Monthly Archives: June 2011

Signature Debit is Dead

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29 June

Death of Signature Debit

It’s hard for the banks to complain about yesterday’s Durbin caps. At $0.21 + 5bps, the caps provide no loss in revenue from a today’s average PIN Debit transaction (see yesterday’s blog). The loss is in Signature Debit. As I related in my post a few months ago, PIN Debit evolved from bank owned ATM networks while Signature Debit evolved from the card networks (and associated credit products).

ATM Networks grew as groups of banks banded together to monetize ATM infrastructure, and further expand network into the retail POS. This expansion led to further change from bank ownership to independence. The driver of any independent network is to add volume, nodes and services. ATM Networks evolved into PIN Debit Networks, with Visa’s 1987 contract to operate Interlink as the key milestone. Today, Pulse is owned by Discover, Star by First Data, Interlink by Visa (these 3 make up over 83% of PIN Debit Volume).

Visa was and has always been the leader in signature debit penetration, a look back at this 2003 article provides much insight into the history here. Most US consumers today don’t understand why their debit card has both a PIN and signature feature… many books could be written on this subject alone… but oddly enough consumers prefer PIN (see Pulse Federal Reserve Presentation 10/10).

Signature-based transactions currently have a lead on PIN Debit. In 2009, Fed reports signature as having 23.4 billion purchase transactions, and $837 billion of transaction value while PIN-based debit transactions totaled 14.5billion transactions, and $555 billion of transaction value.

However, PIN Debit enjoys a slightly higher growth rate (15.6% vs 14.3%), consumer preference (48% vs 34%), lower fraud rate (2009 fraud numbers: Signature $1.12B, $181M PIN debit card),  and obvious merchant preferences (interchange and fraud; 96% of PIN fraud losses assumed by issuers, vs 56% in Signature).

Retailer View

While yesterday’s announcement doesn’t impact average PIN debit rates (for average transaction), there are other elements of Durbin (routing and steering), which will eventually act to kill Signature Debit. Let’s first take a retailer view… Historically, retailers have been constrained in their attempts to deny signature debit transactions. Network agreements forced them to take “all cards”. The primary merchant “influence” mechanism was to default payment terminals to “enter PIN” and make it difficult to for a customer to use a signature debit card. While Durbin does not impact the “accept all cards” rule, it does allow for merchants to route debit transactions outside of the card network.

When I spoke with a few of Visa’s institutional investors last week, much was made about 30% PIN debit penetration. Its very important to note that this penetration is on merchant terminals, NOT as a percentage of total payments. Small merchants remain rather ignorant of their payment options. This merchant financial literacy issue, combined with ISO sales incentives, has led to an uneven PIN Debit adoption.. but this will change not only for small merchants, but also for ONLINE transactions. PIN debit has had no traction in eCommerce because retail banks (issuers) did not want the lower interchange and refused to accept PIN transactions from online merchants. This has also changed. (I have detail here.. but can’t really discuss in the blog)

Bank View

At least 2 of the major banks in the US are working with processors to establish direct “BIN routing” and circumvent all network fees. This makes complete sense for the larger banks like bank of America, with 10%+ of US Debit volume, as it would enable them to eliminate network fees. Merchants would also benefit with a lower cost (the purpose of this routing provision). The key activity necessary to make this happen is to enable major processors to sort and redirect transactions. Processors already perform BIN lookup, but instead of going to Visa or MA with a BIN.. they will be going directly to a large bank. Obviously BAC/BAMS, JPM/Chase Paymenttech, FifthThird, …etc would be the top teams implementing this model. With Durbin at $0.21 + 5bps they actually can improve their margin on PIN debit.

Future

The obvious corollary here is that once a bank is successfully routing transactions directly from the processor(s), what Value does Visa bring at all?  1) Merchants that are not using a processor that has not yet implemented the bank direct routing 2) International Debit Transactions, 3) ?Signature debit bank agreements?

