Mobile Payment Industry News: 11/10/08

Monday, November 10, 2008

Alternative Payments Continue Torrid Growth

New Javelin Study Forecasts Cash-Based Alternative Payment Methods Growing in Popularity with Consumers Shopping Online

Current Economic Climate Impacts Credit Card Usage for Online Purchases, Paving the Way for Alternative Methods During Holiday Shopping Season

Nearly One Third of Online Retail Transactions Expected to be Alternative Payments by 2013

SAN FRANCISCO, November 10, 2008 – Javelin Strategy & Research (www.javelinstrategy.com), the leading independent provider of quantitative and qualitative research focused exclusively on financial services, today announced release of its 2008 Online Retail Payments Forecast, which delves into the increasing appeal and growth of alternative payment methods and the impact it represents to banks and traditional card networks like Visa, MasterCard, American Express and Discover.

The study (www.javelinstrategy.com/2008OnlineRetailPaymentsForecast.html) finds that while online payments represents only 3.5% of total retail sales in 2008, consumers are steadily increasing adoption of alternative payment types, replacing transactions from the traditional, financial institution-controlled credit and debit cards.

“Although Javelin’s forecast predicts online debit and credit card usage will continue to dominate and grow,” said Javelin president and founder, James Van Dyke. “Alternative payment methods are becoming a preferred choice by many consumers shopping online and will continue to grow over the next five years, steadily increasing to one-third of the online retail transaction volume.”

Van Dyke adds, “During this year’s holiday shopping season we project $7.8 billion will come from alternative payments versus $35 billion from traditional online payment methods.

Forecasted Growth in Online Retail Transactions Through 2012

The overall projected growth for online payments is expected to reach $148 billion in 2008, climbing to $268 billion by 2013.

Editor's Note: According to the graph on the right, from Celent Analysis, it looks to me like PIN Debit for the Web has the highest value proposition for both Consumers and Merchants, which bodes well for HomeATM ePayment Solutions and other's who are looking to bring PIN debit to the Web...

The essential shift in growth rates during the five year period trends faster for alternatives, especially those that have built brand awareness with consumers, such as PayPal; as well as alternatives for traditional companies such as Stored Value.

Javelin’s study delves into all of the alternative payment companies and forecasts each payment category’s expected transaction volume. In addition to the established alternative payment companies, it highlights a new wave of emerging alternative payments firms, which may further erode traditional credit card usage online—yet actually preserve the role of financial institutions in payment transactions.

Financial Institutions and Payment Networks Should Embrace Alternative Payment

Well-branded alternative payments companies have benefited from the current economic pressures as consumers seek more cash-based solutions. The forecast demonstrates how the channel-shift toward alternatives impacts traditional financial institutions, suggesting they proactively develop an alternative payments strategy.

“Banks and traditional card brands that don’t want to risk erosion of online transaction volume should expand their own prepaid card product offerings, while partnering with alternative providers,” said Bruce Cundiff, Javelin’s director of payments research and consulting. “By integrating alternative payments, financial institutions will maintain their position and status as the ‘agent’ for online payments.”

Key Findings:

Alternative payments erode credit card usage more prevalently than debit card given the cash-based benefits of a debit transaction.

Credit card issuers can supplement slowing credit card volume with prepaid products.

Store-branded and private-label credit cards are projected to have solid growth, based on consumers migrating purchases from in-store to online.

Three emerging alternative payment methods—eBillme, NACHA SVP and Moneta Value— leverage familiar consumer processes and provide value to financial institutions by enabling FI control over the transaction.

With the acquisition of BillMeLater by eBay/PayPal, growth is expected for BillMeLater.

Mobile channel growth is key to Google’s outlook and brings wireless carriers into the payments space—potentially with solutions that preserve financial institutions’ role as the transaction ‘agent’.

Learn More About Javelin’s Online Retail Payments Forecast

Subscribers to Javelin’s payment’s research service automatically received this research report. Those interested in learning more about Javelin’s subscription and custom research services may call +1.610.450.5909, email sales@javelinstrategy.com. To request a copy of the research or to arrange an interview with James Van Dyke or Bruce Cundiff, please contact Kathleen McCabe at +1.925.225.9100 extension 15 or k.mccabe@javelinstrategy.com.

