Platforms and
Standards and in the Impact on Consumers
The handling of cash transactions was relatively less
efficient and more costly than e-payments. It had been estimated that the
average cost of handling an e-payment was about a third or half that of
handling a cash transaction. A study by VISA showed that every 10% increase in
the share of e-payments in the economy could stimulate GDP growth by as much as
0.5%. Consumers typically spent more per transaction when they did not pay with
cash. E-payments could be made by various means such as credit/debit,
electronic funds transfer, card-based and mobile payments, which offered
convenience and saved time. Technological advances and a need for security
capabilities led to the rise of multipurpose smart cards with mechanisms to
store and process information. With changing consumer lifestyle trends, there
was a move towards credit for high-value payments, debit for larger daily
purchases and contactless for micropayments
Prior to 2009, Singapore had a fragmented e-payments landscape
driven by two major card issuers with non-interoperable cards. The Land
Transport Authority (LTA) with its ez-link fare card monopolized the public transit
market including rail/Mass Rapid Transit (MRT) ticketing, bus and taxi fare
collection. The Network for Electronic Transfers Singapore (NETS) with its
contact Cash Card held exclusive rights to the Electronic Road Pricing (ERP)
system, and it also dominated retail payments as well as Singapore’s private
car park payment schemes with 60% market share. Together, they accounted for
95% of the country’s micropayments market. The promise of greater convenience
from e-payments for consumers had been only partially fulfilled as one could
use either the Cash Card at NETS-equipped retailers and car parks or the
ez-link card on buses and MRT, but not one combined card with any transit or
retail contact device.
NETS contact card system pioneered Singapore’s first
cashless payment platform through its EFT at Point of Sale (EFTPOS) network, a
debit payment servicing using the banks automatic teller machine cars for
consumers purchases and bill payment. By 2003, NETS’ annual collection from ERP
charges was about S$80 million while Cash Card payments at car parks totaled
more than S$85 million. In the retail sector, NETS faced significant
competition from credit and debit cards even though the Cash Card was accepted
by 12,500 merchants including self-service kiosks, libraries, public payphones
and vending machines. Building on its first-mover advantage in merchant
acquisition through the EFTPOS network and the largest terminal base installed
island-wide, the Cash Card demonstrated strong growth in retail transaction
volumes. Total number of Cash Card transactions rose from 102 million in 2001
to over 135 million in 2003. The NETS Rewards loyalty program was launched in
2004 to complement its core e-payments business. NETS could take advantage of
its extensive network of top-up points deployed by bank sector.
LTA replaced its magnetic fare card with a contactless multipurpose
smart card based on FeliCa technology. IFS’ extended fare structure allowed
commuters to transfer between different transit networks, run by different
operators, with the backend system apportioning the fares among operators at
the end of each day. The ez-link card (a ‘tap-and-go’ card payment scheme
operated by EZ-Link Pte Ltd, a fully-owned subsidiary of LTA) was issued only
by LTA and was transit-centric. With the launch of the ez-link fare card, NETS
was no longer the sole provider of widely accepted stored value facilities
approved by the Monetary Authority of Singapore (MAS). LTA ticketing system had
incurred high cost in stalling and supporting its own top-up system.
Main Stakeholders
Motivations/Incentives
From a national perspective it made sense to have a
single form factor for who dominated the competing players in a very small
market. IDA saw the potential to boost the local micropayments industry and to
promote the opening up of services for consumers to use one card seamlessly. Abiding
by international standards meant that smart cards issued in Singapore could be
used in countries that adhered to ISO standards, and possibly lead to exporting
the technology overseas. The intent therefore was to move away from proprietary
systems towards an open environment such that one card would be used across all
systems, and the resultant level playing field could lead to more micropayment
participants and drive down costs.
The new specifications of the CEPAS Memorandum of
Understanding between EZ-Link and NETS were expected to be as inclusive as
possible, allowing cards of different configurations and standards to be used
within the scheme. The standards development process required that the draft
specifications and amendments be reviewed and approved by the ITSC, which was
supported by SPRING Singapore (an enterprise development agency) and IDA. The
draft also had to undergo a public review before publication as a Singapore Standard.
