Today, anyone can use services — like parking spaces, buses, libraries, swimming pools, canteens, etc. — as they see fit. Not only this, but they can also make use of a range of cards, which enables one to be sure they have chosen the appropriate means for good service.
With the development of new technology (e.g. internet, contactless cards, NFC-enabled mobile phones, smart watches) and the digital revolution, people have begun to reconsider the range of actors with regards to the definition, use and payment of the services they are offered.
This has led to a new concept emerging, that of payment convergence. In other words, this is the drawing together of worlds in which cards are used: banks, transport and ticketing.
The concept of payment convergence involves offering a single service, integrating services from disparate sectors. This relies on a multi-support payment system which is also based on open non-proprietary technology.
As with all concepts, it must find its feet, normalise as experiments are conducted and investments are made, and sometimes defend itself. Ultimately, however, it will emerge before the eyes of all stakeholders.
A limitless world of services
“The era of dematerialisation, of services and of their supports, is gathering pace”
In an urbanised and constantly changing world in which banks are prevalent, the range of services at the public’s disposal — whether public or private, paid for or not — is striking.
Here is a non-exhaustive list:
- The urban community (transport, parking)
- Municipal services (school, extra-curricular, library, swimming pool)
- Retailers (loyalty, purchase)
- Companies (access, identification)
- Banks (payment methods)
For each of these services, there is a linked support which allows access, usage, monitoring and then payment thereof. This support is most often a card, with a magnetic strip and/or an electronic chip, and more and more often with contactless technology. To stop our wallets getting even bigger, but above all to make the user’s life easier, the era of dematerialisation, of services and of their supports, is gathering pace.
Boosted by the digital revolution, this dematerialisation can be seen in a number of forms. All at the same time, it is concentrated (the availability of various services using an individual support), extended (a single service with various supports), interoperable (using different networks), technological (contactless), beneficial to safety (fighting fraud and identity theft), regulated (at regional, national, international levels) and standardised (ISO and procedures).
This list could scare some and explains why only certain sectors have dared to force the issue. Are the necessary investments for this dematerialisation to develop proportionate to the potential improvements? Through investments, we hope to eventually have a structure which is open to everyone, lasting, scalable and hence maintainable, all at the same time. This also involves ensuring the compatibility of the different components of the system, and therefore getting out of this rut of ownership, with a catalogue of secure applications and real-time processing of information.
In terms of improvements, the pooling of technology and convergence of uses provide a force for innovation, but also developing service packages, making customers’ lives easier and giving everyone access. In the framework of public and community services, this is particularly helpful in modernising the community image, strengthening local identity, offering specially-catered support to citizens through a special means, while making the task easier and boosting social cohesion. The answer to the previous question is therefore yes.
“The pooling of technology and convergence of uses provide a force for innovation”
A difficult marriage
This payment convergence merges the hopes, limits and demands that have already been mentioned. Using the word ‘marriage’ is not too strong, far from it.
When thinking about the difficulties, limits and hindrances which this new concept must tackle, you just need to look at how long it took for EMV to be implemented in France and in Europe. As a reminder, the aim of the EMV standard was to make all payment cards bearing an electronic chip interoperable with the range of electronic payment terminals, and to improve the security of off-line transactions, in other words where there is no request for bank authorisation. Technically, the essence of the electronic chip has not changed; it is a facility for storing and processing information, which may be read, written or deleted. A chip is given a mask which allows it to be used by a particular mobile phone operator, bank or company, for example. The difficulty is to bring together all these regulatory demands and rules, which are sector-specific and sometimes specific to a particular country — as with France.
“The difficulty is to bring together all these regulatory demands and rules, which are sector-specific”
Here we can provide a non-exhaustive list:
- Protecting the private data of users (CNIL – National Commission on Informatics and Liberty), recently reinforced by the adoption of DSP2 (Second Payment Services Directive) by the European Parliament on 8 October 2015, six years after the first directive was applied.
- Respecting France’s Monetary and Financial Code (CMF/COMOFI), as well as the French Consumer Code.
- Preventing fraud, both at home and abroad.
- Having time to deal with very quick transactions.
- With regards to payment cards, respecting the EMV standard and contactless payment rules.
- With regards to transport ticketing, respecting the Calypso standard.
- With regards to telephone cards, respecting the UICC formats (SIM card) and the associated standards.