$1 Trillion Spent Online by B2C Consumers by 2012

2008 Global Broadband - M-Commerce, E-Commerce & E-Payments - Market Research Reports - Research and Markets

E-commerce is now an important part of the economy, particularly in the developed markets. While e-commerce is still in its infancy in many emerging markets, this is set to change in the coming years especially in China. In 2008 China now has the highest number of Internet users in the world, overtaking the USA. E-commerce growth in the USA remains strong however, with China also offering significant opportunities for those operating in the e-commerce space.

Key highlights:

By 2012 it is expected that more than 1 trillion will be spent online
by B2C consumers. B2B spending will exceed this considerably.
E-payment solutions are an important part of e-commerce transactions;
however security issues continue to tarnish the industry.
Asia
Pacific leads the world in terms of using mobile phones for m-payments,
accounting for around 85% of customers worldwide.
BuddeComm
estimates revenue from mobile content and services (excluding SMS),
accounts for around 7-10% of total mobile revenues worldwide. SMS
remains popular and accounts for a further 10% of total mobile data
revenues..
Online advertising growth is set to continue for the
next few years, but will slow slightly in the wake of the US financial
crisis. It is expected that online advertising will eventually account
for around 20% of all advertising spend in some markets.
Search
services are central to almost everything that users do online, and
this places leading search companies such as Google and Yahoo at an
advantage. In the emerging Chinese market, Baidu and Alibaba also have
a good foothold.
Google is still the most popular website
property worldwide; however individual countries and regions show
unique differences with many local sites remaining popular. Other web
properties proving popular across multiple markets include Yahoo,
Microsoft and Wikipedia sites, Apple Inc, eBay and Amazon.
Worldwide the number of Internet users has now reached around 1.4 billion and billions will be spent by consumers during 2008 on online retail. While the economic slowdown will most likely curb e-commerce growth somewhat over the next couple of years, particularly spending on online advertising, there is evidence that so far the online retail market has remained steady due mostly to the lower prices offered via online shopping.

Internet banking has slowly become more popular around the world, with 30% or more of Internet users utilising such services in some markets. However many online banking websites have at least one potential design weakness that could leave users vulnerable to cyber attacks. Improved bank security measures over the last couple of years, such as the introduction of home chip and pin devices is helping to combat this issue.

In the next few years the total entertainment and publishing industry (including offline and online) is expected to be worth more than $2 trillion – driven in particular by a wave of growth in online video games, gambling, music, social networking/UGC, and online video. In recent times sales of digital music, mostly via the Internet, have increased by more that 30%; in contrast sales of CD and DVDs continue to decline. Online video consumption is also beginning to produce promising results and advertisers have begun to seriously take note. Pay-to-own downloading is particularly popular and new business models in this area are expected to emerge over the next few years. Travel and adult content services are also popular with more growth expected ahead.

Mobile commerce is potentially important for a wide range of industries, including telecommunications, IT, finance, retail and the media, as well as for end-users. It will work best in those areas where it can emphasise the core virtue of mobile networks – convenience. However while there are good applications, the technologies and business models to date have not been well suited to mass market applications. The regulatory environment has also held this market up. This is beginning to change as banks and merchants collaborate with mobile operators. Applications around contactless cards using Near Field Communications are also being developed around the world. Focus has also turned to the developing markets, where mobile phones are being viewed as an opportunity to reach the masses that would not otherwise use m-payment or m-banking services.

*Data in this report is the latest available at the time of preparation and may not be for the current year*

ATM's To Be Used for P2P Money Transfers?

ATMs soon may be used for sending cash person-to-person - MarketWatch

Related: Privier Press Release: Privier Develops ATMSend

A new way to transfer cash
Bank ATMs soon may be used for sending cash person-to-person

By Gail Liberman and Alan Lavine Last update: 7:57 p.m. EST Nov. 10, 2008 PALM BEACH GARDENS, Fla. (MarketWatch) --

If you're without a bank account, you soon could have a low-cost way of sending cash to others -- using your cell phone and a bank ATM.

