Sunday, January 18, 2009

Time to mark time!

My first exposure to the payments biz was in 1985 when I joined VeriFone. Visa and VeriFone partnered to bring the Zon Jr. (called the Visa Mini Terminal by Visa) to the market to replace the paper warning bulletins. Most people reading this probably do not even know what a warning bulletin was. The mag stripe was pervasive but most transactions were still processed by pressing the embossed numbers onto a sales drafts with a Zip-Zap machine with the merchant either dropping them off at the end of the day down the street at their bank branch or mailing them to some remote sweat shop for processing. It was a REVOLUTION spurred on by Visa's promotion of a low cost terminal and an interchange incentive called TIRF (Terminal Interchange Reimbusement Fee) to get an electronic authorization followed about three years later by yet another REVOLUTION called EDC (Electronic Draft Capture).

Here we are 24 years later and while much has changed, the Mag Stripe (thank you Jerome Svigals) is still the predominent form of payment card, at least here in the good old USA.

I predict that when President-elect Obama is replaced by the next president in 2017 that will still be the case, albeit waning by that time. What do you think? Will it be Chip Cards? Will it be RFID? Will it all be replaced by our mobile phones acting as payment cards or devices?


Paul Tomasofsky said...

Steve, first of all are you already predicting an Obama re-election in 2012? If so, care to tell us oh mighty soothsayer who his successor will be in 2017? It would save me lots of wasted time watching "breaking news" from CNN.
As to your payments question...the mag stripe will be well on its way out by 2017, even here in the U.S. I think by then the brands, FIs, merchants and wireless guys will have finally figured out the need to work together to best serve their (collectively-owned) consumer and the wireless device will be the "card" and "authentication" device. I'm not smart enough to predict what technology will do the trick...rfd, wi-fi, web 5.0, or photon transmissions, but something will come up. The bigger question for old-timers like you and me is: Will Social Security still be around?

Paul Tomasofsky,
President, Two Sparrows Consulting

jmarler said...

I'm a little unclear as to what B. Hussein Obama has to do with payment trends, but perhaps since I'm not drinking the Kool-Aid, I don't get it.

I think the mag-stripe is going to be with us for a lot longer than people think. RFID / near-field technology is still pretty basic and ripe for fraud. Proof-of-concept exploits have been made by several groups, but we won't see any major fraud attacks until we have more cards with RFID tags in them.

The biggest problem that I see in the payments world is that we are still stuck with PAN's. As long as PAN's exist, whether you are using mag-stripe, NF/RFID, whatever, fraudsters will just adapt their collection techniques. PKI is the best way to curtail fraud, but we are not likely to ever see it. Can you imagine going to a major FI and telling them that they need to change their entire issuing, acquiring, and clearing processes to not use PAN's, but instead to use PKI? If you're a major acquirer like First Data, what kind of hardware requirements will it take to do thousands of TPS with PKI instead of PAN table lookups?

I see the market moving more towards alternative payment mechanisms. The alternatives can build the new systems from the ground up. The FI's and major acquirers are too big and too entrenched in the present technology to make any changes that big. They'll let the alternatives create the new payments eco-system, and hope they can plug into it later.

SKlebe said...

Thanks for your comments! With regard to tomorrow's historic event, I was just using it as a marker in time, hence the title to the note.
With regard to predicting a re-election in 4 years, yes, I will go out on a limb and predict that.
In terms of what the account "marker" will be at that point, I simply believe in evolution, not revolution. I think back to having worked for two men that were proclaimed visionaries of their day, 1) one who predicted the end of paper receipts and therefore chose not to have us invest in better POS printers only to have to scramble years later to change direction and 2) another who predicted that we would be a paperless society by 2000 - any idea how many printers are sold in this country every day and how many trees fall every day to keep them filled or if it wasn't for ink, HP would have been in line for TARP funds? said...

"another who predicted that we would be a paperless society by 2000 - any idea how many printers are sold in this country every day and how many trees fall every day to keep them filled"

I'm pretty sure that paper usage, at least in offices, did peak in 2000 and has been falling since. There was a chart about this in Economist a few weeks ago. So he merely mistook the beginning of the end for the end. Same with the magnetic stripe. Chip wasn't the end, but it was the beginning of the end. By 2012, a big proportion of the world's card fraud will have migrated to the USA, and this will accelerate the decline of stripe for either RFID or, more likely, a combination of RFID and mobile phones.

willson said...

Interesting… I might try some of this on my blog, too. It’s quite interesting how you sometimes stop being innovative and just go for an accepted solution without actually trying to improve it… you make a couple of good points.

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