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A number of different types of scheme fall intothe general ‘e-purse’ application area. With e-cash,the value of the money is held on the card; if thecard is lost, so is the money. With e-purse schemes,however, the money is held centrally; if the card islost the money may not be. Finally, an emergingarea is pre-authorised debit (PAD). Here, thepayment product provides electronic purse-likefeatures based on the EMV debit and creditspecification. Pre-authorised functionality overlapswith the low-value payment arena that may becovered by e-purses in that it is offline secure.However, the main differences are that you don'tneed a separate standalone infrastructure fromEMV for PAD and you can extend it to multiplecountries and multi-currencies.
Whether the scheme is characterised as e-purse,e-cash or PAD, it may exist in a number of forms.Sometimes the application is offered as a stand-alone function. However, it is frequently deployedon multi-application cards that may include otherpayments applications such as credit or debit, or itmay be a feature of a wider enterprise, campus orcity card. The e-purse may tie in with loyalty ortransport applications, as it does with the GermanGeldKarte and the French Moneo schemes. Or, itcould include regional loyalty programmes – forexample, schemes may be established to encouragecard holders to be loyal to and shop in a particularcity or shopping mall. Cardholders can collectpoints on the purse, which adds value to thescheme as a whole.
Open or closed system?E-purse schemes may be offered via open or closedsystems. Today, an increasing number oforganisations are moving from closed e-purseschemes to open ones, as Holger Ziegler, director,Indirect Sales and Partnerships, Payment Division,Giesecke & Devrient, explains: “Businesses andother organisations previously used closedtechnology, for example, in the companyrestaurant. Now, companies are adopting openschemes…by leveraging on the technology alreadyin place, and this is helping address critical massneeds.” In Germany, companies such as Giesecke
& Devrient as well as one of Munich’s savingsbanks are now using the GeldKarte in thecorporate environment. However, in spite of thegrowing drive towards open schemes, closed onesare still being launched. This year's MunichOktoberfest will use a closed e-purse scheme basedon the ComPayS system from Secartis. Here, theWiesn Card will be sold at values of 30 and 50and offer a basic rebate of approximately 10% onall purchases and possibly additional discounts atcertain times during the festival. Each of theevent’s 500 booths or rides will be loaned acompatible pay terminal. The system underwentan initial trial at Munich’s spring festival between16 April–2 May, 2004, and this required theproduction of 400,000 cards.
A strong market?E-purse schemes have the potential to offer anumber of clear advantages to cardholders,merchants and card issuers. From the cardholder’sperspective, they are highly versatile, convenientand secure, and are useful for low-value, highfrequency transactions such as purchases fromnewsagents and quick service restaurants or inplaces where coins are required, such as vendingmachines, parking meters and public transport. Ifvalue can be added to the e-purse, this will alsodrive acceptability. For example, the MunichUnderground gives consumers discounts if theypay for travel using a GeldKarte.
Potentially, e-purses offer merchants the abilityto move more people through their locations morequickly during peak volume periods. And, fromthe banks’ point of view, e-purse schemes providethe means to be involved in a greater number ofconsumers’ transactions while reducing costsincurred during the process of cash, credit andcheque handling. In France, there’s a strong desireto take cheques out of the system (see figure 1),while in Germany, cheques are rarely used, so therequirement is to remove cash from the system.
The closeness of e-purse technology to otherapplications is also a major advantage, as SusanneSchuette, marketing manager, Banking, BusinessLine Identification, Philips Semiconductors,
explains: “To some extent transport applicationsoperate via an e-purse process as all cardholdershave to top up their transit cards at terminals in asimilar way to e-purse top-ups. In Korea, there islots of experience of Mifare for travel and this isnow being extended to dual interface technologyincluding loyalty and e-purse payments via thecontact interface of the chip, while transportapplications are used via the contactless interface.”
Where can it go wrong?With a number of schemes recorded as failures (oras limited successes), it is worth taking a look atwhat makes a scheme work. Giesecke & Devrient’sHolger Ziegler explains: “A good scheme needs toconsider the technology: security is a pre-requisite,otherwise there will be no trust in the scheme.However, no e-purse scheme has ever beendeployed where there has been a doubt about this.Secondly, infrastructure needs to be considered.Facilities for loading and reloading cards are oftenneglected. For example, McDonald’s in Germanyhad to put two load terminals next to its counterswhen it agreed to accept the GeldKarte as mostpeople had never loaded a single cent onto theircards. Thirdly, communication is essential. Somebanks have issued e-purse cards but neglectedcommunication on it. Without communicationwith stakeholders, such schemes will struggle.”
