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Issue Date: March/April '01 (es)

The emergency of Internet-enabled transactions will drive the trend towards e-purse applications

March 2001

Whilst the e-purse has failed to be a viable replacement for notes and coins, as Internet transactions increase card issuers will likewise increasingly recognise the advantages of it (the e-purse) suggests Clive Handley, Marketing Director at the VELOCIT-e Group. “Several trials have been conducted on e-purse schemes and have proved that the technology to transact with electronic cash works. That said, there is no conclusive proof that customers will use it because the consumer does not quite understand the concept of an e-purse and most merchants do not have e-purse ready terminals,” he says.

There is no doubt that the emergence of the Internet is creating new business opportunities and the card issuers are seeing that the ability to conduct transactions in the virtual world could see the growth of e-purse applications. Though there are critics who are beginning to doubt whether the e-purse will ever replace coins and notes, Handley suggests that "it is clear the e-purse will not succeed as a global replacement for cash. Conceptually it is a wonderful idea but there are certain issues which make its usage restrictive." He believes that unless people can use their card in every cash situation, it will never catch on.
"If people can use their card all day in the city centre but have to use cash to buy bread and milk on the way home, then the card cannot fully replace cash." Nevertheless, banks are already upgrading their ATMs. It is a 'chicken and egg' situation believes Handley because customers will not use smartcards until all the necessary infrastructure is developed and retailers will not invest in this infrastructure until there is sufficient customer demand.
"With the advent of the EMV standard, we will see credit and debit cards adopting smartcards and the e-purse is going to piggyback that. Eventually smartcards will be multifunctional and they will carry a loyalty, debit, credit and e-purse facility. The traditional payment terminal will need to change and new designs and functionality will be necessary, in order to meet the growing requirements of consumers, retail merchants, banks, financial institutions and transaction-sponsoring organisations," he adds.
An expanded set of transaction types
Firstly, the terminals will be required to support an expanded set of transaction types, some of which are not the responsibility of the acquiring bank.
"These terminals will have to be small multifunction counter-based computers, with sophisticated hardware capabilities and connectivity support for a diverse range of peripherals," says Handley.
Consequently a software environment will be required to support multiple applications residing in the same device and sophisticated terminal management systems. These should allow for new software applications and functionality to be loaded remotely over telephone lines onto devices already installed at business premises and retail outlets. Terminal owners will also look at the total cost of ownership rather than just the initial purchase price and calculate for themselves the true annual operating costs.
Revisiting the transaction delivery process
Handley adds that the adoption of smartcards will not obviate the need for on-line communications - in reality the amount of information to be transmitted will increase significantly. This creates a new focus on network redesigns, capacity limits and modem speeds, as part of a re-look at the whole transaction delivery process. Faster modems designed for the specific needs of the payments industry, with speeds of at least 9600 baud and able to operate using SDLC protocols, will be required.
New functionality is continuously being demanded from transaction terminals, particularly with the adoption of smartcards.
"Very often the current mainframe-based hosts being used by banks cannot support these new requirements," says Handley. "Client/server-based applications will need to be introduced as an adaptive-layer to current systems in order to launch new value added programs and provide a faster time to market."
Handley adds, "I can only see the e-purse taking off when multi-application cards come into common use, when e-purse is just another application that can be added to the card."
Purse scheme operators are looking at the Internet as the saviour of the e-purse, because it offers a superb proposition for e-cash. The main advantage of e-purse is that the customer will not be able to deny the transaction thus reducing fraud. Amounts will be deducted instantly from the card reducing security issues and it is capable of bundling small amounts of cash value to pay for online services.
Applications for e-purse include loyalty programs, terminal management systems, electronic receipt capture, advertising and electronic purse authorisation and reloading systems. "On the surface the e-purse has a good business case. Whether or not it will succeed depends on the general increase of online transactions and the enablement of both e-tailers and consumer," concludes Handley.
For details contact Clive Handley of VELOCIT-e on tel: (011) 258-6900, fax: (011) 258-6939 or e-mail: chandley@velocit-e.net


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