Amid criticism that banks aren't doing enough to attract those who lack bank accounts, a Charlotte-based company, Privier Inc., is courting financial institutions to provide this service.
Privier's patented "ATMSend" would let the so-called un-banked transfer cash without requiring the sender or recipient to have a bank ATM card or bank account. The system would use bank ATMs that permit cash deposits, said Charles Polanco, chief executive of Privier.

Western Union Co. in Englewood, CO., and MoneyGram International in Minneapolis, currently dominate the money transfer business. Combined, the two companies have 22% of the market, according to a report in June by Marketdata, a Tampa, Fla. market research publisher. However, new competition is rapidly emerging from Visa, MasterCard, Wal-Mart -- and the latest mobile technology allowing for financial transactions using cell phones.

Privier would equip screens of participating bank ATMs with icons reading "Send Cash" and "Pickup Cash." A cash sender and recipient would press appropriate buttons to automatically activate the ATM for an "ATMSend" transaction, Polanco said. Each bank would determine limits regarding how much cash could be transferred.

The sender first would have to register a cell phone through a participating bank either online or via telephone, entering a name, address, birth date, Social Security number and cell phone number. Privier would verify the user's identity and check information against the Office of Foreign Assets Control list of terrorists.

At a participating bank ATM, the sender could then click "Send Cash" and enter the cell phone number. A 10-digit withdrawal number automatically would be text-messaged to the cell phone number provided. The sender could follow prompts at the ATM to enter cash into the machine and provide the recipient with the authorization code along with the amount sent. With that information, the recipient could obtain the cash at an ATM within the participating bank's network.
All funds must be picked up at once, and if funds go unclaimed, senders would be notified to pick up the funds at an ATM location after 30 days.

Many money-transfer options

Mobile finance that uses cell phones for financial transactions is a growing technological area because 80% of the global population is covered by a cell phone network, Marketdata reports.
Polanco pointed to data from the Chicago-based Center for Financial Services Innovation indicating that 106 million persons in the U.S. lack a bank account. More than half, he said, have Social Security numbers; however many are distrustful of banks.

Meanwhile, the money transfer remittance marketplace is a $6.1 billion industry, slated to grow 8% in 2008, Marketdata said. Large U.S. banks already in the money transfer business include Bank of America Corp, Citigroup Inc., Wells Fargo, BB&T Corp and U.S. Bancorp (USB:
USB the report said.

These programs often are limited to specific countries. Bank of America offers free transfers for people who have a bank account.

Western Union Co. has been piloting mobile money transfer through arrangements with two Philippines-based wireless services operators, Globe Telecom and Smart Communications. Right now, it costs as little as $2.56 to send up to $100 for a mobile transfer from Hawaii to the Philippines, said Kristin Kelly, a spokeswoman with Western Union. Cash also may be sent to the Philippines from the United Arab Emirates, Singapore and Hong Kong from Western Union locations.

In the U.S., Western Union recently wrapped up another pilot with a prepaid phone through Trumpet Mobile, a brand of Affinity Mobile in Dallas. People who bought a prepaid phone at Radio Shack stores got a free prepaid card. They were able to add funds to the card by giving cash to an agent at certain locations, like Western Union offices. The card could be used like a credit card or linked via the cell phone to Western Union's account data base. The Philippines pilot will be expanded to other markets, Kelly said. The Trumpet Mobile pilot was successful, and currently is being evaluated, she said.
Through the U.S. Postal Service's "Dinero Seguro" program, you can wire money from nearly 3,000 U.S. post offices to up to 10 countries. You can send up to $2,000 in 15 minutes to arrive at a specific participating bank branch. Government-issued identification is required for transfers over $800, and fees range from $10 to $20. However, domestic wire transfers are not available.

Wal-Mart Stores Inc. touts low fees for money transfers in partnership with MoneyGram International. Domestic transfers at Wal-Mart stores cost $11.46 for amounts up to $200 and international transfers cost $9.46 for amounts up to $1,000.

Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Quick Steps to Financial Stability" (Que/Penguin). You can contact them at www.moneycouple.com.

Visit Privier.com's ATMSend for further information

Online Shopping Growth Stunted

Failing Economy Halts Online Shopping Growth

by Sarah Mahoney, Monday, Nov 10, 2008 7:00 AM ET

It looks like the sluggish economy has finally gotten its hooks into Internet sales.