As Bank “inertia” is directed toward maximizing bank margin, and merchants in decreasing debit processing costs, a new debit network is formed… and today’s Visa  debit network begins a slow death. First to go will be PIN debit, but closely following will be the removal of the Visa logo off of all debit cards. The 2 countries where this has happened are Canada (interact) and Australia (EFTPOS). The next phase of death will be begin when banks recognize the synergies of maintaining a common directory with centralized authorization and fraud controls. The model here for the US is SEPA Debit.

Tom’s Predictions (Market)

1) 2 major banks will launch their own PIN debit network… starting with processors they control

2) Signature debit, as we know it, will die

3) Visa and MA logo’s on debit cards will have a slow death over next 5-10 years. With little impact to affluent customers in short term.

4) Card issuing banks will look for new ways to grow credit use. (Mobile payments, juicing rewards, educating consumers on unique Reg Z protections, …)

5)  Merchant will be testing models to tie incentives to debit use and even create new products (Target Redcard is model)

6) Retail banks will be pushing out low end mass market customers. Pre-paid business will pick up the slack. Most of the major banks have solid plans on pre-paid card deployment.. but have delayed launch because they don’t want to be seen circumventing Durbin (see below)

7) Processors will pick up new fee revenue for “least cost routing”, but regulators will be keeping an eye on them to ensure that the bank owned processors are not acting in concert to circumvent cap definitions (see below)

8) Online PIN debit will begin to take off

9) PIN Debit merchant adoption will start to accelerate in 1-2 years

10) Visa’s US transaction processing volume will stay steady. Debit volume will go down, but processing margin will improve and pre-paid will begin to take off.

11) Banks will begin to couple payments with incentives in an attempt to avert retailer led models.. Look for BAC to be the leader here.

What does this mean for Visa earnings?

My summary view is that Visa has plenty of runway on international credit growth.. but their trajectory now has much greater risk ask it will be tied almost exclusively to credit. Visa’s recent success in processing services (ie DPS) wont suffer short term as the top 5 banks have minimal services with them.. but we will see erosion of debit revenue beginning as transaction volume further accelerates to PIN debit routed outside of Visa’s network and PIN debit adoption in small merchants accelerates.

Per final regs –  75 75 FR 81722, 81731 (Dec. 28, 2010).

Pre-Paid

ii. An issuer replaces its debit cards with prepaid cards that are exempt from the interchange limits of §§ 235.3 and .4. The exempt prepaid cards are linked to its customers‘ transaction accounts and funds are swept from the transaction accounts to the prepaid accounts as needed to cover transactions made. Again, this arrangement is not per se circumvention or evasion, but may warrant additional supervisory scrutiny to determine whether the facts and circumstances constitute circumvention or evasion.

Processor Fees

Merchant commenters voiced concerns that issuers may attempt to circumvent the interchange fee standards (applicable to those fees ―established, charged, or received‖ by a network) by collectively setting fees and imposing those collectively set fees on acquirers, and ultimately merchants, through the networks‘ honor-all-cards rules. For example, the largest issuers may collectively determine to charge interchange transaction fees above the cap and effect this decision by dictating to each network the agreed upon amount. The network, then,would permit each issuer to charge that amount, and because merchants would be required to accept all the network‘s cards, merchants would pay the amount determined by the issuers.

Section 920(c)(8) of the EFTA defines the term ―interchange transaction fee‖ to mean ―any fee established, charged, or received by a payment card network . . . for the purpose of compensating an issuer for its involvement in an electronic debit transaction.‖ Accordingly, interchange transaction fees are not limited to those fees set by payment card networks. The term also includes any fee set by an issuer, but charged to acquirers (and effectively merchants) by virtue of the network determining each participant‘s settlement position. In determining each participant‘s settlement position, the network ―charges‖ the fee, although the fee ultimately is received by the issuer. An issuer, however, would be permitted to enter into arrangements with individual merchants or groups of merchants to charge fees, provided that any such fee is not established, charged, or received by a payment card network. The Board has added paragraph 2(j)-3 to the commentary to explain that fees set by an issuer, but charged by a payment card network are considered interchange transaction fees for purposes of this part. The Board plans to monitor whether collective fee setting is occurring and whether it is necessary to address collective fee setting or similar practices through the Board‘s anti-circumvention