- Accepting micropayments or gratuities (which could allow cost-free payments).
- Achieving compatibility with current supports (cards, telephones, etc.)
- Real-time and a posteriori monitoring.
In response to this, three prime areas of study and experimentation are currently being explored. This is based around using the original support for the particular sectors: for banks, that is a bank card with an NFC tag; for transport, that is a card with a chip which has a contactless facility; and for phones, that is a smartphone with NFC capabilities.
Those involved, from the chip manufacturers to the card-producers, banks, operators or the GAFA companies (Google, Apple, Facebook and Amazon), all know that whoever has the system which is most practical, easiest to use, or indeed the cheapest, will be victorious. That is even if the initial production cost is high.
Why is that? Because consumers are ready to pay for a service if it has added value and, above all, if the payment method is safe and does not take up too much… time! Yes, indeed it is paradoxical, but it has been shown in a number of studies looking at how to optimise customer experience.
A growing payment method
Paying for a service seems to be straightforward. In today’s society, one just needs to write a cheque, make a transfer or a withdrawal, get their bank card out, or of course use ‘hard’ cash.
In a time where we have single area where payments are made in euros, more commonly known as the Single Euro Payments Area (SEPA), the trend is one of dematerialisation and the use of contactless technology. This means the eventual disappearance of cheques and cash and, above all, of the administration costs and the risks linked to their use. Unfortunately, contactless payments still have quite a bad press in France. According to the French bank card group, less that one French consumer out of five used this function in 2014, a year in which contactless transactions represented barely more than 1% of all transactions. According to a survey conducted by Odoxa in January 2015, for the digital industry trade union Syntec Numérique, 57% of French people felt that this technology was “useless”. Most people chose not to use it because of insufficient knowledge (43%) and a segment of consumers are afraid of bugs (14%) and fraud. Despite all this, in March 2015, according to the French observatory for NFC and contactless technology, 34.7 million cards are NFC-equipped, equal to 54% of all cards in circulation. In addition to this, 700,000 people have NFC-enabled mobile phones, which is the case for 81 handsets.
At the beginning of October 2015, Visa announced that 50% of Visa card holders have a contactless card and more than 30% of traders accept them. The deployment of contactless cards and terminals will continue to grow in the coming years, with the aim that by 2020, 100% of terminals and cards will be contactless.
Convergence: a question of initiative
With contactless payment now possible, we should be able to use it at the right time, with good timing, and without ignoring security concerns.
Three types of payment services are available: pre-payment, pay-as-you-go, or pay-later.
Information regarding the user and the service used can be stored locally on the electronic support (chip, phone, etc.), in the back office of the company supplying the service, or with one of their providers, in other words in the ‘Cloud’. There are many different possibilities, in terms of how, where and by whom this information is stored, and this depends in part on the answer to this question: who will bear the responsibility, the risks and the relevant costs in the case of dispute?
When it comes to developing solutions for payment convergence, this question is often the main obstacle. As a reminder, those working on the concept of payment convergence hope to offer a unique and standardised service, which integrates services from various different trades, allowing people to pay for their use. Ensuring correct usage and minimising risk is very complex, as this all depends on the technology and actors. To this end, regulatory bodies (such as the ISO) have been working on this issue for a number of years.
Unfortunately — or fortunately, depending on your point of view — the consumer moves at their own pace, makes use of this digital technology, and only asks these questions when there is a problem. To illustrate this idea, let’s take the example of commuters using public transport in a city like Paris: they can use the bus, the metro and the train, not to mention bike and, more recently, car hire services. They have many different means of paying for this service, from buying a ticket — these are so famous these days that Japanese tourists sometimes buy sets of them to give as presents when they get home — to using a Navigo pass, which opens barriers much like an Oyster card.
Despite this, occasional users (of which there are around 1 million in France) and, worse still, tourists do not have one of these passes. These people have phones, and most probably a bank card and/or some cash, and are stuck in front of the barriers, until either someone is kind enough to explain how it works or they decide to fare-dodge and jump over. This example could well be extended to include all the other services that people make use of in their daily lives. How many college students would forget their mobile phone when they leave in the morning? Practically nobody. On the other hand, if you are talking about their meal card, that’s a different story.