To ensure that the development of Singapore Standards took into account the
views of relevant interest groups, ITSC members were appointed from the
industry, professional bodies, associations, government agencies, and research
and educational institutions.
The main objectives were to:
•
Bring together multiple payment applications
onto a single smart card
•
Enable greater synergy between applications and minimize
resource duplication
•
Permit multiple entities participating in a
common e-payment scheme to create their own keys on a card that would be used to protect their own
liabilities without affecting the liabilities of other parties
CEPAS was designed to be generic enough to be deployed
over contact (ISO 7816) and contactless interfaces (ISO 14443) as well as GSM SIM applications in
near field communication (NFC) enabled mobile phones. This allowed direct
top-up to the e-Purse from a bank account, while the ISO 7816 command set and file
structure allowed CEPAS to co-exist with Europay, MasterCard, and Visa (EMV)
and contactless credit card applications on one card.
Like the Cash Card, CEPAS was designed to meet the
security and integrity requirements of an opene-Purse system. Most importantly, it had to meet the high-performance
requirements of Singapore’s transit system.
Some of its unique features were:
1.
Atomicity - Updates were completed either in
total or not at all, to ensure information was always complete. No corrupted or
partial updates to the card were allowed, to improve reliability of
transactions across multiple interfaces.
2. Signed Certificate - After each Debit, Credit
and ReadPurse, the card would return a Signed Certificate, which was
cryptographically signed (encrypted) using the Issuer Key (signing key). Issuer
Key could be different from Credit or Debit keys. Successful verification of
Signed Certificate at the Card Manager’s host proved integrity and authenticity
of transaction record.
3. AutoLoad - Automatic add-value service with a handling
fee for each transaction increased purse balance by a specified amount when the
debit amount was insufficient, provided the card was linked to a bank account
or credit card.
4.
Partial Refund – Limited to the most recent
amount debited, this was useful for retail and bus fare transactions that
required ‘at start, deduct maximum, upon end, and refund unused amount’.
5.
Cumulative Debit (or Slicing) – To minimize transaction
processing overheads, debit operations for one card were accumulated into a final
amount for example payphones and photocopiers.
LTA Deployment
The lack of interoperability between EZ-Link cards and
NETS Cash Cards meant higher costs of infrastructure for LTA as EZ-Link could
not leverage on NETS card top-up infrastructure. LTA’s involvement in the
design of the new standard was with an eye to increase efficiency, security and
speed in the next generation contact-less card. Having an efficient revenue
collection and settlement system was critical to keep fares low. The cost of
the first wave of CEPAS cards was about S$4 each. By 2012, the cost of the cards had fallen to about S$2.50, with
the other two card vendors also involved in the production of CEPAS cards.
One issue was how to motivate commuters to exchange their
cards. LTA set up multiple easy access options for commuters such as having
roving centers in schools, extending ticket office hours, and enabling card
replacement at post offices, community centers and bus interchanges. The
replacement was on a free one-for-one basis, with automatic value transfer from
the old to the new card. The previous Sony contactless ez-link cards would no
longer be accepted on public transportation. By early-2010, there were over 10 million CEPAS cards
issued. The cost of replacing the cards was about S$30 million.
EZ-Link was keen to promote self-serve and auto top-ups,
given the higher cost of manned counters and cash collection. Top-up channels
expanded to include self-service kiosks (ATMs, ez-link top-up kiosks, 560 AXS
stations), auto top-ups (to pre-specified limit via bank GIRO transfer when
readers sensed that the card’s stored value was low), online top-ups, and
mobile phone authorizations. EZ-Link also sought to leverage non-transit
infrastructure such as convenience stores (7-Eleven), fast food outlets
(McDonald’s) and schools for top-ups.
