e-Payment and e-Purse : a Reasoned Approach

André-Jacques SelezneffAndré-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-to-face 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

Deb/Cr or Virtual e-Purse Current e-Purses e-Cash

Total Cost

Volumes

The Dream !

Actual Cost Structure with successive scheme types

Deb/Cr or Virtual e-Purse Current e-Purses e-Cash

Total Cost

1

12

2

The hard facts The hard facts of lifeof life

Learning TimeLearning Time

Learning CostLearning Cost

Actual Cost Structure with successive scheme types

Deb/Cr or Virtual e-Purse Current e-Purses e-Cash

Total Cost

Learning TimeLearning Time

Learning CostLearning Cost

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 on-line 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 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

e-Payment and Transaction Costs

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

AA brandbrand 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