The growth in online shopping hasn't just slowed, "it's fallen off a cliff," says Gian Fulgoni, chairman of comScore, which is predicting that e-commerce sales will grow between 6% and 10% this holiday season. And while any growth at all might sound like a dream come true to suffering brick-and-mortar retailers, it's shockingly low compared to recent years.

Year-to-date, comScore says, online sales have grown 10% to $158 billion--compared to 17% last year, 20% in 2006, and 22% in 2005. Just this year, it has plunged from 19% in the first quarter, 13% in the second, and 9% in the third. Excluding travel, the drop is even steeper, falling to just 5% in September.

"E-commerce has emerged as the earliest warning signal that there's a problem with disposable income," he says, and while national retail figures show steady gains, that is due primarily to inflation in food and gas--"neither of which you can buy online. This price inflation has just sucked all the air out of disposable income, and we're seeing it most in people earning less than $100,000," he says. "It's not a pretty picture." Indeed, people earning less than $100,000 increased their online spending just 3% in the third quarter.

On the flip side, among consumers who earn more than $100,000, "the market meltdown has simply hammered their confidence. They're on pins and needles," he says. About 85% of those in this higher bracket agreed with the somewhat apocalyptic statement "I am more afraid about the economic future than ever before." This group is driving the increase to coupon sites, with 37% more of these shoppers using them than before.

And some categories are actually registering sales declines. Hardest-hit is the apparel, shoe and accessory category, which saw a decline of 3% in online sales in the third quarter; books and magazines, with a decline of 17%; and music, movies and videos, with a drop of 29%.

ComScore's predictions are considerably more grim than what online retailers predict themselves. A study released recently by Shop.org, a division of the National Retail Federation, reports that 56.1% of online retailers expect their holiday sales to increase at least 15% compared to last year (that compares to 77.5% last year.) "Online retailers are resilient, but not immune, to the challenges of this holiday season," the group says in its results.

Sarah Mahoney can be reached at sarah@mediapost.com

On Payments and Financial Patents

Broox Peterson, formerly responsible (2000-2005) for Visa's patent program, writes in his blog about the October 30th decision by the US Court of Appeals for the Federal Circuit on patents in the payments and financial industry:

Payments Industry Regulatory Compliance: Payments Industry "Business Process" Patents - A Dent in the Holy Grail?

On October 30, 2008 the United States Court of Appeals for the Federal Circuit decided In re: Bilski, __F.3rd__ (Fed. Cir. 2008) (in banc), a decision that will likely reverberate widely in the payments and financial industry. With this decision the Federal Circuit, the federal court of appeals with jurisdiction for patent matters, snugged up the standards for patent eligibility of business processes and methods that had been loosened by its 1998 decision in State Street Bank & Trust vs. Signature Financial Corp.

Not all original inventions, discoveries or bright ideas are eligible for patent protection. In particular, abstract ideas, mental processes or fundamental principles of nature standing alone cannot be patented, as these are the foundations of civilization and progress, and belong to no one. An invention that utilizes one of these abstract ideas or principles to create a useful application in the world we live in can be patented, though, assuming it is novel and non-obvious. The maintenance and application of this distinction has bedeviled the Patent and Trademark Office, the courts and patent attorneys (not to mention us civilians) in recent years.

In the State Street case, the Federal Circuit upheld a patent on a software-implemented method of pooling, processing and accounting centrally for the assets of multiple mutual funds (a so-called "hub and spoke" configuration). It overturned a lower court decision finding the patent invalid on the then-prevalent view of software as a math-like algorithm tantamount to abstract ideas. The lower court had found that the mere processing of numbers into another form involved no physical transformation and was thus not a patentable process. The Federal Circuit in State Street created a new standard for the patent eligibility of software, from causing a physical transformation to producing "useful, tangible and concrete results". The Federal Circuit also made it clear that there was no per se exclusion from patent eligibility of business processes.

