Transaction Cost : hard facts debit/credit needs telecommunication cost = telecomm and authorisation + processing commissions just allow Bank to cover costs on LVP e-Purse needs neither telecommunication nor on- line authorisation allows Bank to make money estimated minimum transaction value 0,10 €
Evolution Perspectives for payment techniques and consequences on costs
e-Payment: infrastructure issue Comparable to Fortresses of XVI th century Railways of XIX th century Tap water of the 50's Electricity of the 60's Highways and Nuclear Plants of the 70's Telephone and Prestel/Minitel/BST of the 80's Pay-TV and Payment Cards of the 90's Internet and ADSL in this early XXI th century
e-Payment e-Authentication Needs a new technical infrastructure Long Return on Investment: Characteristic of infrastructure Amortisation increases cost to charge Bank complex job, difficult communication Tariff per transaction well accepted for credit / debit e-Payment and Transaction Costs
Issue : Users have for centuries considered cash as « free » difficult to charge e-purse « service » to card holder necessary to reduce costs Answer : Shared Infrastructure decreases per-application costs opportunity to offer new applications Marketing issue, not technical one e-Payment and Transaction Costs
Other issues to address e-Purse « limited » to low amounts Undefined Risks? Yet undefined Market? Deployment complexity? Lack of trust in technology? Time required by users to get to grips with a new product? ? !! ? ! !!
Suggestions Shared Infrastructure Rely on EMV deployment Debit / Credit EMV allows DDA Same security than for e-Purse A brand A brand is NOT necessary for Low Value Payment products, IF solution is independent from the underlying technology
The EMV obligation (1) EMV-based LVP solution is an absolute necessity to compensate for reduced revenue due to new interchange rates regulation
The EMV obligation (2) EMV-based LVP solution is an absolute necessity to allow exploring new "low value payment" market, while limiting required initial investment, accessing an immediately available acceptance infrastructure, guaranteeing cross-border interoperability.
The EMV obligation (3) EMV-based LVP solution is an absolute necessity to help Members amortise EMV investment whilst fully leveragin efforts spent at the occasion of EMV deployment
Proposed Approach Pre-Authorised Debit on M/Chip4 allow quick access to interoperable pre-paid market Acceptance rules based on existing programmes Adaptation of e-Purse solution on EMV once business is existing Results in solution available today consistent Card products offer with guaranteed future.