EZ-Link issued co-branded banking cards with Citibank and
DBS. Both EZ-Link and the banks hoped that everyday use of the card for transit would drive the co-branded
card to ‘top of wallet’ and increase its retail use. It was thought that the
convenience of having an ‘all-in-one’ card that could be used for transit, ERP,
retail micropayments as well as a credit/debit card, would shift consumer
habits. EZ-Link also initiated the PAssion ez-link cards which let its members
earn loyalty points at retailers such as Cold Storage and Shop N Save
supermarkets
Another significant development effort that had to be made
in order for the CEPAS cards to be successfully deployed, was the new backend
system needed for processing e-payments and clearing settlements among the
various parties. The system, was developed using open standards and critical to
opening up the transit market to other card issuers by enabling consolidation
and clearing of payments among the stakeholders comprising public transport
operators, card managers, transit acquirer, and PaymentLink handling
non-transit transactions. To reduce missing transactions, the system had to be
able to handle the upload of precious as well as current transactions.
NETS Deployment
NETS initiated a nationwide marketing campaign for their
new FlashPay (NFP) contactless CEPAS 2-compliant card in which anyone who
bought a NFP card received a S$5 bonus value for transit or S$7 bonus for free
rides. Each card came with free one-year insurance of up to S$20 for lost cards
and up to S$5,000 for permanent disability due to a public transport
accident. One million cards were sold within a year, accounting for 10% market
share. NFP cards had a lifespan of seven years from the date of issue. Older Cash
Cards continued to be usable at various NETS payment points. However, only the
NFP card could also be used on buses and train.
NFP cards could be purchased and topped up at TransitLink
ticket offices, convenience stores 7-Eleven and Cheers, and iNETS kiosks initially available at six
MRT stations. Existing EZ-Link machines at MRT stations could be used to reload only ez-link cards, not
NFP cards. NETS worked with its shareholder banks DBS, UOB and OCBC to roll out ATM and debit cards
integrated with NFP capability, which would give cardholders an option to
top-up directly from their bank account while making a purchase
NETS incurred significant costs for major upgrading to
its backend system to accommodate and support the new payment solutions. Substantial costs were also
incurred to conduct extensive tests of the NETS card with the new LTA SeP and ERP systems. Under the
CEPAS framework of multiple issuers and acquirers, NETS was required to be certified by LTA, the
system provider, for the processing of transactions and settlement
interactions, to ensure alignment of operational procedures for handling cards
from different issuers
Taking a strategic view that the NFP contactless card was
most suited for fast, hassle-free payment transactions, NETS prioritized quick
service retailers that handled cash for small ticket items to be converted to
e-payment or upgraded to contactless payment first. From its experience, NETS
knew that the conversion from the habit of using cash to e-payment
would take time. Within two months of the launch, 20% of NFP cards had been
used in retail.
To promote adoption of the NFP card, NETS introduced an
auto-top up (ATU) feature in October 2010, allowing users to instantly top-up
their cards through GIRO to a predetermined value in transit, upgraded
electronic parking system car parks and ERP accepted places. The ATU facility
could be activated only at transit, and not retail, points which made it difficult
to abuse.
The integrated iNETS platform was launched in 2010 to
facilitate consumers’ ease of use in making fast and secure e-payments through a multi-channel payment
infrastructure, which allowed users to make online financial transactions using
their mobile phones or via self-service kiosks. Registration for the ATU service
was immediate at any iNETS kiosk. As part of the Flashpay platform, the first
non-card payment accessory – the NFP Key Tag, was launched. NETS partnered banks and merchants to offer integrated CEPAS capability on their credit, debit or member
cards in broadening the use of NFP into new markets. The NFP card was an
extension of NETS’ portfolio of e-payment products and services to provide consumers
with more choice. To complement its core business of e-payment transaction
processing, NETS had shown that it could be ‘platform agnostic’. Competition
was at the card issuer-level and not among the acquirers – which referred to
institutions that enabled merchants to accept card payments. For each
transaction, the merchant typically paid a fee to the acquirer who paid a fee for processing to the issue.