The State Street decision is viewed by some as having opened the door to a flood of business process and software patent applications and granted patents in the last decade , although to some degree the decision merely reflected and justified what had already been occurring at the Patent Office. State Street was decided during the dotcom boom in the late 1990's, and many patent applications during that period were for Internet-based processes, many, but not all, of them marketing-related. A particularly infamous patent was issued in 1999 to Amazon for a "one-click" on-line ordering and payment process. This is not the place to catalog the variety of types of business processes for which patent protection has been sought and granted, but the point is that seeking patent protection for business process and method became a key focus of many start-up and established businesses in and after the late 1990's. At the same time critics worried that the liberal standards for obtaining business process patents were stifling creativity and innovation, and requiring allocation of attention and resources to patent matters (offensive and defensive) that were better spent by businesses on developing and marketing products and services.

In the ten years since State Street was decided the Patent Office has struggled to find the limits of patent eligibility of business processes and software. Many of the patents that have been granted contained a technological component and thus could satisfy even pre-State Street standards, but the line was murky for many others. During the time I was responsible for the Visa patent program (2000-2005) I do not recall any instances where patent counsel felt an "invention", usually business process-based, could not be patented. Obviously this was a good time for the patent bar.

The Federal Circuit apparently was having second thoughts itself about the effects of its decision in State Street when it decided to rehear en banc an appeal from the decision of the Patent Board of Appeals and Interferences rejecting as patent ineligible the claims of one Bernie Bilski (Ex Parte Bilski (BPAI 2006)). Bilski involved patent claims for a system of hedging against bad weather for a distributor of commodities like grains, essentially consisting of contracting in advance a fixed price from its suppliers and a fixed price to its buyers. There was no technological component to the process, which could be performed entirely in the mind. Although these claims probably failed even the State Street test requiring a "tangible and concrete result", the Federal Circuit took the case as a vehicle to re-examine the standard of patent eligibility created in State Street, and ultimately rejected that standard in favor of the more restrictive standard State Street had replaced:

"A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing."

In other words, there must be a central physical component to a business method or software claim for it to qualify for patent protection. The meaning of this in the context of the transformative test in (2) above is that for software or process to be eligible for patent protection it must transform physical objects or representations of them into something else. It is hard to imagine an invention in the financial or payments industries being able to meet that test, and the key to patent eligibility after In re: Bilski will likely have to be meeting the "particular machine or apparatus" test in (1) above. Unfortunately, In re: Bilski provides no guidance in that area, with the Federal Circuit expressly deferring any guidance as to how that test can be satisfied to a future, more appropriate case. As one bit of clarification, though, the Patent Board of Appeals and Interferences has already held that "[a] general purpose computer is not a particular machine, and thus innovative software processes are unpatentable if they are tied only to a general purpose computer." See, for instance, Ex parte Langemyr (May 28, 2008) and Ex parte Wasynczuk (June 2, 2008).

The ultimate impact of In re: Bilski on the future of patents in the financial and payments industries is not clear yet, but it is important that the decision did not reject the patentability of business processes or software altogether. Although the decision is likely to slow the filing of new applications in these industries, there will likely still be many patent applications filed seeking to test the limits of the "particular machine or apparatus" test. Another consequence of the decision is to call into question the validity of those patents already granted under the rejected State Street test, requiring holders of these patents to review the claims under the In re: Bilski test and perhaps seek to correct any problems by adding claims more likely to survive a Bilski review through continuation or reissue proceedings.

In the long run, if patents cease to be the Holy Grail in the financial and payment industries, that may not be a bad thing. A patent is no substitute for being first to market with a well-executed, profitable business model. A strong patent can buttress a business position, but if seeking and waiting for one hinders being first to market it can hurt more than help.

Online Card Fraud Doubles in Japan from '04

Credit card fraud doubles from 2004 - The Mainichi Daily News

Credit card fraud doubles from 2004

Incidents of online credit card fraud have skyrocketed in the last few years, more than doubling since fiscal 2004 to reach 689 million yen in fiscal 2006, a study by the Ministry of Economy, Trade and Industry (METI) has revealed.

Experts have also criticized businesses and the government for poor credit card security practices, pointing out that a transaction will be accepted on some systems even if the cardholder's name is wrong, as long as there is a correct card number and expiry date.

The study, which covered six major domestic credit card companies, shows that fraud has risen over the past few years, reaching 311 million yen in fiscal 2004 and 454 million the following year.