That is where we see the solutions to this situation. Allowing consumers to use a service and pay for it, without having to carry around all the different means of payment or relevant supports that are currently available, running the risk of losing them or worse. If consumers could avoid this hassle, they would not turn down one service to look for another.
To address this, there have been many initiatives and tests run by companies, both in France and internationally, by solutions or service providers, public or private. Mainly concentrating on the areas of retail, transport and public services, they help fine tune use cases, to fill in the gaps, to improve the legal framework and formulate solutions and offerings which could be made more widespread.
Many of these initiatives have become concrete and made the headlines, signifying innovation for users now and in the future. In the main, these have come in the area of transport as there is a real need here. The hope is, however, that these will reach other areas in the future, particularly public service. Here are a few examples we have chosen to illustrate this.
During the London 2012 Olympic Games, Transport for London upgraded all of its infrastructure so that contactless payment (with cards and mobile phones) could be accepted. It is important to note the following: this is a closed network, which does not require interoperability, unlike most networks in France. On this network, one can use a contactless-enabled bank card to validate entry and exit, and, if one forgets to validate, they automatically pay a capped charge later.
Many cities in France have launched studies and projects to see if implementing this kind of system could be possible, while respecting our regulations, such as Grenoble, Bordeaux, Lille, Lyon, Marseille, Nantes, Nice, Caen and Strasbourg.
Since 7 March 2014, with the decree initiating the dematerialisation of meal vouchers, the use of a card — which functions much like a bank card — is increasing progressively. In October 2015, only 5% of the 3.5 million people who use meal vouchers actually use the electronic voucher. A public consultation on a bill proposed by Axelle Lemaire should accelerate its deployment; new entrants on the market are pushing for a complete dematerialisation from January 2017.
In France, the ADCET (association for the development of electronic transactions in the territories), an organisation set up in 2005, is committed and is working towards dematerialisation in local areas, so that citizens’ lives are made easier and the management of local areas is improved. As part of this, they are assisting the metropolitan area of Rennes in implementing an experimental standard, AMG, in the new generation of KorriGo transport card, the deployment of which is set for 2016.
AMG, which stands for Applications Multiservices Génériques (‘generic multiservice application’), is an experimental standard which is based on the Calypso system and the existing ISO standards. It is supported by the ADCET and the aim is to offer an interoperable standard to all actors, allowing all types of services to be managed. This is of particular relevance to situations in which a CVQ, ‘carte de vie quotidienne’, a card facilitating access to administrative services, in used. With AMG, we have one of the keys to success when it comes to payment convergence. Thanks to this, actors will be able to concentrate on creating added value in the services for consumers, rather than the ways of integrating them and making them work alongside each other.
Orange is seeking to accelerate the process of replacing bank cards with smartphones, and hopes to do so before the GAFA companies arrive on the French market. On 19 October 2015, France’s top mobile phone operator presented Orange Cash, its new method for contactless payment with a mobile phone. Developed through a partnership with Visa, the application was tested for a year in the cities of Caen, Lille, Nice, Rennes and Strasbourg, before being deployed across the country on 8 October. Orange’s initiative is in keeping with the French government’s intention; the government recently presented its “National Strategy on Payment Instruments”, which aims to accelerate the development of innovative payment methods and boost the competitiveness of France’s payment industry.
It is now up to us to work alongside the actors in this value chain, to implement this new strategy. We must be careful, however, as “acceleration” does not mean “hastiness”. How many innovative plans have we seen fail to come to fruition due to a lack of consumers? We need to meet their expectations and make the most of this digital era. This is a significant issue. Achieving payment convergence and basing the offer on non-proprietary standards is one of the ways of bringing this strategy to life, a strategy which itself must be ‘win-win’’ for all stakeholders.
The stakeholders in this value chain — whether they are banks, operators, GAFA, NATU companies (Netflix, Airbnb, Tesla and Uber), or more recently public services and their providers — have all understood the issues at hand. The modern consumer has new needs and a new way of life; it is important to understand what they use and how, so that they can be offered suitable solutions with added value. Payment convergence, which — let us remember — offers consumers unique and standardised support for services from different sectors using contactless technology, appears to meet this new demand. One cannot deny that the contactless environment is growing, and the relevant actors need to spring into action. In Europe, the authorities are providing increasing support; this can be seen through the actions of the French government, which is promoting a national strategy for innovative payment methods. More than just a concept, payment convergence is now reality.