Comparison of
EZ-Link and NETS FlashPay
Initial Motivation
Addressed/CEPAS Impact
The Infocomm Development Authority launched an initiative
to develop an innovative standard that would provide an interoperable platform
in order to boost local micropayments and open up e-payment services for
consumers. The result was a pioneering ISO standard - the Contactless e-Purse
Application Standard (CEPAS). This open standard, with unique security and high-performance
features, enabled multiple payment applications offered by different issuers to
be on a single smart card, which consumers could use for bus, taxi and rail
transport, car park and road usage charges, and retail micropayments.
The move away from a transit-centric system to
CEPAS-based multipurpose smart cards offered consumers the ability to use a single
card for a wide range of transactions; from bus, rail and taxi payments, to ERP
and parking fees, as well as for retail purchases. It gave consumers more
control and access to a wider range of top-up infrastructure island-wide
including bank ATMs. Top-ups could even be done at home with a credit or debit
card using a CEPAS-compliant EZ-Online reader (costing S$39 and only for
ez-link cards), which could also be used to check previous transaction records
online.
The government-driven mass market deployment of CEPAS in
transit played a significant role as it demonstrated that contactless payments
could be a safe, reliable and convenient experience for commuters. This helped
consumers and businesses overcome their initial resistance to new technologies and
gradually make the transition from cash towards contactless e-payment
solutions, in tandem with the global landscape which saw increasing levels of adoption
from 2010.
Contactless payments were already providing benefits to
the industry, in terms of greater convenience for consumers and higher
throughput for merchants. Payment transactions using contactless smart cards were
found to be 63% faster than cash and 53% faster than swiping a conventional
credit card. This could reduce queuing time and potentially result in
higher sales and transaction volumes
Another significant benefit was the minimization of
revenue leakage. The novel feature of being able to upload previous
transactions enabled LTA to greatly reduce missing transactions, which sometimes
occurred when buses that collected the transaction information and downloaded
them at the end of the day at the depot did not do so (for a variety of
reasons such as the bus being re-routed). As a result, about three to four million transactions were not
recorded each year. With this new feature, enabled by CEPAS, missing
transactions reduced significantly from over S$2 million to less than S$100,000
a year. This was primarily due to capturing the previous and current transactions on the card and uploading them at
every touchpoint.
The new smart cards with the SeP system also enabled LTA
to move from zonal fares to distance-based fares in July 2010. Distance-based
fares were more equitable compared to zonal fares, where long trips within the same
zone cost less than shorter trips that crossed zone boundaries. The new
distance-based system computed fares based on route distance, service grade (basic
air-con bus, express bus, premium rail) and patron category (adult, child,
student, senior citizen)
With the emergence of more payment options, consumers benefited
from a host of attractive marketing promotions, privileges and merchant
discounts from card issuers competing to gain strategic mindshare, even as the
market adopted a wait-and-see attitude to the new e-payment mechanisms.
Merchants also had the option of offering exclusive deals through the loyalty
programs of NETS and EZ-Link. While the CEPAS smart cards were well established
in public transit, use was less widespread in the retail sector despite
concerted efforts to promote their usage. Consumers were still using cash for
smaller payments, with S$20 billion cash transactions a year. This was in spite
of initiatives such as EZ-Rewards, a loyalty program to reward ez-link
cardholders every time their registered concession or ez-link card was used to
pay for purchases at 23,000 merchant acceptance points. One of the barriers to
retail adoption was that there was not yet a common terminal network across all
card managers in the retail arena. Rather than manage the cost and hassle of
working with diverse payment options and instruments, some merchants chose not to
adopt the newer options until consumer preference for this mode of payment was
stronger.