Durbin: Not so Bad… No change in PIN Debit

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Fed just rolled out the final Durbin caps

http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm

$0.21 + 5bps + $0.01… effectively leaving PIN Debit untouched for an average $38 transaction. What changed? Economics behind Signature Debit.. Sig Debit is dead…

From the Fed

Interchange fees. Networks reported that debit card interchange fees totaled $16.2 billion in 2009. Of this interchange-fee revenue, $12.5 billion was for signature debit transactions, $3.2 billion was for PIN debit transactions, and $0.5 billion was for prepaid card transactions. The average interchange fee for all debit card transactions was 44 cents per transaction, or 1.15 percent of the average transaction amount. The average interchange fee for signature debit transactions was 56 cents, or 1.53 percent of the average transaction amount. The average interchange fee for PIN debit transactions was significantly lower, at 23 cents per transaction, or 0.58 percent of the average transaction amount. Prepaid card interchange fees averaged 40 cents per transaction, or 1.28 percent of the average transaction amount.

Square’s $1B Valuation.. its not a payments business any more

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Square $1B Valuation…  ?

29 June 2011

Today’s WSJ Story

What shocked me most about Square today? Kleiner’s lead in the round. I know the KPCB team well, and they are the best VC I’ve ever worked with. Given my negativity… a re-evaluation is in order. Both to protect my reputation with my KPCB friends.. and for my own sanity.

There is no way that Square can justify a $1B valuation as a payment company. At $1 billion in annual processing volume, Square would be roughly the 70th largest merchant acquirer/ISO in the country. Global, the largest pure play, processes $135 billion annually, has other businesses, and has a $4 billion market cap. See data below from my friends at FT Partners (a great Advisory team in payments).

3 years ago, Jack pitched KPCB on the idea of Square as the PayPal of Craig’s list… KPCB passed. The business model has changed substantially, and is now on V3+.

Why did KP invest in this last round? I haven’t spoken to them, but my guess is that it is no longer about payments.. but about changing the checkout process at the POS.

Here is my guess on Square’s V3 Business Model

1) Create a path to exit the transaction business.. they don’t want to manage sub prime acquiring risk.

2) Create a software/platform business for mainstream retail. Work with major retailers to use Square register as the way retail (and retail sales agents) interact with consumers. In other words re-engineer the buying experience at the POS. KP always looks for “big bets”.. this would certainly be one of them.  In this Version 3 business model, Square will interact/integrate to legacy POS systems. They will also attempt to own the mid market and replace current POS vendors in the mid tier. At the low end they may still be working deploying the Square we see today, but it will be challenged by PCI Rules. For a more detailed look at current plans (they evolve rapidly) see this excellent post:http://mashable.com/2011/05/23/square-card-case/

3) Create an advertising/incentive business. We hear them working on this today, but their current customers are dry cleaners and hot dog stands.. obviously they need to move upstream. Advertising and incentive will be the primary basis for their new revenue model.

Perhaps this is why Square is working their employees 20 hours a day.. they know that the big guys are also all over this.  IBM, Cisco, Nokia, NCR, Micros, Oracle, SAP, MSFT … I doubt if they will just sit back and let Square throw out a new POS system. What competency does Square have in Campaign management and advertising? Who owns their current data? This last point is very relevant.

Consumer transaction data collected by Square today is property of merchant. Although hot dog vendors may not care… Large retailers know how sensitive it is..  Square’s future model depends on both the consumer and the merchant giving up consumer data at the line item level in the POS. I see apparel and large department stores as possible candidates.. perhaps even electronics.. but the challenges are tremendous.

Can all of this work? It depends on the retailers.. having Visa on board may actually be a drag on their merchant adoption. One thing is for certain.. their valuation is certainly not based on their success as a payments business.

Visa’s Wallet Strategy – Part 2

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,,,

18 July (Updated from 17 June 2011

). Corrected significant error on scope of Visa Wallet. It is much more than an autofill (point 4 below)

Previous Blog: Visa’s mobile portfolio

I’ve been thinking about Visa’s wallet strategy this week. From my last blog (Visa Digital Wallet)

… a non-announcement, a rebranding of what CYBS and PlaySpan already have. Too many teams are angling to create the wallet (mobile, online, …), and not enough focusing on the value of what is in it. Google, Apple, and RIM will win the mobile wallet wars. I guess I can’t blame Visa for trying.. however it would have been nice if they could have been successful at eCommerce to start with. 

