E-Purse - time for a comeback

The concept of an “e-purse” or “stored value card” was always a natural for smartcards. A pre-paid payment vehicle which could be issued to anyone, with electronic money in effect stored securely on the card, was seen as a highly attractive alternative to cash in many low value payment environments. In the 1990s many such schemes were launched, such as Proton (Belgium), Geldkarte (Germany), ChipKnip/Chipper (Netherlands), Danmont (Denmark), and of course Mondex (UK and worldwide). By and large, all these schemes were relatively unsuccessful. With hindsight, the main reason is that they were all based on different, closed-loop proprietary technologies, which meant poor interoperability and more importantly, the familiar chicken and egg problems associated with building a payments infrastructure. In particular, since special POS terminals were required, the required critical mass acceptance infrastructure was never really achieved.

With the coming of EMV chip, many of us thought that e-purse would come into its own in the form of a standard chip-based product which, because it was open-loop and accepted at any EMV terminal, would rapidly take the world by storm. MasterCard probably developed this concept furthest in the form of the “pre-authorised debit” card. This uses a special “shadow account” dedicated to pre-authorised payments, with a counter on the card recording each payment as it is made. All pre-authorised payments are authenticated offline. When the counter reaches zero, the funds are topped up, either explicitly at an ATM, for example, or implicitly by forcing an online transaction.

This EMV version of an e-purse was seen as particularly appropriate for less developed markets with huge unbanked populations and underdeveloped telecommunications infrastructures, where the combination of universal issuance (no risk of bad debt since all funds are pre-authorised), offline acceptance, and low cost processing looked like a winning proposition. The product was indeed launched in markets such as South Africa by Capitec Bank, or Kazakhstan by Kazpost, but in the event it never really took off widely. In retrospect, these were precisely the markets where the penetration of EMV terminals was slowest to grow, so not surprisingly, acceptance was poor.

At the same time as this was going on, the highly successful phenomenon of “pre-paid” cards took off, first in the US, then worldwide, driven, it must be said, mainly by non-traditional issuers, although the concept was rapidly adopted as an open-loop product by the main card schemes. In sharp distinction to the e-purse product, the term “pre-paid” has come to refer mainly to low cost magnetic stripe cards, which are authorised 100% online. This is no longer an issue in most payment environments, since in the intervening years the cost-effectiveness, reliability and availability of telecommunications has improved dramatically, everywhere.

So does this mean e-purse is finally dead? Maybe not. In the past few years it has had a quiet rebirth as, in effect, the risk management tool embedded within chip-based contactless payment schemes like PayPass and PayWave. E-purse may also emerge as the payment vehicle of choice if, or when, mobile payments become commonplace. And the concept may also enjoy a new lease of life underpinning EMV-based multi-function, predominantly offline, universally issued products such as campus cards, community cards, social cards and the like.

So call me sentimental, but I have a hunch that we haven’t heard the last of e-purse just yet!

Banking Automation Bulletin Opinion Article, December 2012, by Nick Collin