To encourage merchants to support CEPAS smart cards jointly
funded the cost of local merchants who switched their POS terminals to
contactless CEPAS-compliant readers. In particular, the focus was on merchants
in selected high cash-based segments running smaller scale businesses such as
hawkers at food courts, coffee shops, fast food outlets, convenience stores,
provision shops and vending machines. All merchants/businesses benefited from a
waiver of setup fees and monthly terminal rental fees for at least a year as
well as a shorter two-working day settlement period. For every e-payment
transaction, merchants paid acquirers a percentage fee based on the value of
the transaction
Innovations needed
for CEPAS to be useful
The creation of the contactless card ecosystem and CEPAS-compliant
payment mechanisms provided a platform for the next step in e-payments – using NFC-enabled
mobile phones. Merchants with contactless credit card or CEPAS terminals were already
able to accept payment via NFC phones. Industry players could leverage the
existing platform instead of having to invest in their own infrastructure. IDA
noted that a fully interoperable NFC ecosystem could generate a market eight
times that of a non-interoperable environment. The nationwide ‘tap-and-pay’
service using NFC technology was rolled out in August 2012. The new payment
mode could be accepted at about 30,000 retail points equipped with contactless
reader terminals, which worked with NFC-enabled mobile phones as well as
contactless cards, including CEPAS-compliant cards.
Consumers have also been slow to change their preference
for cash in paying for taxi fares. 80% of passengers still used cash to pay for
their taxi rides as there were was a high upcharge for this. The
conversion of car parks had been gradual. Over one-third of more than 1,000 electronic
parking system car parks in Singapore were able to accept the CEPAS card
by March 2012. Another reason hindering the uptake was that a vehicle needed a new dual-mode IU,
which was fitted in about 220,000 vehicles or less than a quarter of the
vehicles in Singapore. This additional dual-mode IU was a barrier in this
market as less cars had this option.
Most of what needs to make CEPAS successful is changing
and streamlining the process of how consumers do business in regards to
shopping, banking, and transportation.
As new innovations come out, it appears that many of the changes will
need to be made on the consumer side – needing to have devices, cars, other
services to implement the changes. There could come a time when consumers may
not have the most up to date methods and this could cause delays in the future.
Consumers should only see that things have changed but not as a result of something
they initially had to do. CEPAS should continuously work behind the scenes make
all the networks and processes run smoothly so the end consumer only sees a
clean user interface with whatever they are using for purchasing goods and
services.
Another way that CEPAS needs to have success in the future is the relationship with their vendors. Charging high fees to vendors to use their service could result in vendors not using CEPAS or passing those cost over to the customers. Continuing to give incentives to vendors and offering other sales or marketing platforms (i.e. improved daily sales reports, forecasting, POS systems) to help with their overall job performance could be of real benefit to vendors.
Reflection
There were quite a few takeaways that the consultants
found to be key factors to the success for CEPAS that could be used for similar
projects in the future.
1.
Authoritative support
2.
Establish project management team
3.
Standard creation
4.
3rd party oversight
5.
Backend system
6.
Preserve competitive environment
7.
Encourage consumer adoption
8.
Encourage business adoption
Thinking holistically, the CEPAS approach incorporated the “whole
is greater than the sum of its parts” idea in that all the factors are
important to implementation success and need to work together as a unit. No one
factor is more important than another and all play a vital role. One of the factors that was discussed in class
as being part of their success was having a 3rd party involved. It was very effective to bring in a 3rd
party vendor to work between 2 competing companies to reach a common goal. The
myth that competitors cannot play well in the sand box together was dispelled
with this highly complex integration.
Another area that was discussed in class was having government
support especially from a funding perspective. And how for future countries to
adopt this system, having government support is vital. As governments control
so much of what happens in a country, having their support could streamline or
delay the process or provide additional resources. Along with having adequate
support from government, there needs to be adequate consumer adoption and
willingness to change their spending habits. There are several cultures and
ethnicities that do not put money in banks for example, how is a program like
CEPAS to work in a culture that wouldn’t have a bank card to start with? In the
case, it mentions how consumers still used cash for some of their purchases. Will
consumers be penalized or charged a fee because they use cash instead of cards?
Consumers need to see the new system as a benefit to them, have an added value.
Continuing to offer rewards and incentives
is definitely a way to consumers to commit.