Here are the questions I’m trying to answer:

  • What is their investment thesis?
  • What assets are they trying to leverage and what opportunity do they plan to attack?
  • What is their strategy in attacking the opportunity?
  • How will the banks react/support this strategy?

For those that haven’t read my blogs for 2 years.. let me restate a few points that I’ve made previously:

  • Visa has a very big hole in their earnings with Durbin.. not only will they loose substantial debit revenue.. they could be loosing debit forever… as member banks assess whether signature debit makes sense to continue… and create a centralized bank switch for PIN debit (ala SVPCo or TCH). Merchants and consumers both prefer PIN today. I don’t believe Visa has adequately described this debit driven financial risk to the investment community.
  • Visa is attempting to fill the debit void with new transaction types, services and “cash replacement”. The top 2 prospects are G2P payments (payments by a government to people.. from pensions to welfare) and “mobile payments”.
  • There are 5 classes of mobile payments: 1) mobile initiated bank payments (ex. Monitise, , Cashedge, send your bank a message to transfer funds as in bill pay). 2) mobile commerce payments – digital  (ex iTunes, PayPal, BilltoMobile, Boku, Bango, …), 3) mobile commerce payments – physical goods (ex Square, Amazon, Visa Wallet, PayPal, Bango, ..) 4) Mobile phone as a wallet – Physical device at point of sale (ex, NFC Google Wallet, 5) Mobile Money for Unbanked (MMU) (ex MPesa, GCash).
  • Any initiative above is profitable for Visa only if: it replaces cash/other electronic (ex G2P), drives a transaction into higher margin product (Debit to Credit), increases number of transactions (customer use), or increases use of processing services (ex CYBS). Monitise obviously did none of these.
  • The big issuers are not fans of Visa’s moves in mobile and innovation. Visa is beginning to walk on toes and create “universal services”, many of which overlap with the large issuers have competing plans (alerts, offers, mobile, P2P).
  • Visa’s wallet value proposition (and solution) go something like this: Here is an API for your online banking.. consumer clicks on Visa Wallet and their card(s) get automatically stored in our digital wallet for use at any merchant site.. and a new Visa wallet account is created. Bank, you benefit by increased card transaction fees (use) and enable your customers to pay for digital goods with their Visa card in a one click service that delivers better consumer experience. Issues are that Visa has not signed up any of the top issuers and are also very dependent on PlaySpan’s existing consumer base. Most merchants don’t like the idea of helping out banks.. or Visa.. In order to change consumer behavior, and drive usage, a value proposition is needed.  Are consumers doing digital goods payments today? Yes.. what does Visa do for merchants that BTM, Zynga, PayPal.. and others don’t? Options: 1) Use our CYBS processing, 2) use API only and “form fill” to leverage your existing processor, 3) Liability shift and reduced interchange for attempted VBV use. This last one has not be covered significantly .. may delve into with future blog.
  • Visa is attempting to evolve its debit network from “debit” to bi-directional (see my VMT blog) with the OCT transaction set. This would enable it to compete with ACH and deliver services like P2P with little bank involvement.

What is Visa’s investment Thesis?

My guess is this “ replace the debit hole by leveraging our existing customer footprint into new transaction types, expand card acceptance and create customer stickiness with new products and services that work in every channel”

Assets to Leverage?

  • Consumer account holders. I don’t call them Visa customers because they are not.. they are customers of the issuing bank. If a bank wants to rebrand their portfolio (to Mastercard, Amex, or a new white label) they are no longer Visa card holders.. Visa holds no consumer agreements. … BUT they want to..
  • Payment Network: Acceptance and services (Bank, merchant, consumer).
  • VBV Agreement where liability shift and interchange reduction possible (for ecomm/mcom CNP transactions)

A rather short list. Note that prior to CYBS, Visa held very few merchant agreements… it was the acquiring bank and processor that held the merchant agreement.

