PayPal to Tokenize and Eliminate Steering

Looks like I was wrong… I’m now 80% confident that Paypal has struck deal with at least one network to tokenize. Congrats to the Paypal team for reducing risk and creating opportunity to compete at parity with Apple, Google, FB and others.

What to expect Thursday? Paypal will tokenize, commit to no steering and share transaction data.

PayPal Win

  • Elimination of the staged Digital wallet fee (or equiv circa MA 2012)
  • Ability to benefit from 3DS 2.0 (Shift liability, and Reduced Interchange)
  • Reduced risk and certainty in Network/Bank relationships

Paypal Loss

  • Transaction Economics/Take Rate as consumers will chose default payment option
  • Each issuer can decide to tokenize per VDEP/MDES. If no issuers take part there is not 3DS 2.0 benefit

Network Win

  • Consumer Choice in Payment (Increased Volume)
  • Reduced Risks from Cards on File
  • Standardization of Tokens

Network Loss

  • Competition to Network Wallets at Parity (Visa Checkout/Masterpass)

Issuer Win

  • Consumer Choice/Volume (Card vs ACH)
  • Control over tokenization/rate to Paypal
  • Ability to structure bilateral deals with PayPal (risk and rate)
  • Reduced ACH

Issuer Loss

  • Issuer branded wallets

Summary

My guess is that Paypal moved earnings call to articulate the take rate implications to steering elimination. Paypal must give up steering and transaction economics in the hope that Issuers will agree to tokenize. This puts Paypal at Parity with others like Google. Whereas Apple has been able to extract 15 bps from issuers to gain the privilege of being in ApplePay, Google continues to work to convince issuers such as Chase to be part of Android Pay. JPMC actually asked google for payment to tokenize.

Summary here is that issuers have a new control point in pricing with Paypal. My guess is that Paypal will come out with at least one major bank supporting them. Given JPMC is Paypal’s acquirer I would expect a deal here.

PIN Debit at the POS

Most of you have read that Walmart, Home Depot and Kroger have launched new litigation against Visa for “PIN” and Debit.  This issue is so complex it makes my head spin… For those unfamiliar with some of the basics see this article, my prior blog on PIN debit consolidation,  AT Kearney, Digital Transactions: PIN Debit Claw Back and Pinless PIN Debit. Continue reading “PIN Debit at the POS”

Acceptance – Part 1

I haven’t written much on acceptance over my 9 yr blogging career for one simple reason.. I was never “in” that side of the business. Given how much is going on in here I can’t leave it out any longer. Acceptance at the POS is a big topic, I see the following areas: Continue reading “Acceptance – Part 1”

Browser Tokens – Payments in OS Part 4

My last articles on this topic were
I’ll forgive you if you didn’t see the big news out of Google I/O. There is a MUST READ article in Android Police that is spot on. Summary? Google (Chrome/Android) and Apple (Safari) are ready to integrate payment tokens in the browser.. Buy buttons will be integrated into ads, product listings, or a single “pay” button with no subsequent user information to fill out “quasi one-click”. From Android Police

Continue reading “Browser Tokens – Payments in OS Part 4”

“One Click” for Ads

I was hoping to see rollout of a long rumored payment innovation at Facebook. All I can gather is that they must still be in testing.. but the idea is just brilliant.

Facebook has a tremendous advantage over just about every other advertiser.. its consumers log in before use. Facebook is rumored to be in the midst of  integrating payment tokens into advertising. This means when you click on that beautiful North Face Jacket, or those Climbing shoes that the payment instrument (and even the authorization) is integrated. The only thing that the consumer would need to do is confirm shipping address. Wow.. talk about end running the payment specialists.. this is “one click” for ads.

The very idea that there is a “payment specialist” needed between the ad and the seller is going away.. payments are becoming a generic infrastructure services that no one cares about. See Payments in the OS. In this case IDENTITY TRUMPS everything.. if I know who you are.. everything else is just accounting. Someone should go out and write a patent on a similar flow using blockchain.

My guess is that Facebook would be the beta launch for VBV/MSC and the new 3DS 2.0 spec. So not only would this be a great experience, merchants using this would have a liability shift onto the bank and a 20-30bps rate advantage over traditional eCommerce payment acceptance.  (see my blog on Civil War). This flow would hold on both mobile and desktop.

The other implication here is for the banks using TCH token vault.. sure you can vault your own tokens.. but this also means that you must keep up with the fast changing specs in EMVCo and the other users of the specs in MasterPass and Visa Checkout.. doing your own vaulting may mean that consumers can’t do some of this other really cool stuff.

