As forerunner in electronic banking, New Zealand is one of the best international examples of the cashless society. But costs, and the mass deployment of hardware required to support more recent cashless technologies like smartcards, means the drive to becoming totally cashless (at least in principle) has reached major road block. Meantime, bank reluctance to agree on mutual standards gives telcos prime opportunity to score first move advantage with smartcards globally.
Kiwis are traditionally early embracers of new banking technology. But without major driver Kel Sherson, solutions director (banks) with Unisys, expects limited smartcard uptake. He says New Zealanders penchant for Eftpos and the broad acceptance of credit cards and direct debit, together with our small population and intense competition… does not bode well for the uptake of alternative cashless payment alternatives like smartcards.
“Smartcards do eliminate consumer running costs, especially on low-value transactions. They also let consumers perform multiple functions without telephone link to the bank’s computer system for authorisation of transactions. But consumer willingness to use Eftpos, even for the minutest purchase, suggests the associated Eftpos charges aren’t really an issue.” In other words, with over 90 percent of all banking transactions revolving around old-fashioned debit and credit cards, ATMs, and Eftpos, banks have less compulsion to fix system that for most part… ain’t broke.
Ironically, the legacy resulting from the decision by New Zealand banks to use Databank for interbank clearances was the early adoption of electronic interbank dealings. Consequently, drivers behind smartcard technology are nowhere near as acutely felt locally as they are within economies slower to embrace electronic banking. The bottom-line? Local banks have been more deft at reducing the cost of counting, transporting, storing and protecting cash than many of their offshore counterparts.
What’s also fuelling bank reluctance to embrace smartcards is the cost. In fact, Ron Brown, general manager with ETSL (which controls 90 percent of the local Eftpos market), says smartcards are up to nine times more expensive. Then there’s the cost of providing smartcard readers. There’s also growing realisation by banks, says Brown, that “magnetic stripe” technology remains largely underdeveloped.
Matt Bartlett, ASB’s chief manager (electronic banking), believes the only real opportunities for further development of mag stripe technology relate to the network’s ability to carry additional, merchant-based information over broader bandwidth… effectively opening up the infrastructure to wholesale switching of non transaction-specific data. “And until ETSL can openly support IP technology, these additional services would need to be mag stripe sourced/initiated.”
The way Brown sees it, local banks will maintain watching brief on smartcards until there’s evidence they’re superior in some way. Most banks are taking their fix on cashless technology from their Australian parent companies. New smartcard trials are expected this year within the transport sector in both NSW and Victoria, but Australian consumers are yet to see smartcards launched nationally. On this side of the Tasman, some smartcard piloting is expected this year. Richard Blows, BNZ’s manager chip and emerging technology, suspects the first major smartcard presence in New Zealand will centre around retail loyalty programmes.
It’s true, growing number of merchants have new-generation Eftpos card readers that are smartcard capable. But not even this, says Blows, has spurred banks to push ETSL to introduce smartcard capability across its Eftpos backbone. “There have been pilots to introduce smartcards for niche applications. But the fact they haven’t become more pervasive suggests original goals were not met.”
A case in point, WestpacTrust ran smartcard trial for all purchases at the WestpacTrust Stadium in Wellington. But with nowhere else to spend residual value on these cards, the application remains decidedly limited, says Unisys’ Sherson. Similarly, the Wellington-based Red Bus Company has used smart- (albeit contactless) cards for some time.
To minimise the costs associated with handling the “filthy lucre”, banks, legislators, treasuries and commerce commissions the world over have been pushing the move towards cashless trading. Over the past eight years major banks have tried to introduce various smartcard initiatives. But for all the rhetoric little has happened. Why exactly? Sherson says bank inability to adopt universal standards means smartcards have struggled to leave the starting blocks.
Although banks have finally decided to work towards the international EMV (Europay, Mastercard, Visa) smartcard standard by the end of 2004. While this is encouraging, Sherson says wranglings by credit card companies mean deep-seated issues go well beyond accepting international standards. “The big issue is finding card provider willing to combine debit and credit. The market is dominated by handful of heavyweights and none are prepared to compromise market share.”
But assuming banks can meet EMV standards, ATM machines and all card-readers will be able to read the smartcard chip. And since these cards will comply with an international standard, they should be usable anywhere in the world. The changeover is worldwide initiative with the international deadline set as December 2005. But even if these deadlines are met, Sherson says it will still take compelling event to drive smartcard uptake locally.
Pockets of excellence
A joint venture between National Westminster and Midland banks and British Telecom test-marketed plastic/silicon cash substitute in the English town of Swindon during the mid 1990s. Using the Mondex cards (similar to ATM cards), they carry sophisticated computer chips that can transfer money via phone or by small wireless device called “wallet”.
But the problem associated with taking the “epurse” (another name for smartcard) applications across national boundaries means all we’ve seen so far is disparate pockets of smartcard excellence, amid lot of trialling.
For example, Denmark has introduced smartcards for low-value transactions (parking, entry into public buildings, phone calls…) France has its “Blue Card”, Hong Kong has smartcard for travel on the Rapid Transport System and the Spanish government is using smartcards for healthcare entitlement.
Smartcards aside, numerous global providers offer secure Internet transactions through various versions of cybercash or digital cash for micro-payments online. Even Microsoft’s Bill Gates has his hands deep into virtual pockets.
For the uninitiated, here’s how cybercash works. It’s essentially an alternative to paper currency and coins. The central idea is that cash equivalent (electronic token or stored value) can be exchanged immediately for goods and services, with no reliance on traditional payment infrastructures. This removes the need for authorisation and network-based processing, while lowering the cost to all parties for small purchases (micropayments)… where the transaction cost often outweighs the purchase amount.
Not surprisingly, providing cybercash instruments is not deemed high priority for banks locally. Nevertheless, Bartlett accepts that cybercash could easily be incorporated into any enabling technology that supports stronger, portable authentication and encryption for bank-assisted payment services, the obvious example being chip or smartcards.
Most cashless trading within New Zealand so far has taken place in the consumer space (for example, notable etailing operations like Woolworths and the Warehouse). Admittedly some businesses have been in EDI trading relationships for up to 15 years. Yet even today, mo