Payment Systems in Public Transport SASITS Workshop Innovation Hub 12 October 2005
Electronic Methods for Making Retail Payments Retail Payment Mechanisms On-line payment systems Credit cards Debit cards Prepaid stored value systems Electronic money
Card Payments Credit Card A plastic card providing access to a client s line of credit with a credit card company via a Point of Sale (POS) terminal or Automated Teller Machine (ATM), allowing for the payment of purchases and cash withdrawals. Debit Card A plastic card providing on-line access to a client s banking account via a Point of Sale (POS) terminal or Automated Teller Machine (ATM), allowing for the payment of purchases and cash withdrawals.
Electronic Money A currency system where the electronic value is purchased by the consumer and refers to a variety of stored value or prepaid payment mechanisms based on the digital transfer of value via data networks. Consumers pay conventional funds to an issuer of e-money in return for storing the value of those funds on a computer device held by the consumer. Consumer can then use that electronic value to make purchases of goods and services
Electronic Money The issuer of the e-money can earn interest on the investment of the funds received. In return the issuer incurs a liability to make good claims on it by holders of electronic value such as merchants who have accepted e-money for goods and services delivered. As e-money is cash in electronic form and does not exist physically there is a need for a medium to make it portable - transferable between one entity and another.
Electronic Money Two such media are already well established to support e-money: Network based Internet based e-money E-money payments utilising mobile technology Smart Card Physical and virtual e-money payments
E-Cash on the Internet Transaction Merchant Consumer Server PC Funds X-fer Verification Issuing and Acquiring Bank
Mobile Technology Large scale development taking place Banks Cellphone network operators Card associations Technology providers
Mobile Payments No, details + amount No & details Confirmation Request pin Verify data Validate pin Enter pin Confirmation
Smart Cards
Smart Card Applications Transport Health Services Telephones A.N. Other 15 105 E 123456789 00001234 Security + I.D.
Smart Card Based Systems Substitution of notes and coin MyPhoneCard Pre-paid MyTransportCard Pre-paid My CAMPUS Card Pre-paid A.N. Other 15 105 E 1236 00001234 E-cash
Single Purpose Pre-Paid Service MyPhoneCard Telephones Not within the jurisdiction of banking regulation
Single Purpose Cards Purchase goods and services provided by the issuer Advance payments for goods and services Telephone card Issuer does not act as financial intermediary Does not provide means of payment that can be used to buy goods and services supplied by someone else
Smart Card Applications Identification Telephones Electricity Medical History Water Taxi Train
Multi Purpose Pre-Paid Services Electricity MyPhoneCard Telephones Water Taxi Train
Multi Purpose Pre-Paid Services Electricity Transport Electricity Water Shop MyMultiCard Telephones Water Taxi Train
Who Owns the Float? MyTrans MyElect MyWater MyShop MyMultiCard Telephones Taxi Train Electricity Water
Who Owns the Float? MyTrans MyElect MyWater MyShop MyMultiCard Taxi Clearing and Settlement Taxi Taxi Taxi Taxi Taxi Clearing House
Who Owns the Float? MyTrans MyElect MyWater MyShop MyMultiCard Taxi Clearing and Settlement Taxi Taxi Taxi Taxi Taxi Clearing House
Tokens Cash Cash Cash Tokens Cash Tokens Tokens Cash Cash
Tokens Tokens Tokens Tokens
Multi Purpose Cards An issuer of a multi-purpose card is taking money from the public and investing it in return for providing a means of payment in electronic form. Electronic money in the form of multi-purpose cards raises similar questions to those which arise in relation to more conventional payment methods. What are the risks to the National Payment System? What are the risks to card holders?
Types of Electronic Money Products There are two types of E-Money products : based systems The value transfer from card to a terminal may be immediate but the settlement between the issuing and acquiring institutions is deferred Non-account based systems The value transfer is immediate and irrevocable. The value is not settled but needs to be redeemed from the issuing institution
Based System Pre-Authorised Debit XYZ Transaction Service or Goods Merchant Transaction Set spending limit Card Holder s Bank Merchant s Bank Card Holder s Deposit Clear & Settle Merchant s
Non- Based System Prepaid Stored Value XYZ Transaction Service or Goods Merchant Load stored value Redemption Issuer of E-Money Merchant s Bank Float Transfer Merchant s
Electronic Money Many specialists argue that e-purse schemes will not be successful if they are viewed mainly as a cash replacement mechanism for consumers to use at retail point of sale. This is probably the least useful place for consumers to tender an e-purse because it does nothing that they can t already do with notes and coins.
Electronic Money Instead the use of e-purse will be more attractive in places where notes and coins are inconvenient: vending machines parking meters public transport public telephone Unattended point of sale applications will prove to be more attractive and successful
Payment Systems in Public Transport XYZ Transaction Service or Goods Merchant Redemption Funds X-fer Card Holder s Bank Merchant s Bank Card Holder s Deposit Transfer Merchant s
Payment Systems in Public Transport XYZ Fare Transport Taxi Redemption Funds X-fer Card Holder s Bank Taxi Owner s Bank Card Holder s Deposit Transfer Taxi Owner s
Payment Systems in Public Transport XYZ Fare Transport Bus Redemption Funds X-fer Card Holder s Bank Bus Operator s Bank Card Holder s Deposit Transfer Bus Operator s
Payment Systems in Public Transport XYZ Fare Transport Rail Redemption Funds X-fer Card Holder s Bank Rail Operator s Bank Card Holder s Deposit Transfer Rail Operator s
Payment Systems in Public Transport XYZ Fare Transport Redemption Funds X-fer Card Holder s Bank Operator s Bank Card Holder s Deposit Transfer Operator s
Payment Systems in Public Transport Fare Transport Funds X-fer Redemption Card Holder s Bank Operator s Bank Card Holder s Deposit Transfer Rail Operator s
Payment Systems in Public Transport Transaction Service or Goods Load stored value Redemption Issuer of E-Money Merchant s Bank Float Transfer Merchant s
Payment Systems in Public Transport Banks MyTrans MyElect MyWater MyShop MyMultiCard Clearing and Settlement BankServ/ SASWITCH
Challenges For a cash replacement electronic payment system critical mass may not be enough, the acceptance infrastructure has to be ubiquitous in order to be as attractive as cash. Ubiquity is more expensive to achieve than critical mass. Incompatible standards will emerge and interoperability of systems will be sacrificed. The lack of interoperability is the single greatest obstacle to the growth of smart cards. The setting of standards to ensure interoperability is paramount to successful electronic money roll-out.
Challenges Non-interoperable systems will prevent the achievement of an economic balance and realistic return on investment for issuers. The ability to use electronic money issued by one scheme for transactions on the infrastructure of any other scheme can only exist if the schemes are interoperable. Interoperable systems not only require a technical infrastructure compatible with common standards, but also agreements on business relations, security issues and clearing procedures.
Challenges The electronic payment business is dependent on technology, but we must not let technology drive the business. The real challenge of new and innovative technology is to apply it to commercial advantage. The danger is in expensive investments which provide functionality and features for which there is no consumer appetite.
Payment Systems in Public Transport
Payment Systems in Public Transport Separate payment system for transport These systems may be technically and operationally sound but may be expensive to maintain. They require transportation companies to acquire payment skills such as risk and fraud management, cardholder support, card issuing, settlement and clearing. Will not be utilised for general purpose payments. What we need is a solution for general purpose payments which includes all modes of transport.
Keith Smith Consultant: Payment Systems and Technologies Keith.Smith@telkomsa.net