There are two technologies widely available that can make e-cash a reality: contactless chip-and-PIN secured cards and NFC smartphones.
Four years ago, I wrote a blog about the failure of e-cash experiments, both in Europe and the US. There were many factors to blame, but the trials failed mostly because of reticence from small businesses that were afraid of high fees after the initial “grace period,” and some customers not being comfortable with the technology.
Contactless terminals and smartcard readers are deployed everywhere now. In Europe, those small, wireless, handheld terminals can process contactless cards, digital wallets on NFC-enabled phones, chip-and-PIN credit cards, and the standard magnetic-band cards Americans still use. Banks and credit card issuers are rushing to equip every point of sale with the technology.
In Europe, the EMV chip-and-PIN credit cards have been around for several years, adding a layer of security lacking in their American counterparts. EMV has allowed the credit card companies and banks to shift liability to merchants and customers if they fail to “protect” transactions using EMV cards and readers. EMV partners — mostly VISA and MasterCard — worked with handset manufacturers to implement the same level of security on smartphones, via the NFC chipsets on the phones or the SIM cards provided by the mobile operators. Security is the same as the EMV chips found on all chip-and-PIN cards, making the NFC transactions “card present.”
For consumers, there are special benefits. One is the possibility of carrying only one device, the smartphone. Most people carry their phones with them all the time, and they’ll welcome the possibility of leaving their wallets at home. Additionally, the previous concerns about “losing” the “stored” money on the card are gone since the security of the chip-and-PIN is embedded in the phone and requires the user to unlock the phone and the wallet by different PINs (if desired). Banks that provide digital wallets are also issuing standard chip-and-Pin cards for customers who want to have a backup and to use on POS systems not enabled for contactless technology.
But, most importantly, consumers are embracing NFC digital wallets because of the “cool” factor. Users of Apple Pay, Android Pay, and other NFC tap-and-pay systems like to brag about how they can pay almost everywhere with their phones. Also, similar to the Osaifu-Keitai system in Japan, soon customers will be able to store most of their contactless cards on the phone (loyalty cards, discount coupons, transit cards, event tickets, etc.) making it unnecessary to carry a load of plastic around in their pockets.
For retailers, the main benefit is the added security of handling less cash, plus the ability to process small transactions in a few seconds. Most banks are not requiring the PIN to be entered for transactions below €20 (US$24).
Fees are the real concern: Small businesses — the ones that don’t have special agreements with the financial institutions — want assurances that fees are going to be reasonable over time. Nowadays, most small shops do not accept card payments for less than €10 ($12) because of fees. Banks deploying contactless technology are making special offers for contactless and EMV payments to encourage those small businesses to embrace small transactions with the technology, but they need to work together to ensure the system’s success over time.
For banks, credit card companies, and mobile operators, getting people to go cashless is a new secure line of business. The important task for IT departments is to ensure the security of the payment systems, and enable the networks to handle the new wave of small transactions.
Why Electronic Cash Might Work Now