Internet shopping has shot up over the last 10 years -- reaching 4.391 trillion yen in 2006, compared to 62.5 billion yen in 1998 -- and around half of all transactions are now completed by credit card.

However, credit card-related crime is also rising.

During March 2005, credit card information on 698 people was stolen from a Yokohama gas stand, with those of 56 of the victims used for illicit purchases on the Internet. In another incident in Okayama Prefecture in June 2006, a gas stand worker stole credit card information from customers and used it to charge his e-money account on his mobile phone to the tune of 64,000 yen.

At the other end of the scale, credit card information on 40 million people, including those of 77,000 Japanese nationals, was lost in June 2005 after a U.S. data processing company server was hacked. Damage caused by subsequent fraudulent use is somewhere around 130 million yen, which is borne by the credit card company.

In order to improve credit card security, card companies are pushing a voluntary password system called 3D Secure. However, uptake by both consumers (4.7 percent, as of May 2006) and stores has been slow.

A spokesman from METI's Consumer Credit Division said: "3D Secure has to catch on. It shouldn't affect convenience and discourage consumers from using credit cards. But even when taking the damage incurred into account, we've had to leave uptake by businesses on a voluntary basis, since the time isn't ripe for drawing up a legal framework."

Click here for the original Japanese story

If You Still Have to Type in Your PAN it's Not Safe

Visa trials PIN payment card to fight online fraud • The Register

Editor's Note: Nice attempt, but the user is still required to enter their "Personal Account Number" (PAN) onto the site, or into the web browser space which as I've already stated, is an exercise in futility (and naiveity) when it comes to securing the transaction. (See my previous post) and be sure to check out "the cheesy video link at the bottom of this post.

If your card information is going to be swiped, shouldn't you be the one "SwipePIN it? This approach, (the Brits call it a "scheme" and that seems to be a better word for it) is simply, nothing more than a marketing ploy versus a "real" technology designed to truly securing an online transaction... It's better, but not there yet.

Visa trials PIN payment card to fight online fraud Banks build one-time generator into plastic By John Leyden

Visa cards with a built in one-time code generator are to be trialed by four European banks. The technology is designed to tackle the growing problem of online credit card fraud.

MBNA, a Bank of America company in the UK, Corner Bank in Switzerland, Cal in Israel and IW Bank in Italy are to take part in limited trials of Visa's new one-time code card.

The next-generation cards feature a numeric keypad on the back of a plastic card. Customers enter their PIN code to generate a one-time password. This code, displayed on a card’s display panel, is then used to authenticate online purchases.

The approach is an alternative to using a password when authenticating online purchases through the much-criticised Verified by Visa scheme. As previously reported, VbyV passwords can often be easily reset knowing only card details and a user's birthday.

The new cards, developed in conjunction with Australian firm Emue Technologies, are far more secure - though not infallible. Some banks have already introduced two-factor authentication technologies, which grew up in the corporate remote access market, to provide extra protection to online banking transactions.

The approach means that basic phishing attacks aimed at tricking users into handing over online credentials are insufficient to compromise accounts because the code, typically generated by a separate token or other piece of kit, is also needed to log into accounts. That still leaves open the possibility of man-in-the-middle attacks, where hackers set up websites that pose as the real thing, tricking users into handing over one-time passwords which are relayed to genuine banking sites in real-time.

More sophisticated attacks of this type have already targeted Citibank customers.

Although one-time code technology is no silver bullet capable of slaying online fraud it is a big improvement on using passwords, which as Visa Europe points out can easily be forgotten. Bundling the one-time password technology into a card also means users don't have to deal with multiple items of kit.

Problems in getting out a personal calculator-style keypad delayed the introduction of Barclays' PINsentry scheme, which like the one-time code generator is also designed to combat online fraud. Emue has managed to develop technology with a three-year battery lifetime, overcoming one of the potential stumbling blocks to the scheme.

Corner Bank has invited 500 to take part in the trials. Visa is yet to get back to us on the total number of participants or expected length of the presumably small-scale trails but we'll update this story as and when we hear more.

In the meantime a slightly cheesy video of the technology in action can be seen here. Images of Emue's card technology can be found here. ®