So where’s the problem?In spite of the potential advantages of e-purseschemes, many have not been as popular asexpected. In many cases insufficient attention hasbeen paid to stakeholders during the earlydeployment of schemes; in communicationactivities or simple logistics exercises.
Added to this, it has been very difficult toachieve a critical mass, with something of achicken and egg scenario taking place: merchantsare unwilling to invest in the terminals and pay thetransaction fees and consumers will not use cardswhen few merchants accept them. Furthermore,consumers need to perceive an e-purse as moreconvenient or advantageous than cash.
An e-purse will have more success if it ispackaged as an additional payment option forsmall value purchases on a card that already carriesa debit or credit payment facility, or if it is used inconjunction with another application, such astransport, events or loyalty. E-purse use may alsocontradict current customer experience in usingthe card. A standard debit or credit card can bepresented without thinking about it and nothaving to reload ‘purchase power’ on the card. Foran e-purse, one needs to think about theremaining balance versus the consideredtransaction and possibly reload value on the card.Many consumers in the Netherlands claim thatthis reloading obligation significantly reduces theiruse of their e-purse.
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Lower costs andless cash?The idea of an e-purse scheme appears to be good in theory. It is convenient forusers and helps reduce the amount of cash in a system, thereby lowering cashhandling costs. However, some e-purse schemes have failed to live up to the earlymarketing hype. So where now for e-purse technology?
“The number of [e-purse] cards andtransactions per month is not very healthy – evenin the three big e-purse countries of Netherlands,Belgium and Germany,” says Toni Merschen,senior vice president and head of MasterCardChip Centre of Excellence.
André-Jacques Selezneff, vice president, LowValue & Proximity Payment Solutions atMasterCard Europe, comments: “It’s interestingto note that e-purse usage grows when amarketing campaign takes place. As soon as thecampaign stops, e-purse usage falls significantly– a sign that the market is not mature.”
Some of the best-known e-purse schemes havehit problems varying from criticisms of the feestructures of certain systems through to retailerand customer inertia. The German GeldKartereceived negative publicity after the DresdnerBank dropped out of the programme. However,the significance of this move is open to debate.Although it is a leading German bank, incomparison with many of its rivals, it has fewerretail banking customers.
Interoperability is problem, and this is seen asan even bigger difficulty throughout the eurozonesince the adoption of the euro. “Moneo holderscan't use their euro-charged e-purse in Germany,”says Philips Semiconductors’ Susanne Schuette.“Likewise, GeldKarte cardholders can't use theireuro-charged e-purse in France. Therefore, it'smuch easier to travel between the two countriesand simply make small payments with euro cash.”
A number of initiatives and specifications havebeen established to address interoperability,including Common Electronic PurseSpecifications (CEPS), and the Ducato and theColumbus projects. CEPSCO LLC was foundedin 1999 to define requirements for all of thecomponents needed to implement a globallyinteroperable electronic purse program. The CEPScan be used for purse programmes in both
domestic and international acceptanceenvironments. And organisations from more than30 countries, representing over 90% of the world’se-purse cards, have agreed to implement thesespecifications.
A new directionIn spite of the negative views from many insiders, e-purse technology is being adapted to penetrate newmarkets, with e-commerce seen as a potential outletfor the technology. In Europe, the ‘Balcard’ (BalkanCard) project was established to develop aframework for low-value cross-border transactionsover the Internet using smart cards. A pilot beganin October 2003 involving cardholders andmerchants with an online presence in theparticipating countries of Bulgaria, Cyprus, Greeceand Romania. Prismera cards, manufactured byAxalto, are being used during the project andcontain the Embedded Profile (EP) version of theProton Prisma multi-application card. They alsocontain the CEPS e-purse along with a Card andApplication Life Cycle Manager, EMV credit/debitapplication and a data file manager for ID andloyalty applications.
Meanwhile, SCM Microsystems hasdeveloped CashMouse in cooperation withGiesecke & Devrient. This enables users to makeGeldKarte payments and to load value onto thecard via the Internet.
