European Commission's recommendation on legal tender

The EC has issued recommendations on the use of banknotes. I was blown away by some of the points made:

• Payments in cash should be the accepted rule
• No surcharges should be imposed on payments in cash
• It should be the rule to accept high denomination banknotes
• Member States should not adopt new rounding rules to the nearest five cent

Is this the same EC that pushes banks to implement SEPA, electronic mandates and the payments services directive? I thought it was the EC's goal to improve efficiency and create one European market? Strange. But let's take a closer look at some of the points in the recommendations.

No surchanges. The first thing that comes to mind is why the EC wants to steer the use of payment methods. By prohibiting the use of surcharges, the EC prohibits the retailer to direct payment choices. Apparently, it is allowed to charge fees for the use of credit cards, but not allowed for cash. Above ten euros, the marginal cost of debit cards is less than the marginal cost of cash (for legitimate businesses who pay their taxes) so why shouldn't the retailer should be able to direct payment choices?

Combined with the third recommendation, this raises another issue. When the retailer is obliged to accept cash and is not allowed to direct the method by placing surcharges AND has to accept 500 euro notes, the retailer suddenly finds himself with loads of cash in his shop. Seems a bit unsafe to me. Although the fourth point makes sure a large part of this stash is made up of 1 and 2 cent coins (that are actually more expensive to make than they are worth...).

In my humble opinion, the EC has missed the boat by quite a large margin. Part of the EU's goal for payment systems should be economic efficiency and forcing your average tabac to take 500 euro notes does not contribute to that goal in any way.

Using the iPad in banking

It's the biggest advance in bathroom reading technology in human history. April 3rd, Apple already sold 300.000 units of its iPad, and with more tablet PCs on their way, a new device to do internet banking is born. Imagine connecting to your bank and literally touching your money as it moves.

And what about other applications? What about when you are in the bank? Can the iPad change the way you interact with an advisor? Today, the most used tool for explaining financial products and capturing the conversations between the banker and his client is pen and paper. Using a laptop would immediately create distance. This is where the iPad can be different. Most finance professionals are very mobile and already carry a blackberry or iphone, having an iPad that connects the professional to the bank's resources without creating a barrier would be one of the killer applications of this new device.

Payments in India

Yesterday, my parents returned from their first ever trip to India. Apart from the beautiful pictures of temples and the Taj Mahal, I noticed another thing in the pictures. Even the worst slum had advertisements of Nokia, Samsung and Vodafone. These people live in modest houses (to put it mildly) and drive home made trucks and rikshas. They earn a couple of hunderd rupees a day. Do you think they own a bank account? They do however own a mobile phone.

"There's such a big gap in the world -- there are 4 billion cellphones and only 1 billion bank accounts," Carol Realini (founder of OboPay) says. Obopay's service, already live in the US and India, lets people with cellphones pay each other through text messages. The funds can come out of bank accounts or credit cards. People who lack bank accounts can prepay funds into an Obopay account. For 25 cents, anyone with a cellphone in the US can also send up to $1,000 a week to anyone in India with a cellphone. And there are many more initiatives like this in India.

Clearly, mobile payments offer a wider way to reach people without bank accounts in places like India and China. The payoff could be huge. People who are now "unbanked" in China, India and Brazil alone could generate $85 billion in banking revenue by 2015, estimates the Boston Consulting Group. India, like many emerging market countries today, is in the center of mobile phone explosion in growth. India has about 200 million mobile subscribers and is adding 5 million a month.

And it is a form of humanitarian aid. Getting these people access to a 'bank' account allows them to start saving. Mobile payments will provide access to financial services, including cross-border remittances, money transfer, payments, savings and credit accounts. By empowering them with mobile technology , mobile payments is bringing the full power of banking to those who need it most.

Mobile Payments Failures

Recently, Jan Ondrus (assistant professor at ESSEC Business School) conducted an interesting research on the reasons of failure for mobile payments in Switzerland. Interesting, because he categorizes his findings into the different phases of a mobile payment project. The full article is available here. He investigated several mobile payment projects and below a quick recap of the different failure reasons:

Phase 1 - Build an alliance between MNO and Financial institutions.
This seems reasonable, although it is easier said then done. How many MNO's are capable of doing this? We know Vodafone is already active in this market via MPesa, so thats one down. To me it seems absolutely crucial for banks to connect to an MNO as soon as possible.

Phase 2 - Involve the sellers and business intermediaries side (i.e., merchants) in the development and deployment of the service. Build a sufficient supply in two-sided markets.
Again quite obvious. No one will use mobile payments if they can't actually pay for stuff with the service.

Phase 3 - Provide an adequate value for the consumers to join the service. Generate incentives to create demand in two-sided markets.
If it's more expensive and more hassle, no consumer will make the switch from cash. Easier, faster, better security, more functionality and cheaper...

Phase 4 - Involve the manufacturers to scale the system and offer interoperability and ease of use. Build up interoperable standards for connectivity and transactions.
Interoperability is key, both for the consumer and the merchant. It will not catch on if you have to have accounts at several different mobile payment operators to be be able to split the restaurant bill.