Strategy to attack the G2P and Mobile Opportunities?

Visa probably sees the lack of NFC handsets and POS terminals as a deciding factor in delaying any push here. The $600M-$800M in NFC GDV is too small to impact more than 5% of the Durbin hole. I believe they have initiatives lined up against the following business drivers

1. Increase number of transactions (customer use)

  • Increase merchant acceptance locations: Square, CYBS, Visa Wallet
  • Increase Consumer Use: Visa Wallet, Visa Money Transfer, Marketing,

2. Replaces cash/other electronic (ex G2P)

  • Fundamo, Playspan, Visa Wallet, ..

3. Drive transactions into higher margin products (Debit to Credit),

  • ?NFC? It would seem this is a “stage 2” plan.. They first need to get consumer’s using the wallet in high volume/frequent transactions. After they get usage.. they can migrate.. It may even line up with another partner like Apple who isn’t quite ready for NFC anything. Visa actually doesn’t seem to like the idea of a card in the phone wallet.. a wallet they don’t control.. they want the card in a VISA Wallet.. a Visa Cloud wallet that they do control..

4. Increase use of processing services… I not going to touch on this now..

Visa’s wallet strategy is a two pronged approach. Consumers will have accounts “auto created” by their issuing bank (at least the ones that implement the wallet API) and

( Old Content 17 June) all by implementing a simple form fill API where Visa’s wallet pre-populates all of the consumer information and payment items on a merchant’s checkout page.  

New Content (18 July)

Visa is looking to build a consumer footprint to compliment its CYBS online merchant footprint. To be clear, Visa is looking to grow its eCommerce processing business AND create additional lock in (stickiness) with Visa Issuing banks. Visa will first ATTEMPT to roll out this service first with all CYBS merchants… then get additional merchants to either convert to CYBS or at least Add Wallet as an additional payment type. Chase PaymentTech is expected to take a lead roll.

Value proposition to Merchant

– Merchants will be given a fairly attractive option to reduce CNP interchange with 2 Components: Attempted VBV verification (Visa can reduce merchants rates for attempted 3DS verification) and #2 reduced interchange in volume discounts with key partner banks like Chase.

– Processing Package (cost). Expect Visa/CYBS to aggressively price for non-CYBS merchants

– Single Wallet for online, mobile and perhaps even physical goods

Value Proposition for Banks

– Lock in to Visa (I can’t really think of another one)

This is not a bad strategy… IF the world were standing still.. and if Visa had a positive reputation with merchants.  The value proposition here is all built around convenience. It is a good plan.. but merchants have many other options and they know that accepting a new Visa product has always proved to be a Faustian Bargain (aka deal with the Devil).

As a side note, I saw Square’s COO today in a conference. His quote was something like “Square is much more than about swipe.. I wouldn’t have invested if that were the case”. None of us know what this grand plan is.. but obviously it must involve merchants.. and I would hope a better profit margin (from 20-30bps). After he spoke a CEO came up to me and said “the major processors love square (and Chase PaymentTech). Now there is a place for all of the sub prime merchants to migrate toward…  Can Square monetize a base of merchants that were outside of the ISO focus and processor interest? They are not doing it today..  How could they possible morph their value proposition into something with higher margin?  Keith certainly seemed to imply that Square had a merchant incentive/Groupon/foursquare model in mind. A deal of the day only redeemable at a square merchant? Hmm.. seems like a little bit of a stretch.

See related Visa Press Release here (RightCliq)

Verizon and Payfone (update)

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Updated 15 June

WSJ Friday: Payfone and Verizon

I’m trying to imagine life as a Verizon customer. From a customer experience perspective, I have to register my credit card in the Google Android Marketplace for app purchases.. but now I also have to register it again at Payfone if I want to pay for physical goods on a mobile phone.. and again for the mobile NFC wallet (to give the TSM access to the card for registration in SE), I also need to register for Bill to Mobile. Thats 4 different payment types on one carrier.

