RFID: Share Your Personal Data with the World!

February 24, 2009

compass_card_fareboxA few weeks ago I wrote that contactless payments will help drive mobile banking adoption. What I didn’t say is that you can also use RFID to broadcast your personal information to the world.  Yes, RFID enabled passports can double as your personal radio station that keeps playing your same personal info over and over again.  The good news is it has never been more affordable to have your own radio broadcast.  The bad news is, it is apparently pretty easy to put together the equipment that will tune into your channel.

RFID  (Radio Frequency Identification) is not a new technology. The origins of RFID trace back to WWII and the first RFID related patent was issued in 1973. From supply chain management to toll tags, RFID is certainly useful in a variety of applications.  Still, RFID is not inherently secure.  The potential problems are apparent in the latest RFID enabled US passports. The US includes a metal sleeve and Basic Access Code with new passports to try and keep thieves from stealing your personal information as you walk by.

NFC technology extends the RFID specification. NFC enabled devices must be in very close proximity in order to communicate.  Thus, proponents assert that NFC is inherently more secure than plain old RFID.  Still, not everyone is ready to start replacing cash with wireless payment systems.  Despite an improved security profile, NFC enabled devices are vulnerable to a variety of attacks.

fastrak_transponderWhy does all this matter to financial institutions?  More now than ever, financial instituions must prove that they are safe.  The general perception of a bank’s commitment to cyber security can change very rapidly.

I believe NFC enabled payment devices will eventually become very popular. There is a signficant amount of utility in a phone that will consolidate my rapid transit passes, affinity and rewards cards, coupons, and payment cards.  However, this will only happen if mobile payments and the devices that make them possible are perceived to be secure.  A recent survey found that security concerns is the number one deterent to mobile banking adoption.

Most of the mobile payment news I read focuses on convenience and new delivery technologies. Mobile technology companies mention security but they certainly don’t focus on it.

So to complete my answer to the question above, mobile payments represent a significant opportunity for financial institutions.  However, unless the industry begins to promote security with technology improvements and additional marketing, it might be a while before NFC payments move past the focus group stage.  Even worse, the big event that finally introduces NFC payments to masses might be news of a major NFC related fraud rather than a human interest story on NPR about how mobile banking is spurring commerce in Africa.


The Death of Free Checking

January 26, 2009

The latest edition of BAI Banking Strategies Magazine has an article by Aaron Fine, David Goldberg, and Tony Hayes titled “Sweeping Away Free Checking?

Proposed changes in the Unfair and Deceptive Acts or Practices (UDAP) statute could reduce the profits that banks now make on overdraft fees on transaction deposit accounts and penalty interest rates on credit cards. This reduction in fee income, say consultants at Oliver Wyman, could in turn prompt banks to take another look at their free checking programs, which are essentially subsidized by overdraft fees. The authors say financial institutions should prepare themselves for this eventuality now by developing new checking account and credit card strategies

Recently Colin Henderson at thebankwatch.com lamented that regulating banks like utilities will stifle innovation.  If banks are going to wait for regulators to tell them when it is time to implement new strategies, then they should be regulated as utilities.

If this regulation passes, it will be the final nail in the coffin for free checking accounts. Yes, free checking accounts are profitable, but they no longer differentiate your bank from others.  Some banks have come to terms with this and are pushing accounts that charge you for writing checks.

PNC offers a virtual wallet product that bundles several types of accounts and charges for checks. It does not charge overdraft fees if overdrawn amounts can be transferred from another virtual wallet.  This type of account probably relies on interchange revenue more than overdraft fees.  Accounts like this will continue to proliferate as banks continue to fight for deposit dollars, and customers and the government continue to increase their scrutiny of overdraft fees.  If  true mobile wallets ever become a reality, we might do way with checking accounts all together.