Fishing for chip's advantage
Author: Andrew Cornell [EMAIL PROTECTED]
Date: 31/07/2006
The Financial Review, Page: 52
[copied as fair comment]
Despite a fair bit of confusion and some crossed messages, Joe Hockey's
welfare smartcard is starting to attract interest in the industry,
particularly from Hockey's banker, the Reserve Bank of Australia.
Although there are vault-strength walls between the RBA's payments
boffins and its banking operations, which actually do the payments for
the government, the two sides are no doubt aware of each others' activities.
There is very real sense in welfare payments and associated activities,
where at all possible, being done electronically rather than by cash and
cheque via branches. Indeed, efficiencies in this very area of
transactions have been one of the main drivers of commercial bank
productivity improvements over the past decade.
But there is still some confusion. Efficiencies can be gained by making
payments electronically rather than via cash or cheques. However, that
doesn't require a smartcard. Indeed, larger Medicare payments are
already made by crediting accounts via the Eftpos infrastructure.
Regular payments, as they are already, can be directly credited to bank
accounts.
The attraction of a smartcard is at the level of the card itself, the
Access card. Chip cards are more secure than magnetic stripe cards and
they can carry far more information.
So a single card could conceivably carry a multitude of applications,
and indeed this capability has been available for years, separated by
levels of security and confidentiality. A card could hold medical
records, social security data, public transport access, loyalty
programs, even stored value which could be restricted to certain uses,
even though the Access card probably won't.
Many corporate payment cards already restrict the merchants at which the
card can be used and the sorts of goods and services for which they can
be used to pay.
Again, existing or relatively soon to be available, infrastructure can
cope with all these requirements. While the industry is behind in
implementing new requirements for security such as triple data
encryption algorithm, it is nevertheless moving down the path towards
full smartcard rollout capability and its standard, EMVCo, LLC or EMV.
Maybe this is a bit slow for Hockey, and no doubt some prodding would
help, although the real prodding would come from some flare-up in
security breaches, but it is nonetheless on the way.
The third element of the welfare smartcard is fraud prevention. But a
smartcard prevents that only at the level of the card, for example
making it more difficult to skim information or create fake cards.
Smartcards do nothing about the issue of identity theft or cards going
to the wrong people.
Proof of identity is not only a crucial issue for Hockey and the
taxpayer, it is a crucial issue in the banking industry. How does a bank
or a merchant know the person at the other end of the phone or on the
other PC is who they say they are? The legitimate owner of the card? Or
the smart phone or whatever the actual device of the future happens to be?
At present there are myriad strategies being adopted to address this
problem, such as SMS messages or tokens. There are enormous efficiencies
to be gained or lost at this level.
If every bank and government agency develops its own protocols and
infrastructure, the waste would be enormous.
Which is why initiatives such as Westpac's Trust Centre are the logical
way to go. Based on a Swedish model and technology, Westpac proposes a
joint venture, with members who could be banks or government agencies,
to offer a common method of verifying identities.
The initial identification would piggyback on protocols already in place
to open bank accounts, the 100-point check.
It makes no sense to have multiple systems doing the same thing - just
as it makes no sense for the Access card to roll out its own
infrastructure at something like $700 a terminal. Eftpos is not the only
infrastructure Hockey could ride tandem with.
National Australia Bank and GE Money are already point-of-sale providers
of financial services at medical facilities, NAB with its Health
Industry Claims and Payments Service. NAB's competitor in this area, IBA
Health, could also offer something. And of course there's Macquarie Bank
which has just bought into ATM fleet management. The Access card is a
classic infrastructure play for a bank such as this.
* Just some information on a previous column on the opportunity to shift
higher cost cash and paper transactions to electronic, courtesy of the
Australian Taxation Office. The ATO in the 2005 financial year paid out
just more than $15 billion to individuals, and more than $5.5 billion to
companies in refunds.
That comprised 9.4 million in refunds for individuals, 38 per cent of
which were issued electronically, and 2.5 million in refunds for
business activity statements of which 96 per cent were issued
electronically.
The disparity is because, by law, the ATO must pay business refunds
electronically unless in exceptional circumstances. However, individuals
must opt in for electronic credits.
It seems a relatively straightforward step to require those wanting
their tax refund to supply bank account details, although it is more
complex where an agent is involved.
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