What's the value of Keycard within a payment network?

Ethereum has the potential to disrupt the payment industry and we want to build the foundations of an open, inclusive & decentralized payment network.

Keycard team had several discussions about this in the past weeks, especially about how Keycard can bring added value when integrated into a payment network, and we would like to open up this discussion and get your feedbacks/ideas/challenges.

As we’ll see, integrating Keycard in a open & trustless network doesn’t go without its challenges, and we will share very soon some technical proposals to try to solve them.

What are current problems of payment networks?

They are not inclusive :no_entry_sign:

Whether you want to accept or make payments, you need to create a bank account, and it is up to the banks appreciation:

  • 1/3rd of the global population is still unbanked and has no access to financial services (payment, credit etc.), mostly in the developing world.
  • in well developed countries, it still is difficult to open bank accounts for individuals or businesses
  • specific categories of businesses are refused access to payment networks
    Banks and payment providers (if you want to have a point of sales, or if you want to accept visa payment online for instance) are selecting their customers. We just lived this with Status Keycard since we were kicked out by three debit card payment provider (shopify pay, stripe, skrill) just because the profile of Status corporation did not fit with their usual customers. Moreover these networks apply transactions cost that directly depend on the risk they arbitrarily perceive in one’s business.

They are slow :turtle:

Sepa & Swift take 1-5 days for remittance to be effective. Visa payment take 1-3 days to hit the merchant account

They are expensive for merchants :heavy_dollar_sign::heavy_dollar_sign::heavy_dollar_sign:

When a merchant wants to accept debit cards, its average cost is 1.5%-3% of the amount invoiced

On top of this he can have:

  • monthly cost for his bank account
  • monthly cost for the payment service
  • fixed fee per transaction
  • rental cost for the terminal

They are tedious to set-up for merchants and users :hourglass:

If you are a new or ephemeral business, it can be quite tedious and long to open a bank account and get a payment terminal and the whole process takers 1 week minimum:

  • open the bank account by providing all documents
  • initial deposit to be made
  • order, get and configure the payment terminal

Payment networks and the value of Keycard

Blockchain-based payments network need to address several issues: they need to be scalable, fast (as a merchant would you let a customer leave your shop if transaction is not confirmed or secured ?), secure, and they must incentivize by design the members of the network.

Once you’ve built a payment network that solves all those aspects, the payment network needs to offer the right interfaces to its users, and it is crucial for the success of the network to allow a good user experience to onboard the network, and then to emit or receive a payment.

We call here ‘merchant’ the receiving party, it can either be a real world shop, an online service, a dapp, or just an individual that wants to get paid for whatever service or good.

Merchants can then use different means to interface with users.

Some payment networks offer web3.js connectivity for dapps developers (e.g https://docs.leapdao.org/recipes/use-web3/), some offer end user-ready pop-ups that can be called by a web app (spankpay sdk https://spankchain.gitbook.io/spankpay/), or a merchant side app can generate a payment request QR code with amount, address, identifier of the chain to use.

Let’s focus on the experience for a merchant to sell or request payment in the physical world with the example of a chain of shops that want to offer the possibility to its customers to pay in crypto without keycard.

Onboarding a payment network without keycard (in the physical world):
- the user needs to download a given compatible wallet on a app store. This wallet is indicated by 
the store owner since it must be compatible with the payment network.
- he must then create an account on the app
- he must then purchase some tokens to the store owner. The store owner can sell in exchange of 
cash some QR code based vouchers that can be redeemed from the user wallet.

From there, the users stores his tokens on his phone, and can pay with a QR code (user opens his wallet and scans a QR code provided by the merchant) or by tapping his phone (needs NFC enabled - a deep link opens the wallet to the right transaction to sign).

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Keycard is an enabler to onboard new users in a payment network in the physical world

Keycard is re-insuring to users and encourage to onboard the network

Smartcards are the most traditional payment method, and are deeply rooted in customers shopping or customer loyalty habits. Their purpose is understood in a second, and they represent something that is easy to use and secure.

Keycard is tangible, cost effective, and facilitates marketing

The physical world is eager of physical stuff, and Keycard technology being tangible it facilitates its branding, communication, peer to peer recommendation, and marketing efforts.

Creating a payment network has to face the chicken and egg problem, where merchants need customers, and customers need merchant. Keycard can be distributed within a given network group target for free to bootstrap a payment network.

This is how the VISA network started back in 1958 with the Fresno experiment where 60’000 cards were dropped in the city of Fresno.

Keycard removes the need to download a compatible wallet to onboard

A merchant uses a given payment network (think one given ethereum side chain for instance) to receive his payments, so the user must use a wallet which is compatible with

  • the payment network
  • the point of sales used by the merchant (NFC if it uses NFC, QR code encoding e.g)

This need is creating friction for onboarding since a user might not be prone to go through these steps and need to be onboarded fast and easy to accept to onboard a new payment network.

Onboarding a payment network with Keycard in the physical world:
- while checking out, merchant proposes to sell tokens to the user, e.g 30 xDai in exchange of 30$ of 
cash. These tokens are handed out to the user in the form of a smartcard. There is no user 
 operation, other than paying 30$ in cash or Visa (can be on top of his basket of goods), to get 
 ownership of this tokens.
- the keycard is ready to be used at the shop. For instance when the user comes back he can grad some goods to purchase and just tap his keycard to pay. He doesn’t need to download a wallet to start using the payment network
- the shop can propose some pod where the balance is shown when the user taps his keycards
- tapping the keycard on the user’s phone shows its balance immediately, and also provides 
a clear link to download a compatible wallet
- once the user has onboarded, he can download a wallet (e.g Status) and use also Status directly to 
make his payment and not only Keycard

Issues related to Keycard

Keycard comes with added value to onboard new users on the payment network, but this comes at the cost of issues to solve.

