Monthly Archives: August 2010

Visa/BAC in Mobile Pilot

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20 Aug 2010 (update Aug 23)

(update – Was just told that the BAC pilot is NOT using the Monitise application. Wow.. what on earth is going on with the Visa team? They have at least 5 different pilot models.. in a positive light this is market experimentation. I’ll take the blame for being premature, but given that I saw the new application and was told it was July I connected the dots… albeit incorrectly.  Bloomberg’s story above is on target and trial is a field test of the newly certified DeviceFidelity MicroSD.  Purpose is to ensure all works as planned from enrollment, activation, OTA provisioning, application usage and NFC payment ).

Visa has a number of initiatives surrounding mobile and NFC. Certainly a challenge to get multiple parties aligned to make this happen:

  • Monitise, provider of a new iPhone application
  • Device Fidelity, NFC tech provider which
  • Bank of America (pilot agreement, marketing plans, focus demographic)
  • Advertisers.. currently part of existing visa discount program
  • Apple.. certification of the Moni iPhone application (submitted in June)
  • First Data. Trusted Service Manager (TSM) in the NFC role…
  • … I could go on

This activity represents a major investment by the entire industry team.. ( given equity stakes perhaps Keiretsu is more appropriate).

More to come … this is just a quick update

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Paypal at the POS?

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18 August 2010

Great WSJ Article Today – Paypal looks to real world commerce

First Draft…. final tomorrow.

As stated in my previous blogs about Apple, Bling, and the Mercury NewCo we are in the midst of a revolution in consumer payments, driven by large non banks, with new value propositions. For example, we see established organizations like AT&T, Verizon, and Discover collaborating (Mercury NewCo) with a payment value proposition driven by mobile advertising, Card networks attempting to develop PayPal killers (see Visa PayClick) and mobile handset manufactures attempting to create models for payments separate from banks (see Nokia and Apple NFC).

The worst kept secret in mobile payments today is: there aren’t any (except for MNO unbanked solutions). Efforts like Mastercard/Obopay have failed globally because they have focused on P2P (no existing volume). Alternatively, PayPal’s efforts are focused on the POS. Enabling any “merchant” to accept any card either at POS or virtually (see previous blog on PayPal’s virtual terminal). This approach is a win for banks (card acceptance), a win for consumers (convenience/loyalty), and a win for merchants (reduced merchant fees and interchange).

PayPal is best positioned of any major player to link the virtual and physical payment worlds (see here for detail): they have a consumer base, merchant base and a phenomenal fraud/risk team of 300+ with commensurate tech and ops. However their ability to execute is not without challenges. For example, what % of their current merchant base does POS transactions? Will there be a need for merchant terminals? If so who will pay? As discussed in the article above, Bling has been mentioned as a potential approach. Issuing Bling tags to PayPal’s employees is certainly a useful way of testing the consumer issues associated with issuing (and using) a payment tag.

My guess on PayPal’s “focus”?

Given PayPal’s strengths I would see a “phone as POS” approach as the most logical.  As consumers we focus on our individual accounts, but PayPal is one of the few “2 Party” payment networks (others are Discover, Amex) that also include merchant acquisition. 2 Party systems are uniquely positioned to control the costs and value proposition between the merchant and the consumer. One of the major NFC challenges is POS infrastructure: who will pay for it? The phone as POS would certainly address this Gordian Knot for small merchants. Small merchants are a group that also feels the most pain in interchange and card acceptance fees due to their lack of negotiating leverage. Oddly enough large banks seem to be supportive of PayPal’s efforts here with the view that their actions will help drive cash replacement. In other words, if PayPal’s innovation is indeed focused on NFC acquisition then they will be able to process all cards..

On the merchant side, PayPal has already completed much of the heavy lifting with its existing virtual terminal service. This service equips PayPal merchants with ability to accept any card at the POS (see Virtual Terminal blog). NFC or RFID form factors are just another abstraction for this card.  On the consumer side, I would expect to see PayPal working to link PayPal accounts to multiple form factors. Expect PayPal to make an acquisition in this space.

As of today, here is my view of the teams competing in mobile payments at POS

  • Mastercard/Citi/Obopay/Nokia
  • Visa/Monitise
  • Apple
  • AT&T/Verizon/Discover/?Google/First Data
  • PayPal/?

More to come tomorrow.

Ruminations: Durbin and Debit

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13 Aug 2010

Time for a blog with many questions and few answers. My natural perspective is that of a banker. Banks are created to act as trusted intermediaries of commerce, and I’m concerned when their ability to act on this charter changes. I want banks to win and to create products that satisfy the customer, build trust, and effectively serve in commerce.

A friend and I were discussing the impact of Durbin’s 2 tier debit structure (Excellent analysis by Mercator here) on the incentives for large banks to continue to issue debit. My perspective (as a banker) has been greatly altered from my time at 41st parameter working with the largest retailers in the world. I’ve developed a new view and a new appreciation for the pain felt by merchants. It would not be too extreme a statement to say that there is a deep hatred of the cards networks. The feeling is both visceral and reasoned. I remember when a senior executive from Wal*Mart came to Wachovia for a presentation and was asked what he thought were appropriate interchange rates for credit and debit. He said “0” dead pan.. then during the quiet of the audience, he said “actually we think we should be paid for accepting your cards” and emphasized that this was not a joke.  