EMVThe international move to EMV willundoubtedly have implications for all e-purseschemes, which will increasingly be integratedwith EMV cards. With more e-purse cardstaking advantage of the EMV standard andmicroprocessor technology, more features will beintroduced. For example, in Germany a law hasbeen passed that says cigarettes bought atvending machines must be paid for with a
GeldKarte. The card features a flagging systemthat can identify whether a person is over 16years of age. Data protection is addressed by notactually providing the age or date of birth ofcardholders aged over 16. Instead a simpleyes/no code is used to identify whether someoneis old enough to make a purchase.
PADA recent approach to e-purse-type applications isPre-Authorised Debit (PAD), which has receiveda big push from both MasterCard and Visa.Whether the solution is MasterCard’s MPA(M/Chip Pre-Authorised) or Visa’s optionalpayment feature within the VSDC (Visa SmartDebit Credit) chip environment, the approachenables EMV-based PAD solutions to ride on theinvestments made by banking customers forissuing and acquiring card payments.
According to MasterCard’s Toni Merschen:“MPA…makes offline transactions secure usingEMV features and enables banks to pre-authorise funds on any given accounts. It usesstandard EMV terminals to check cards and theactual purchase takes place offline. This has theadvantage of moving cash to a card environmentthat needs to be predominantly offline andaddresses consumers who don't necessarily havea good banking history…Because it is EMV-based, MPA is looking at a ‘zero balance’ as a riskmanagement parameter when it transacts at theterminal. It can thus go online as a regular debittransaction and can be reloaded at the sametime. The transaction is executed online. This isa powerful risk management tool for the bankand is convenient for the cardholder as alltransactions can be carried out on the one cardrather than two.”
Many industry insiders believe PAD will bemost prevalent in emerging economies. Thesemarkets have to overcome various problems:many people have a lack of credit-worthiness,there’s little online electronic funds transfer (EFT)capability and a lack of trust in banks. Here, pre-authorised debit enables unbanked people toengage with banks. This could be used as amechanism to receive wages and draw out money.One focus for MasterCard’s MPA is the emergingmarkets. Here, the company has been involved inpilots in South Africa, India and Russia.
Other economies known to be in a position toadopt the technology include some of the moreremote states of the former USSR and relativelypoor sub-Saharan African countries, which arenow rolling out EMV. The fact that it can workoffline without expensive online connections is amajor advantage.
In March 2004, ACI Worldwide announcedthat SIMTEL, an organisation set up by theRwandan government to modernise the country’snational payments network, had chosen the
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Table 1. Joint venture facts and figures.
company’s BASE24-es as the foundation for itsnew national inter-bank card payments network.
Rwanda’s new BASE24-es infrastructure,integrated with an ACI card managementsystem, will initially support the issue of VisaSmart Debit and Credit (VSDC) cards. Afurther phase will enable SIMTEL to issue andmanage pre-authorised debit cards compliantwith Visa Horizon and VSDC standards. Pre-authorised debit will allow SIMTEL to offercard services to people without an establishedcredit history where online authorisation is notalways possible.
Chris Winter, general manager of Visa Sub-Saharan Africa, says: “Pre-authorised debit is animportant financial service offering for theRepublic of Rwanda and other similar emergingAfrican countries because it offers greater riskmanagement capabilities. This benefits thefinancial institutions without detracting fromthe consumer advantages of card payments…”
In more developed markets, it is less clear howeffective PAD will be. Many card and chipproviders believe it will have little impact. However,as Richard Crookston, head of marketing, VeriFoneEMEA, comments: “In established paymentmarkets, this is a nice add-on to EMV systems.Most work is on the card; the application identifieris the only significant work to be done on theterminal and the host authorisation system impactis also negligible. Consequently, the total cost isminimal in comparison to deployment of a‘traditional’ e-purse scheme. PAD should actuallybe slightly lower cost than ordinary debit becausethere is little or no funds risk in the system, no needfor online authorisation or authentication, and thetransactions are batched so they can be sent to thehost in store and forward mode or at the end of dayas a stream of transactions.”
According to a paper by the OpenWay Group:“Pre-authorised EMV debit cards in some casesmay become an alternative to local electronic pursecards, targeting a high volume, low value offlinepayment segment. Offline capability becomesimportant when the overall cost or time of onlinetransaction authorisation cannot be ignored but therisk of overdraft must be eliminated.” OpenWaysays it believes “organisations planning large-scale
investments in e-purse solutions may need toconsider pre-authorised EMV products as analternative to local or domestic e-purse schemes”.
