2014
06.06

Inspiration for this week’s report came from an unusual source: My neighbor. We were chatting over the fence on Tuesday, and he mentioned how much he did not like his new credit card. His bank had sent him a replacement card that required holding the card in the reader while having to enter his PIN number. He knew that I had a background in the subject and wanted to know why the old format was going away. I explained that reducing credit-card fraud was the primary reason.

To most of the rest of the world, especially Europe, the “chip and PIN” card format was adopted years ago to significantly reduce the level of credit card fraud. Finally, U.S. credit-card issuers have been given a deadline of October in 2015 to convert to the new format or face serious penalties.

I explained to my neighbor that the reason why he had to keep the credit card in the card reader was to allow continuous contact between the chip on the card and a contact point in the reader. When my neighbor keyed in his PIN number, it was validated against the information on the card’s chip, allowing the transaction to be completed. If the chip and reader were not in contact when the PIN was entered, the transaction would be invalidated.

It was fortuitous, then, that in this week’s grant of patents, I came across one that signals the intention of device makers to meet the need to accept the chip and PIN format in POS (point-of-sale) payment transaction devices.

Square, Inc., Jack Dorsey’s company that produces the plug-in credit card magnetic stripe swiping device for smartphones and tablets, allowing anyone to become a merchant in less than ten minutes, was granted Patent  8,740,072 (“Contact array in a card reader.”) This patent covers changes in the plug-in device that will accommodate the chip and PIN format. Its customers, the individual contractor and small merchant, such as the kiosk-based vendors you will find in shopping malls, can now be ready for the conversion to the chip and PIN format.

When Square introduced its plug-in device to allow a smartphone or tablet to act as a POS device to take a credit card transaction, it made sure that the registration process to enable the device and start taking payments was easy, fast and in compliance with regulations. Square’s approach was revolutionary, because individuals and highly mobile small merchants could not readily qualify with the traditional transaction intermediaries that required credit checks and charged high transaction fees.

You might be wondering whether the chip and PIN format is already obsolete because NFC (Near Field Communication) contactless transaction processing technology is coming into the market in smartphones. Contactless is faster than the chip and PIN contact process, and a contactless transaction can run over the same transaction processing networks as the chip and PIN transaction. So why bother with the chip and PIN format at all?

A part of the answer can be found in Patent 8,740,073 (“Methods, systems and computer readable media for storing and redeeming electronic certificates using a wireless smart card”) granted to MasterCard International Incorporated.

The filing date of the application that resulted in this patent grant was in April of 2008, a time when the world was starting to slide into a massive recession. Prior to the start of the recession, a major barrier to the deployment in the U.S. of NFC (and for that matter, the chip and PIN contact-based format) in plastic cards and early versions of smartphones was the availability in quantity of POS devices that would accept contactless transaction. Device manufacturers were for the most part reluctant to bear the cost of device development without the deployment in quantity of NFC chips in the smartphones in particular. It was the classic “chicken or egg” controversy. The recession effectively put the argument on hold because investment in costly new payment technologies such as NFC stalled.

But, payment transactions were but one dimension of NFC capabilities. NFC was successfully deployed in Japan, for example, in loyalty cards which could receive, store and then use electronic coupons. With the recession in progress, and in consideration of the high price point of an NFC chip compared to other chips, an alternative was envisioned that if deployed could jump-start contactless coupon transactions at a lower price point, which in turn would acclimate consumers the benefits of higher cost NFC payment transactions and convince device makers to invest in the building out of NFC-capable POS infrastructure.

This was the justification spelled out in the patent. I urge you to read the Background section of the patent as it states the case clearly and concisely; it is a time capsule capturing the issues at the time of the filing, and very much a mirror of industry conditions.

What is really compelling about the patent and what it represents are who its authors are. While the patent is assigned to MasterCard, two of the authors, Roshan Vijayshankar and Ming-Li Liu, are also associated with a prior patent application, 20090164322, filed in June  of 2009 (“METHODS, SYSTEMS, AND COMPUTER READABLE MEDIA FOR OTA (OVER THE AIR) PROVISIONING OF SOFT CARDS ON DEVICES WITH WIRELESS COMMUNICATIONS CAPABILITIES.”) They were joined in this application by Mohammad Khan.

Khan was the CEO of one of the leading producers of POS devices for credit cards, and an early adopter of NFC capability for POS. His company, Vivotech, based in Silicon Valley, was sold to Sequent in 2012.

My point is that conditions for NFC adoption were so challenging in the 2008 and 2009 time period that people who were involved with its development had to consider alternative strategies to stay in business and otherwise incent consumers to want contactless formats like NFC.

With the recession over, and NFC reemerging as a contender in the payment transaction industry, one has to wonder if MasterCard will ever deploy the alternative for which it has just received a patent.

As I have said before, patents are the time capsules that capture crucial moments in the timeline of the history of technology.

Leave it to those wild and crazy inventors at Amazon Technologies Inc. to think up a solution to a problem plaguing the truly connected people of the world. Patent 8,743,051 (“Mirror detection-based device functionality”) describes the invention of “an electronic device that automatically reverses a left-right orientation of content displayed by the device when detecting that a user is viewing content of the device via a mirror.”

We all know that Leonardo da Vinci used the “mirror writing” technique to encode his writings in his famous notebooks as a means to prevent his secrets from being stolen. Industrial espionage was as intense in the Renaissance as it is today.

But what compelling use case would drive the Amazon team to undertake the effort to go through the patent process for a device makes images in a mirror readable? Here’s the justification from the Background section of the patent:

“People are increasingly utilizing portable electronic devices for a number and variety of tasks, including reading articles, watching the news, communicating with others, looking at photos, and conducting meetings. In order to save time, people often perform various other tasks while reading or watching content displayed by the electronic devices. For instance, a user may use one hand to hold a cellphone in watching the news while using the other hand to shave or brush his or her teeth as the user is getting ready for work. However, not only does this prevent the user from having an extra hand in getting ready, the user may easily get toothpaste or shaving cream on the device.”

Considering the high cost of our connected devices, “kudos” should be given to Amazon for finding a way to let us enjoy them without messing them up. Although, next time, please don’t make it so obvious that it’s more of a guy thing to watch stuff while shaving.

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