Contactless cards,
prepaid, e-money and mobile payments all address much the same
problem. They are aimed at moving low-value payments from cash into
an electronic format. Will Cain looks at Cardis, one business
trying to change the way micropayments are
processed.
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Companies in the payments
arena rely on different technologies and business propositions
within different niches to try and persuade consumers and
businesses to reduce their reliance on cash. So it is rare to find
a company which claims to have a catch-all answer to turning
low-value cash spending electronic.
Cardis International, a
technology company with numerous patents, now has in its sights on
the 170bn cash transactions that fall under the €20 mark ($26.5)
each year within the European Union.
Ken Howes, an independent
consultant, and Erik van Winkel from Edgar Allen Dunn – who both
work on behalf of Cardis – explained the essence of the solution is
that by bundling up smaller transactions and processing them in
bulk, issuers and acquirers can process transactions at a lower
cost.
Howes and van Winkel say
widespread adoption of the Cardis “end-to-end transaction
aggregation approach” would represent a paradigm shift for the
cards and payments industry. Critics say it is “just another
e-wallet solution”.
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By GlobalDataHowes says contactless and
prepaid have ultimately proved an ineffective way of removing cash
from the system.
“We are saying the
initiatives to date have not achieved the results that had been
hoped because the economics are not right,” he says.
“Cardis can be added to the
back end, changing the economics and making the end solution for
merchants and consumers more successful.”
Howes and van Winkel are
adamant the Cardis product is a key component in reducing cash
spending in economies. The payments industry has so far
disagreed.
Since setting up the business
is the late 1990s and the establishment of numerous patents, the
business still does not have any clients. Its biggest project so
far is an abortive implementation at Interac, Canada’s largest
debit scheme, which pulled the plug on its investment in installing
Cardis at the last minute.
Howes says this was for
“political reasons” and would not elaborate further.
Cardis is currently in talks
with card associations, banks and processors about getting the
product up and running again. The economics of the platform look
enticing for potential industry partners.
Howes estimates the average
end-to-end variable costs of processing a four-party model
transaction across Europe is €0.11, compared to the Cardis solution
which would cost €0.01-€0.015.
This has important
implications for consumers and merchants.
First, merchants can offer
low-value payment services where previously they might have
considered it too expensive. Second, consumers can make small
purchases on their existing card products, negating the need to
sign up to different payment solutions – contactless or prepaid,
for example – to transact.
Contactless cards are one of
the most recent initiatives to show retailers and consumers that
low-value payments can be quicker and more convenient than cash or
conventional card transactions. Banks in Turkey have invested
heavily in the technology, as has Barclays in the UK.
Howes claims banks offering
the technology are “losing money hand over fist” and does not
believe prepaid is a solution to reducing cash spending for
low-value payments either.
“All of them have required
major change in consumer behaviour and the economics of them are
based on the old economics of the four-party system,” he
says.
Howes is also critical of the
ability of prepaid to bring customers who rely heavily on cash into
the electronic payments mainstream. Most prepaid industry
professionals accept the products require a degree of consumer and
staff education to get the cards into people’s hands.
They also tend to need to be
sold to consumers rather than consumers selecting the products
themselves, according to Howes.
“The customer has to make a positive selection to acquire
a prepaid card,” he says. “Also, not all of them are designed to
make low-value payments and they often run on the same ‘rack’ as
debit products.”
