e-Payment and e-Purse : a Reasoned Approach

Andr-Jacques Selezneff
Vice-President Low Value & Proximity Payment Solutions

MasterCard Europe

Summary
Review of electronic payment means for individual card holders An approach of costs Evolution Perspectives for payment techniques and consequences on costs

Review of electronic payment means for individual card holders

Existing electronic payment means

MasterCard Credit Card :
does not allow transactions anonymity

Classical Maestro Debit Card :

problem if no banking account

Maestro Pre-Paid :
communication cost might be too high for low value transactions

Market situation for e-Payment Means

Market pulls card transactions towards low value amounts e-Purse World Market unclear:
multiple incompatible national solutions no cross-border inter-operability

e-Purse Choice too often technical

Security is important when business exists

MasterCard's Low Value

Payments offer
Pre-Authorised Debit on M/Chip4:
standard EMV debit transactions, no on-line authorisation

Clip e-Purse:
derived from existing transactions processing tools dedicated infrastructure

Mondex:
THE MasterCard solution for "electronic cash" dedicated infrastructure

Future for Electronic Payment

EMV (M/Chip 4 in MasterCard) offers members multiple features for debit / credit and for low value payments

M/Chip 4 incorporates known needs for face-toface payments, as well as new needs like :
distant payments (on Internet, through GSM, )

low value payments (e-purse type) payment means for new customers (youth, newly employed, partners' clients)

An approach of Costs

Principle of cost structure per scheme type

Total Cost

The Dream !

Deb/Cr or Vir tual e-Pur se

Cur r en t e-Pur ses

e-Cash

Volumes

Actual Cost Structure with successive scheme types

Total Cost

The hard facts of life

2 1

Learning Cost Learning Time

Deb/Cr or Vir tual e-Pur se

Cur r en t e-Pur ses

e-Cash

Actual Cost Structure with successive scheme types

Total Cost

Learning Cost Learning Time

Deb/Cr or Vir tual e-Pur se

Cur r en t e-Pur ses

e-Cash

Transaction Cost : hard facts

debit/credit needs telecommunication
cost = telecomm and authorisation + processing commissions just allow Bank to cover costs on LVP

e-Purse needs neither telecommunication nor online authorisation

allows Bank to make money estimated minimum transaction value 0,10

Evolution Perspectives for payment techniques and consequences on costs

e-Payment: infrastructure issue

Comparable to
Fortresses of XVIth century Railways of XIXth century Tap water of the 50's Electricity of the 60's Highways and Nuclear Plants of the 70's Telephone and Prestel/Minitel/BST of the 80's Pay-TV and Payment Cards of the 90's Internet and ADSL in this early XXIth century

e-Payment and Transaction Costs

e-Payment e-Authentication
Needs a new technical infrastructure

Long Return on Investment:

Characteristic of infrastructure Amortisation increases cost to charge

Bank
complex job, difficult communication Tariff per transaction well accepted for credit / debit

e-Payment and Transaction Costs

Issue : Users have for centuries considered cash as free
difficult to charge e-purse service to card holder

necessary to reduce costs

Answer : Shared Infrastructure

decreases per-application costs opportunity to offer new applications Marketing issue, not technical one

Other issues to address

e-Purse limited to low amounts
Undefined Risks? Yet undefined Market?

?
!! ? !

Deployment complexity? Lack of trust in technology? Time required by users to get to grips with a new !! product?

Suggestions
Shared Infrastructure
Rely on EMV deployment

Debit / Credit EMV allows DDA

Same security than for e-Purse

A brand is NOT necessary for Low Value Payment products, IF solution is independent from the underlying technology

The EMV obligation (1)

EMV-based LVP solution is an absolute necessity to compensate for reduced revenue due to new interchange rates regulation

The EMV obligation (2)

EMV-based LVP solution is an absolute necessity to allow exploring new "low value payment" market, while
limiting required initial investment,

accessing an immediately available acceptance infrastructure, guaranteeing cross-border interoperability.

The EMV obligation (3)

EMV-based LVP solution is an absolute necessity
to help Members amortise EMV investment whilst fully leveragin efforts spent at the occasion of EMV deployment

Proposed Approach
Pre-Authorised Debit on M/Chip4 allow quick access to interoperable pre-paid market
Acceptance rules based on existing programmes Adaptation of e-Purse solution on EMV once business is existing Results in
solution available today consistent Card products offer with guaranteed future.

Questions? Fragen? Questions?

Andre-Jacques_Selezneff@Mastercard.com
MasterCard Europe

Tel. +32 (0)2 352 5275