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Cloud Native/NFV

Smart Cities, IoT Pave Way for Cashless Society

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.

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— 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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Susan Fourtané 1/2/2018 | 6:00:26 PM
Re: Cashless a Dream Never a problem in agreeing to disagreeing. :) Of course I was not trying to convince you about the benefits and practicality of a cashless society at all. Instead, I was just saying it’s a strong reality in Europe. In my experience, a reality that works very well. For this reality to work well other things such as networks and infrastructure need to be advanced and in place as well. Otherwise, it would be chaos. So, I would say it works well thanks to a combination of several technologies.
Phil_Britt 1/2/2018 | 4:26:49 PM
Re: Cashless a Dream We will have to agree to disagree. The more closed an "economy" is, the more likely. Could happen on a college campus without much trouble. But even if the cash percentage continues to shrink, I still contend it will be there. However, Europe is far ahead of U.S. in adopting newer forms of payment instead of cash and checks.
Susan Fourtané 1/2/2018 | 12:17:35 AM
Re: Cashless a Dream PhlBritt: I will have to disappoint you this time. I’m afraid not only it is going to happen but it’s already well on its way happening in Europe. And it has been happening for a while now. Sweden is leading the way to the cashless society. The other Scandinavian and Nordic countries following very, very closely. Only 1% of all payments were made by cash in Sweden in 2016. Lots and lots of shops in Stockholm show “No cash” signs, mainly to warn tourists. If you want to use public transport you can’t use cash to buy your tickets. Likewise in Finland, where only a few bank branches handle cash. Bank branches are also disappearing. Checks have not existed since the 1970s. Have a look— ~Sweden predicted to be a cashless society by 2030: https://www.thelocal.se/20170809/sweden-predicted-to-be-a-cashless-society-by-2030 ~Why Sweden is close to becoming a cashless economy: http://www.bbc.co.uk/news/business-41095004
Phil_Britt 1/1/2018 | 8:50:04 PM
Cashless a Dream Not going to happen. Period. Granted, you need much less cash than you once did. But some merchants won't change their ways -- they will demand cash. Look how long (in the U.S.) it took for checks to decline. The tipping point was the late 1990s after more than a decade of predictions about the end of the paper check. Usage grew until the late 1990s, despite the advent of check imaging and availability of credit cards, but there was no decline for years -- until enough merchants accepted other methods of payment. Even today, there are still plenty of paper checks in the mix. Cash similarly will never die.
Pablo Valerio 1/1/2018 | 5:43:20 AM
Re: irctc account registration "Chip + pin is supposed to be an improvement, but the user experience is not."

@michelle, I believe it is getting used to it. Since 2005 Chip+Pin has been the default in Europe and other countries. All European cards now feature a Chip and have a PIN. 

Contactless is making the transactions faster but customers were already used to enter their PINs everywhere.

When I use contactless now I still need to enter my PIN for transactions over €20 ($24), no big deal.
Michelle 12/31/2017 | 10:00:03 PM
Re: irctc account registration Chip + pin is supposed to be an improvement, but the user experience is not. Customers have more to do and in different sequences depending on the retailer. Frustration abounds. I can see why enabling the chip reader might get delayed.
Joe Stanganelli 12/31/2017 | 7:05:07 PM
Re: irctc account registration @maryam: This is why I prefer to use cash around the holidays -- and especially shy away from using any PINs unless I absolutely have to. 'Tis the season for breaches!
Joe Stanganelli 12/31/2017 | 7:04:09 PM
Re: irctc account registration @Michelle: This is precisely why many retailers have left their chip readers unenabled -- because they would slow their business down otherwise. They let people figure out chip reader efficiency on other companies' dimes.
Michelle 12/31/2017 | 5:31:17 PM
Re: irctc account registration Even worse are the different settings enabled on the same machine models at different stores. There are no standards!! I feel silly asking which buttons should be pushed.
[email protected] 12/31/2017 | 4:51:10 PM
Re: irctc account registration Yes and they all have their own requirements some you can put your card in at the beginning some only at the end. Some chime some don't its all very confusing.
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