Contact vs contactlessAlthough e-purse schemes are frequentlyimplemented on cards that have a contactlesscapability, most are implemented via a separatecontact interface. Although there are no problemswith the technology, some consumers fear thatmoney transferred over the air could be unsafe.While basically a marketing issue, some vendorsreport that it is slowing demand for contactless e-purse solutions. MasterCard’s Toni Merschencomments: “Many of the questions related to thesecurity of contactless technology for payments isconnected with communication with customers.Standard credit card rules hold. The experience inAsia shows that contactless has been tremendouslysuccessful, particularly in the transportenvironment; there doesn't seem to have been aproblem with it – and people are happy to use it.”
Luckily, consumer perceptions regardingcontactless micro payments are starting tochange and VisaCash is rumoured to be goingcontactless later this year.
New form factors?In some situations, there could be a demand fornew form factors. For example, a proprietary e-purse scheme is in operation in the Netherlandswhere people pay at the pump at Shell petrolstations using a key fob. However, the difficulty ofnew form factors, such as smart card-enabledwatches and wristbands, is that they may offerfewer opportunities for a bank or card issuer tobrand itself. Furthermore, most banks still requiremagnetic stripe technology on their cards – andthis needs a straight edge to go through a terminal.
Where now?E-purse schemes face a mixed future: on a positivenote, some insiders think usage will rise both interms of transaction rates and volumes. With EMVplaying a major role throughout the paymentsindustry, this will impact on future e-pursedeployments. Alongside this, more applicationscould be added to cards, such as ticketing, loyalty
and city cards. E-purse cards could also be rolledout for more diverse applications, such as e-commerce. However, the future is expected to becharacterised by regional rollouts rather thannational deployments. As Giesecke & Devrient’sHolger Ziegler explains: “EMV has seen bigdevelopments both this year and last. The EMVfunction can be easily added to the e-purse card andthere is already a significant card base in the field.The technology is in place to manage chip data andproduce chip cards. However, countries such as theUS that have not migrated to EMV will see nogrowth in e-purse deployments.”
Visa, meanwhile, reports that there has beeninterest in e-purse programmes from all of itsregions. “The region most likely to see expandedimplementation of additional programmes in theimmediate future is Asia Pacific,” commentsMargaret Reid, vice president, Consumer ProductPlatform Development & Management, VisaInternational. “As EMV schemes continue to growrapidly, pre-authorised debit programmes willprovide solutions in markets that have notpreviously lent themselves to card acceptance.”
It is up to e-purse issuers and operators to make adecision about what to do next. EMV will providethem with new security and functionality options.However, the urgency is not to change, but tounderstand in detail the new types of businessopportunities that low value transactions maybring. As MasterCard’s André-Jacques Seleznefftold CTT: “A market reality is that within the next5-10 years banks will need to revisit their currentoperation and future investment for handling verylow value transactions.”
Undoubtedly, pre-authorised debit will becomeincreasingly important in a number of markets.However, it is unlikely to take over completelyfrom e-purse schemes, as one insider comments:“If you look back to when e-purses started, it wasaround the time of the dotcom bubble, and theywere designed for very low-value transactions (ormicro transactions). Larger transactions,meanwhile, were covered by standard debit. Whenthe dotcom bubble exploded, that potentialmarket exploded, so consequently e-purses havebeen going to higher value transactions and withPAD, debit is repositioned where it belongs.”
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Market Survey Contacts:
Company Name Tel Fax Email
ACI Worldwide - +44 1923 816393 +44 1923 816133 [email protected]
Giesecke and Devrient Holger Ziegler +49 89 4119 2690 +49 89 4119 1669 [email protected]
MasterCard Andre-Jacques Selezneff +32 2 352 5275 - [email protected]
OpenWay Group Maria Vinogradova +7 812 324 48 98 +7 812 324 48 94 [email protected]
Philips Susanne Schuette - - [email protected]
SCM Microsystems Dietmar Wendling +49 89 9595 5250 +49 89 9595 5555 [email protected]
VeriFone Richard Crookston +44 1895 824031 - [email protected]
Visa Sabine Middlemass +1 650 432 8307 - [email protected]
