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Smart Cities, IoT Pave Way for Cashless Society

Pablo Valerio
12/27/2017
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I don't remember the last time I had to insert my credit card in a payment terminal. Nowadays, in Catalonia, almost all transactions using debit and credit cards are contactless.

If the amount is less than €20 -- about $23 -- there is no need to sign or even enter your PIN.

Western Europe is moving, slowly but inexorably towards a cashless society.

Most people in Scandinavian countries, such as Sweden and Finland, rarely use cash at all, and many bank branches there do not handle cash anymore.

Cities and businesses in Europe are now benefiting from the simplicity and security of contactless payments. Not only are most European debit and credit cards already contactless, but in many countries the penetration of contactless payment terminals is also over 99%.

By 2020, Visa and MasterCard will require that all European POS systems accept contactless payments.

Analytics, privacy and 'wallet' wars
Over 30 years ago, I had a conversation with a friend in Barcelona about the potential abuse of the information track we leave every time we use a debit or credit card. At that time, my friend was a senior analyst in the IT department of one of the biggest financial institutions in the country.

A slide from MasterCard's presentation at Smart City Expo World Congress
(Source: MasterCard)
A slide from MasterCard's presentation at Smart City Expo World Congress
(Source: MasterCard)

He told me that it was possible -- at the time -- for the bank to analyze the behavior patterns of its customers based on the times and locations they withdrew cash from ATMs and the purchases they made with their cards. This was long before the "cloud," online shopping, and secured transactions over the Internet.

However, since that time, Visa and MasterCard have become extremely active in the cloud analytics business.

In 2012, when the first mobile payments were introduced, both brands started to charge a "wallet" fee until virtual operators, such as PayPal and Amazon, agreed to share the purchase data with the card giants. Wallet providers had to pass along both Wallet ID and Merchant ID for each transaction, ensuring that Visa and MasterCard could continue to build a detailed profile of each cardholder's spending habits.

The ubiquitous use of bank cards and mobile payments -- such as Apple Pay, Samsung Pay, and Android Pay -- offers the possibility of a level of detailed analytics into consumer behavior that had previously been impossible.

While it is difficult to 100% map a person's activity, especially when they use more than one form of payment, the combination of aggregate payment information coupled with social media posts can give an accurate picture of spending patterns.

The bigger the sample data, the more accurate it is.

Does that represent a significant loss of privacy for the cardholder? Not necessarily. Sarah Quinlan, MasterCard's senior vice president for Market Insights, speaking during the recent Smart City Expo World Congress, noted that: "We only see the card number, amount, and merchant id."

In reality, the amount of information that financial institutions and telcos collect, while significant, pales in comparison with what Internet giants such as Google, Facebook and Apple know about us. Additionally banks, credit card companies and telecoms are heavily regulated, with stronger privacy rules governing what they can and can't do.

Better analytics for businesses, services and cities
MasterCard has been using the information collected to help businesses, financial institutions and governments understand consumer habits and provide better services.

One example is the use of "open loop" systems on public transport. Open loop accepts contactless credit or debit card payments, or mobile payments, as well as pre-loaded NFC cards.

Not only does that allow non-regular users, such as tourists and business visitors, to use the service without getting a special transport card, it also provides valuable information about the use of the services and reduces cost.

Since the introduction of the system in London three years ago, the combination of contactless cards and mobile payments, including wearables, has reduced the cost of fare collection by 35%. London buses stopped accepting cash altogether two years ago.

MasterCard also publishes its Destination Cities Index every year.

The report includes detailed insights about what visitors do and where they spend their money. This provides cities and the tourist industry with a detailed view of the real traveling and spending habits of city visitors and what they like to do and see.

"People lie!" Quinlan explained during her presentation. "The typical surveys at airports and popular tourist destinations are meaningless. Payments data, however, cannot be tampered with."

The great thing about payment data is that it shows where people really spent their money, not where they said they did.

The transition to a cashless society might take a few more years, especially in developing countries. The convenience of contactless payments, however, cannot be denied. Payment data and cloud-based analytics can help identify new opportunities, reduce fraud and provide new tailored services.

Related posts:

— Pablo Valerio is a technology writer and consultant working out of his home city of Barcelona, Catalonia. Follow him on Twitter @Pabl0Valerio.

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