Innovation in payments with Compte Nickel
Compte Nickel is a current account service accessible to all. Operated by the Financial Supervisory Committee of electronic payments (EPF), this new payment account which has been launched recently in France can be opened in 5 minutes at a newsagent/tobacconist by anyone regardless of income requirement. Ryad BOULANOUAR, President of the the French Financial Supervisory Committee of Electronic Payments and co-founder of Compte Nickel, answers our questions.
You are tackling the payment industry today with an innovative approach based on real time operation, avoiding the use of value days and other delays. How are you doing this?
Ryad Boulanouar : Our payment system is based on chip cards. The chip card was invented with the technological constraints of the telecommunications network in the 1970s and 1980s in mind.
The underlying infrastructure for any payment system is based on the communications network, telecoms in particular. It lies at the heart of the transfer of money between economic players. In the 17th century it was the postal system, in the 19th century the telegraph, and in the 20th century it was the telephone line in conjunction with an electronic payment terminal. To understand how payment has evolved, including bank cards, you need to look at a little history, to remember how IT was organised in the 1980s and to compare it with the telecoms infrastructure of the time.
IT was centralised, with large units based on client-server architecture. Servers held and processed the data. Client workstations could only send requests for processing and queries to the servers. This method of organisation provided exhaustive centralised information, but the ability to transfer it was limited by the heavy volumes to be processed, leading to long processing times.
To speed the process up, a “thick client” approach was introduced. It relied on loading data locally to the client workstation in order to carry out certain operations. Data was processed or queried locally, reducing the back and forth with the central servers and improving speed and response times. The processing results were uploaded to the central servers at night.
Establishing client-server architecture in the payment world would have led to very long processing times, too long, given the technical data transfer capacity of the telecommunications networks of the time and the volumes of data to be exchanged. To exaggerate only a little, the telecoms networks of that time would very soon have been overwhelmed by payment flow data, and would not have been available for anything else, like making phone calls. Remember the connection speeds in the early days of the Internet and the time it took to download pages [sic], just think that the communication speed of a point-of-sale terminal was 1.2 Kbps. Real time operations were technically feasible, but it would have led to such long times for the act of payment that it would never have been possible to bring payment cards into general use.
Real time use was virtually possible but impossible in practice. How did you change the paradigm?
Ryad Boulanouar : The chip card was therefore the ideal solution, it was the thick client model applied to the payment world. It is a tool with the capacity to load and process data locally. The chip in the card and the payment terminal have made it possible to speed up processing, upload security rules, encode and validate payments. The chip makes it possible to authorise and secure the transaction without accessing the central server. The chip confirms that the card-holder may carry out the transaction given the information that it has, for example payment limits. It communicates with the payment terminal to check certain authorisations, for example to ensure that the card has not been cancelled.
Except under abnormal circumstances (large sums, blacklists, etc.) which lead to the card being checked with a call from the point-of-sale terminal to the central payment terminal, the point-of-sale terminal stores all the day’s payment data and then transmits all this data over the telecoms network to the central payment server in a nightly batch file. This approach combining local processing and nightly batch files, used during the 1980s, persists to this day. Since then, only the number of random queries/checks has increased.
This architecture, this system of storing data with nightly batch runs, explains why information about a payment made on a given day is available no sooner than the following day.
Telecoms networks can now carry huge volumes of data without latency. These capacities are not fully exploited by existing card payment systems. Our idea was simply to move this paradigm on, constructing our approach to payment on a real-time basis, by using the resources provided by today’s telecoms networks.
For our customers, this means that every use of the Nickel payment card is automatically accompanied by a request for authorisation from the central payment server. This automatic authorisation means that our customer accounts can be updated in real time, without waiting for the nightly batch run. So our customers have immediate information on their cash-flow, as soon as the payment is made. This changes perceptions and the way people manage their accounts.
Paypal, Google and Apple Pay, contactless payment, dematerialised payments, the disappearance of cash payment planned and desired by the authorities: payment methods are undergoing profound changes. How do you imagine the future of your sector?
Ryad Boulanouar : Dematerialised payments are not new. On the contrary, I’d say that they are very old. Banknotes, cheques, bills of exchange, promissory notes, all are or were dematerialised payment methods. They were and are examples of fiat money. Their value is only confirmed by the party with whom the issuer holds the account and in reality the operation is only valid if the custodian of that party’s own account – namely, the central bank – validates the transaction.
Any dematerialised transaction must, to be recognised as valid, rely on a trusted authority that validates the transaction. Notes and credit cards are all controlled by a central entity that provides the confidence that the transaction – the payment – requires. A banknote is actually a dematerialised means of payment – just a scrap of paper with no link to its face value: it has no value except in the confidence we have in its reimbursement by its issuer, the central bank. But this scrap of paper also has to be authentic to have value. The trusted authority that certifies its value and ensures that it is not forged is the issuer, the central bank.
The blockchain transfers this validation authority to a network which, because of the multiplicity of its validations, gives confidence in the validity of the transaction and also provides a complete audit trail of flows and transfers. The blockchain challenges all the centralised systems.
Centralised systems for the transfer of financial assets, not just money, are now like telephone landlines or snail mail compared with mobile phones and e-mail. Central banks, as single points for clearing payments and certifying value, have been fundamentally called into question, at least in theory, by these developments.
What is more, processing times have accelerated and transactions take place almost in real time. The security and reliability of transactions has grown, and the audit trail is constantly available and can freely be consulted by everyone. Instead of having a single trusted authority, trust is distributed via certifications to the whole audit trail (the chain) to thousands of servers in networks that are continuously comparing information. The falsification of a chain becomes extremely difficult, given the multiplicity of storage locations and the comparisons that can be made between them.
The future role of central banks in a currency that no longer circulates via a single path but through networks should focus essentially on maintaining the digital security of the transfer flows and networks.
Doesn’t a player like you present an overall greater potential risk than a traditional banking intermediary in terms of combatting money-laundering and the financing of terrorism?
Ryad Boulanouar : We designed our information system from scratch. We didn’t have to deal with inherited technologies, tools or people. That allowed us to focus on developing infrastructure and an information system using the latest technologies, permitting rapid, large-scale processing. This is very helpful in terms of familiarity with customers and combatting money-laundering and the financing of terrorism.
We might be seen by some as a risk factor in this area, but both our processes and our tools mean that, on the contrary, we can be a robust player in this field. We have deployed monitoring tools, not statistical tools which check behaviour against a pre-determined and unchanging grid of typical behaviours, but a dynamic approach to combatting money laundering, customer familiarity and understanding of traders.
We take great interest in combatting money-laundering and the financing of terrorism. Our information-gathering is fine-grained and enables us to analyse how consistent customers’ payments are with their behaviour in real time. We use a series of behavioural statistical indicators inferred from standard populations and refined over time by individualised behavioural analysis. This enables us to identify behavioural trends, variations, atypical processes and actions, and to treat them as exceptions.
To that we can add other special procedures, and the systematic certification by the ACPR as payment agents for the tobacconists with whom we work.
Global Banking LeaderEmmanuel.Dooseman@mazarsusa.com
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