Blue Code is a new secure payment system that promises to usurp the position of card companies and technology giants at the forefront of transaction services, writes Christian Pirkner
Transaction payment systems have become the stuff of nightmares for European banks. They appear increasingly vulnerable to cyber-attacks, with SWIFT being the latest to suffer data theft. Then there is the continued dominance of a handful of card companies and their outdated pieces of plastic. Last but not least is the technological threat posed by Apple, Amazon and Google, which are muscling in on banks' livelihoods with phone app wallets and other mobile financial services.
Banks and merchants have to watch a percentage creamed off every single card transaction by the four big card companies – Visa, Mastercard, American Express and Diners – and must pay for the technology (NFC in the case of Visa, for example) they are forced to use to work with them. But just wait till the tech giants establish themselves firmly between bank and consumer. Cash will then be leaving the European banking system in the billions, never to return – and banks will be paying to let it happen.
A wake-up call for European banks
Don't believe me? Just look at ApplePay. Like traditional cards, Apple also charges fees and imposes the use of its own tech. ApplePay balances are held in a "wallet" – a digital account. These balances are sucking money from traditional bank accounts to pay for minor items such as tube travel, lunch or a newspaper. But a new peer-to-peer feature allows users to send money to friends and colleagues – all within ApplePay. It's becoming a one-way system.
As if that weren't bad enough, when the Revised Payment Service Directive (PSD2) comes into force next year, Apple will be able to offer customers extended services such as insurance advice – highly tailored, of course, thanks to Apple's access to its own and the banks' huge volumes of data that will allow it to build detailed customer profiles.
ApplePay should be a huge wake-up call for all banks. Already, European banks are at the mercy of card companies and the tech giants, which have been able to dictate the terms and conditions of business. But it doesn't have to be that way.
If banks were to arm customers with just a simple mobile phone app that included a payment solution they could sidestep the card companies and tech giants in payment transactions.
Ditch the plastic
Let's start with first principles.
Question: Why, in the digital age, do we still use physical plastic cards to make payments?
Answer: Because that's what we have done for years.
Q: Is something physical, like a plastic card, really necessary?
Q: So what else could be used?
At Blue Code, we thought of a one-use numeric token that can be displayed as a barcode. Whenever an account holder wants to buy something, our software generates a barcode that is read by a bog-standard scanner at the point of sale. This is sent, along with the merchant code, to the bank, which settles the bill. The code is only valid once and expires within four minutes. No customer data leaves the bank.
That is the essence of Blue Code's payment system. It's secure, quick and easy, and allows banks and customers to protect their data and their bank balances.
Developed by a Swiss fintech company of the same name, Blue Code is a totally new concept in transaction payments. It is not so much an app, but a payment solution integrated into a bank's own mobile banking app. The code can be transmitted via bluetooth and NFC.
In just 18 months, some of the largest banks in Germany and Austria have adopted it and it is accepted by more than 85 per cent of Austrian food and drink establishments. Vending machines in Austria are also already starting to accept Blue Code. In fact, it is working so well that this year's Oktoberfest has officially adopted Blue Code as its only means of mobile payment. Cheers to that.
Protecting data and Europe's security
But Blue Code is about more than just a novel payment system. It's about data protection; it's about the future of European banks; it's even about addressing geopolitical risks.
First, data protection. No customer data leaves the bank. No third party collects customer data from the transaction, to sell to others. There is no chip or pin number to steal, no card to lose. Data remains secure in the bank, in just one place.
Second, the future of European banks. By retaining their role as intermediaries in the transaction process, banks will remain relevant to their customers and have a better grip on costs. Transaction balances will stay within the banking system. And customer data gleaned from those transactions will remain with the banks, allowing them to provide better, more tailored services.
Third, geopolitical risk. And here I mean European security. Transactions are vital to our economy. In the UK, for example, Visa alone processes 10 billion debit, credit and prepayment transactions each year. Currently, the market is controlled by the US card companies (plus UnionPay in China and JCB in Japan) and the tech giants. Any glitch in the system could halt card transactions Europe-wide. Or imagine that the US Congress decided to levy a charge on every transaction on cards issued by the four big US card companies. European banks would be powerless to object. We need our own system.
It's a win-win-win scenario. There's no additional outlay for merchants, because they all have scanners. The Blue Code app can be used on any smartphone – even prepay. The process is anonymous, so there is no threat of ID theft and other fraudulent uses, in addition to being compliant with data protection. It allows banks to retain more of their fee income, more of their customers' bank balances and more of their data. Blue Code can even be integrated seamlessly into retail reward schemes, collecting points automatically for the consumer.
The rapid adoption of Blue Code in Austria and increasingly in Germany shows that it is a customer- and merchant-friendly solution. Winner of the jury prize at this year's Temenos Community Forum in Lisbon, it is already on Temenos's MarketPlace, ready for integration into banks' core systems.
There is only a narrow window of opportunity to roll out a new payment system in Europe, offering a better, cheaper service to customers and merchants and a continued role for banks as intermediaries. It's time to let Swiss technology deliver Blue Code's radical new transaction payment system for the benefit of everyone in Europe.
Christian Pirkner is the founder of Blue Code
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