Keycard in its current form has no user interface (buttons, screen), it signs any hash of transaction that is presented when tapping.

Thus a malicious merchant dapp could:

  • sign any transaction, or numbers of transactions while it is tapped without any possibility for the user to check it on the card or on the point of sales,
  • save the card PIN is asked (note: therefore we believe the whole payment experience should never need PIN entry)

We are to build, in a trustless and decentralized manner, solutions to mitigate this risk of fraud, and provide enough guarantees to the end user towards protection of his funds. We will share some of the architectures we have brainstormed about in a post to come.

Some example where an open payment network can be deployed in the physical world

  • Community money

Example of Bristol pound https://bristolpound.org/ In such communities, keycards loaded with the local otoken can replace EMV Visa cards in affiliates shops.

  • Closed events (concert, conferences, any event)

Cards are distributed at the entrance, and all vendors accept payments with the card. The cards can come with an amount of token, and users can buy more at dedicated stand, or through teller network. Which means that users can also sell their tokens for cash at the end of the event for instance.

  • For brands: loyalty payment cards

e.g Brewdog brewery. You can buy shares in the company or some kind of membership and they then provide you points to purchase beer cheaper in any brewdog bar. https://efp.brewdog.com/equityforpunks
They already ship a card to anyone who buys shares, this could become a keycard that would be accepted in any brewdog brewery affiliates to purchase beer.

  • States and companies issuing stable coins (amazon libra, binance venus etc.)

They can be willing to faciliate using the use of these stable coins for real world purchase. Keycard makes sense in this scenario. Let’s imagine Walmart emits a stable coin or decide to accept Libra, they could deploy point of sales accepting Keycard payments.


:wave::wave:What do you think?
:rocket::rocket:Before we dig deep into how to solve trust issues (coming from keycard limited interface), we better be convinced of what value we’re creating bringing keycard into the payment network. So please share your thoughts :slight_smile: !

14 Likes

Good article - thanks for posting. I had a couple of questions.

How would this model deal with Chargebacks and alike? For example, traditional payment acquirers bear the liability of their merchants going bankrupt. Hence why they have some charge (agree it is higher than this implied risk though)

Also - I’m interested to hear that you believe that a physical card is necessary. Personally I think that introduces many issues around fraud & distribution. In European countries where the take up of mobile based solutions has been poor it is due to the stickiness of payment preferences and the fact that vs contactless it isn’t that much better. In developing nations, data is too expensive. A pure mobile or 2g enabled solution would be best in those scenarios I believe.

Awesome write-up @guylouis and I’m really happy to see this coming from you, I’m becoming more and more convinced the Keycard team are the right guys for establishing an open VISA alternative. You hit the nail on the head, so I won’t really say anything new but will just echo your thoughts.

It’s important to realise that we are implementing the original vision of smart cards.

Keycard can be viewed in the following ways:

  • an onboarding tool, we can reach people who do not have access to smart phones, we can offer loans/financial services to the unbanked (think of a kiosk that acts a sa bank, they run Status on a smart phone and share it with the community they are in, and people access their services by using their keycard) Gojek and Grab have recently invested in what is called “offline merchant networks”, Mapan and Kudo resepctively.
  • a familiar means of payment, credit cards and debit cards are a dominant payment UX, with Keycard, Status App payments and QR Codes we cover the dominant forms of payment.
  • a digital passport, a keypair is a form of identity, and Keycard can facilitate that.
  • cold storage / key backup, while we need to offer M-of-N key splitting / friend recovery, backing up a physical device is a huge benefit.

With a payment network we can literally turn the free structure on the head, instead of merchants being charged fees we can literally pay merchants for securing/validating the network.

Having that said if you look at recently internet-enabled developing countries such as Myanmar, credit cards have not seem the same adoption as e-money. The hurdles for setting up credit card systems are expensive and archaic in comparison. Having that said, I think in this environment a smart card certainly allows us to target the millions of people who want financial services but cannot afford a phone.

Status as a point-of-sales device is a huge thing for an open VISA alternative. This allows us to deploy a payment network globally, literally overnight.

The benefit of Keycard being open source is huge, as it allows people to innovate and contribute to the open payment network in ways we cannot dream, tailored for their own markets - a key (no pun intended) example of this is what GRID (iirc) is doing, we need more of it!

Is Keycard necessary? No.
Is Keycard useful? Yes.
Without Keycard do the fraud problems go away? No.

While Keycard proposes some unique challenges, the more general problem of fraud in payments will still exist even if we only pay via app/e-money. This points to there being more research and work to design a system that is safe and works smoothly for both buyers and sellers. What’s also good about an open payment network is that it allows for innovation in how to handle these solutions, so as long as we the plan the interfaces right, we don’t need to solve this problem immediately and we can have different modular solutions for different buyer/seller use-cases.

2 Likes

The beauty of this system is that the charge-back feature can be an independent preference of the buyer & seller, and it can be serviced on both sides independently. But charge-back should not be inherent in the system.

You could imagine an entire business built on assuming the risk of charge-backs for either buyer or seller.
The pitch to buyers could be “we offer unlimited charge-backs on all transactions, as long as you hold your assets with us (and we earn the interest on it)”

Sellers could offer charge-back services on their own to attract more buyer interest.

Charge-back systems themselves can also have a variety of flavours, including different arbritration and escrow services.

I have noticed lately that nearly every physical store and even taxi cabs I go into have these Verifone devices (https://www.verifone.com/en/us) that let customers swipe or insert cards and also pay with Apple or Android pay. I think merchants would not want to deal with having a separate device or processing method.

Has any investigation been done in to what it would take to integrate with something like Verifone?

2 Likes