RIP MCX

17 May

Today we see in the press that most of the employees have been let go, and TechCrunch predicting “MCX to focus on Bank Deals”. Translation: MCX is dead, but we got a sweetheart deal from Chase on free payments (ChasePay) and discounts on all chase branded cards.. so we will keep the shell of MCX alive to capture these discounts (seem my ChasePay blog).  I believe Target and WMT will accept ChasePay in 2 yrs (after they complete their custom POS/CPT switch work….).

MCX was a great idea.. I’m not joking. Retailers “touch” consumers far more often than the average bank, and they must deliver value in every interaction (as stickiness is low). Retailers are in a unique position to unlock value (ie coupons), use transaction data AND create great in store experiences. My personal bets are all lined up behind retailer friendly value propositions….  MCX is not alone in failure..  (yes I have blogs for each one).

The history of MCX is not linear.. it involves many starts and drivers across current and former participants. I’ve traced itself way back to the early days of mobile 2008/9 with Discover, Barclays, Verizon, GE Money/SYFS.. all had some early involvement here.  Payment was always the core focus.. it is the common thing that 60 fierce competitors all agree to collaborate on. The problem is that payment has no value proposition.. none of us leave the store today without our merchandise because the retailer didn’t take our form of payment. Wallets must have a value proposition that expands beyond payment. My good friend Dekkers knows much more about mobile, retail, and payments than I do.. and saw this early.  But it is very hard to pivot a consortium of competitors from payments to the area they compete.

While payment is a common “infrastructure service” that all retailers agree to reduce.. marketing and data are NOT common services.. The mechanisms Retailers leverage to engage consumers, use data and market products is the core of retail competition (see my WalMart Pay Blog). Target is the leading payment innovator in retail.. by far. The entire MCX product began to resemble Target RedCard. However Target’s real advantage was Cartwheel… (see my video overview). Redcard was good, Cartwheel made it great. How many other retailers could create a Cartwheel from Scratch?? This made for a dynamic where MCX was the [small] payment ingredient in many custom mobile experiences..

Walmart and Target marketing/mobile teams were the principle teams guiding mobile decisions.. with MCX taking the much smaller payment only role. The launch of Walmart Pay is certainly what killed MCX (in my view). I think Walmart’s mobile/marketing team is 100% right for making this decision.. but it had huge implications. The CORE TENANT of MCX was NO CARDs and nothing about 35-50bps in cost of payments. Walmart Pay allowed the consumer to pay however they wanted to..

Future? While there is a small 10% chance, that MCX will indeed jump on board the Apple and Bank backed Clearxchange remake.. I think that it is likely to remain largely a payments routing shell with core LCR assets at FD and FIS focused on debit routing (and chase credit discounts).

Lessons learned for MCX are similar to those learned by Google, ISIS, Banks and others:

  • Payments is a poor place to start a mobile value proposition
  • Merchants are best placed to unlock value, and mobile is core competitive differentiator (Target Cartwheel, Walmart Mobile, …)
  • Retail, banking, mobile, consumer behavior are all undergoing tremendous change… with much experimentation. Small teams are the only construct capable of supporting the pace of change.
  • Consortiums need to move fast to establish first success and internal momentum… Starbucks offered MCX the option to use everything they had back in 2011.. Where would MCX be if they had started with something that worked and consumers knew…
  • Chase learning: while there are many better ways to design a payment system, there is NO WAY to earn more money than sticking with the existing networks. Also watch out when you bend over to win business.. you might get stuck in that position.
  • Paypal.. Paydiant arghhh..  What was a periphery app that retailers would give to 3rd party.. is becoming core “must have” with large retailers building their own. Paydiant will be alternative for next tier.

Consumer Tokens

Great article in Digital Transactions that I missed in February

PAR – Consumer Tokens, February 2016

Quote “When a transaction is initiated with an EMV payment token, the functionality of these applications can be impacted since the full PAN may not be available to merchants, acquirers, and payment processors,” a recent EMVCo document says. Continue reading “Consumer Tokens”

Payments – Civil War?

Before the blog, I wanted to provide my friends a quick update on Commerce Signals. We are thrilled to have Dekkers Davidson (former CEO of MCX) join our board of directors this week. Our objective at CS is to enable first party data, collaboration, trust and value beyond the transaction for retailers, mobile operators and consumer banks. Continue reading “Payments – Civil War?”

ApplePay in Browser – March 2016

News today from Jason at Re/Code – ApplePay in Browser this Year

OK.. so I was a year off! (see Blog ApplePay in Browser by Summer 2015).

Not much surprise here.. as I outlined in my January blog on topic ApplePay in browser has been for over a year. I don’t have time for a long blog so will make bullets on what I think are latest “big items” Continue reading “ApplePay in Browser – March 2016”