Will Merchants loose sleep if debit goes away? Answer probably rests with what will take its place. The retail banks are very unorganized around payments. With few exceptions (Chase, WFC, USAA, ..) bank payment executives do not get the focus of their retail organizations.  In general, retail banks are challenged to relate payments to profitability (and hence the overall retail strategy). Debit was a clear exception to this challenge and a “killer product” for cash/check replacement.

The bank value proposition for debit was clear. However, what was the merchant value proposition? Certainly reduction in check fraud, funds availability… but at what costs? The federal reserve studied interchange rates in graph to the right. What exactly drove this step creep? How did it drive value? What were the economic forces that pushed back against it? What additional investments did Visa/MA make in their network?

Will banks develop a debit replacement? Clearly Durbin has reduced banks incentives to push debit (w/ assets over $10B). I project that the market is ripe for a merchant friendly payment method that is much different than the products available today. Instead of funding the card product on merchant interchange.. perhaps mobile advertising?

Can banks/cards regain the trust of merchants as intermediaries of retail commerce? Could the wholesale or merchant acquisition business which drives a new payment product (ie Amex Revolution Money)?

 Thoughts appreciated

AT&T, Verizon in Mobile Money Newco w/ Discover and FirstData

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AT&T, Verizon, T-Mobile, .. create NewCo to deliver mobile payments w/ Discover

2 August 2010

In press today – Bloomberg Today – AT&T and Sprint to create prepaid venture

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Mainstream press has added a few additional details to what we outlined back in November. The biggest surprise to me is that Discover is the network partner (quite frankly I assumed it was Visa). Discover is an interesting partner, given its capabilities (issuer and acquirer) and reveals much about the mobile network operator (MNO) plans to bring a merchant friendly (lower interchange) strategy to market. It appears that First Data is in this alliance as well acting as the trusted service manager (TSM).  NewCo represents a major investment (rumors are that the major operators are investing north of $200M) and may start a new venture wave  in the valley as NewCo positions itself to be the “Google” of mobile advertising.

Don’t think about NewCo as a card business, think about this as the next Google and payments are the KEY that ties together the mobile, virtual and physical world. As I discussed in March:

Q: What will it mean when every AT&T subscriber receives a pre-paid Discover card with an NFC sticker?

Answers

  1. Tipping point for mobile commerce, ushering in a new era where the mobile phone can transact with a wallet that spans the virtual and physical world, aggregating every other account type and payment instrument.
  2. A new business for AT&T which could drive 30-60% growth in LT revenue
  3. Software REVOLUION. The “Next wave” for iPhone AND the entire mobile commerce ecosystem (see googlization)
  4. New mainstream marketing channel as couponing integrates with payment, location awareness and detailed knowledge consumer behavior/preferences
  5. Card business killer for Bank/Issuer revenue as MNO Pre-paid encroaches on the consumer relationship AND issuer debit/credit products (Decoupled Debit)
  6. Cash replacement for small value payments as merchants of all types adapt POS to accept NFC, and small merchants take out POS terminals in favor of making their phone a cash register
  7. .. would love to hear from you on the next 100…

There are at least 3 major elements to this announcement which warrant further discussion, as impact on the venture and payment community will be significant:

–          NewCo business model: It’s all about marketing and control

–          Payments shift from banks, Visa, and MA

–          Mobile payment value proposition. Can NewCo make this work for consumers and merchants?

Business Model

The AT&T Universal card changed the credit card landscape in 1990. AT&T demonstrated it could both create a card business AND leverage distribution muscle as it attracted over 10M card holders in under 2 years. Citi acquired the AT&T Universal card for $3.5B+ in 1997 and it remains the largest affiliate card in Citibank’s portfolio.

As I wrote back in November, The US market is ripe for a break from the 6 party political “fur ball” that is hampering delivery of mobile payment (Card Issuers, Acquirers, Network, Merchant, MNOs, Handset Mfg). For those outside the US, MNOs have substantial control over handset features and applications, and have been leveraging this “node control” to “influence” direction of payments. The central US MNO argument being: “it is our customer, our handset, our network we should get a cut of the transaction rev”. Unfortunately existing inter-bank mobile transfers/ payments are settled through existing payment networks that provide limited flexibility in accommodating a “new” MNO role and the network rules leave much room for improvement in: authorization, authentication and consumer “control”. The Discover partnership would appear to offer NewCo the opportunity to define new rules, rates and incentives for consumers and merchants to participate.

The key to unlocking this new business model is not interchange, but creating a new market for mobile advertising, NewCo will be to mobile advertising what Google was to online. For example, rumors are NewCo is attempting to consolidate $1-5B+ in Madison Avenue marketing spend in first year (See consumer scenario here). The MNOs are brilliant! Their collaborative efforts here are a severe threat to both banks and established payment networks. Widespread adoption of NFC will revolutionize consumer payments and may result in the next boom cycle for silicone valley. Make no mistake, NewCo will be the leader of the next great ecosystem.

More tomorrow.