  • ISIS – Physical Goods at POS through NFC
  • Bill to Mobile – Digital Goods
  • Payfone – Physical Goods in mobile browser
  • Android Marketplace – Android Apps

I doubt if there is much of a payment strategy behind all this.. It looks to me as if Payfone strategy has morphed just in last 2 months, from digital goods to physical goods. Payfone has completely underestimated the merchant integration challenge.  Competing in this mobile browser physical purchase space:

  • PayPal
  • CYBS/Visa Wallet
  • Google Checkout
  • ?Amazon (they have the capability and the user base..)
  • Moneybookers
  • payforit (UK consortium), Belgacom’s BICS, Bharti’s pre-paid card, …

What is the value prop that Payfone will offer merchants? Do merchants really want the digital ecommerce payment process to be completely differently than a digital mcommerce payment process? HECK NO.. little things like fraud, settlement, reconciliation, customer support, returns, … Payfone has no clue on what it will take to run the merchant side (which is why they probably don’t have a reference customer here). Payfone’s team has offered me a chat to set me straight on all of this… which I will take them up on at end of June… I told Rodger that I’ve been wrong before.. and not afraid to admit it. On this merchant piece… perhaps Amex will do the merchant acquisition for them. If this is true then there is a real strategy issue… merchants love for Amex is at the same level as their fondness for the IRS or tax regulations…

Payfone looks great on paper and I’m sure Verizon wanted to get something moving they could control and gain leverage with. Little Sprint is now 12 months ahead of Verizon.. and ISIS. It must be frustrating.

Message to Verizon: the real challenge for you is managing customer behavior.. and creating a well designed payment product that works across all of these areas. You are not a payment organization.. Apple will win this design war on iPhone.. and Google will win it on Android…. Win means delivering real consumer value (and retailer value) in an integrated cross channel experience.  This Payfone partnership will create a real headache for ISIS in merchant integration…. You will have ISIS working with top retailers to integrate NFC … then your Payfone (and bill to mobile) partners requesting another integration for mCommerce… each with separate settlement processes.  I can’t imagine how you will manage the customer communication and marketing…

Message to MNOs. Start with a value proposition to a customer.. NOT with a product. If you can’t deliver the product (which is very likely), then focus on taking a role in orchestrating the value delivery (examples: service discovery, authentication, merchant mobile enablement, community ratings, ) . Verizon’s strategy is product focused… when they loose in products their brand deteriorates and they start to become a dumb (fast) network.

As a side note. I just heard today (need to find the source) that 40% of all mobile purchase transactions were done via wi-fi. This would intuitively make sense as its hard to do this while you are walking around.. and given network coverage of AT&T/ iPhone in NYC alone no one would have the patience to complete multiple screens.

Thoughts for the week – June 9

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June 10 2011

I read a fabulous survey of acquirers in Digital Transactions today: Forget PayPal And Google. Acquirers Are Most Worried About Visa, MasterCard. My favorite quote?

55% of the respondents agreed with the statement, “Larger issuers and acquirers will increasingly seek to disintermediate the card networks in the years to come,”

So much to write on this week.. so little time. So here are my abbreviated views:

PayPal going after Google.. core issue really seems to be that PayPal’s culture is changing and working for card execs is a big change from working in a young growth start up. Hence the original “valley” team is running for the exits. PayPal is upset at the exodus.. but they should probably look in the mirror for the cause.

Visa paying 22x revenue for Fundamo. Visa is hyper aggressive in mobile.. and they should be. But they have done a very poor job of articulating their strategy to the market. The only way to hold them accountable for progress is to get them to be very specific on transaction volume in emerging payment types. What is their NFC GDV? Mobile Transfer (VMT)? Offers? Active Wallets? PayPal excels here and hence has much market credibility because they are transparent with their numbers. How can investors hold Visa accountable for the investments they are making.

My favorite Visa division? PR! These guys are masters.. did you notice that the Fundamo announcement was coupled with a sustaining investment in Monitise. Just last year Monitise was their emerging market strategy. This goes along with the Square investment on the same day that Visa rolled out new mobile security standards (which Square did not comply with but are “committed to”.. going forward)… You can’t make this stuff up.

Google wallet. Great product, great team… no further comments. Funny that ISIS didn’t see this coming or they could have saved a bundle on building a wallet of their own.. humor is amplified by fact that google/android will be only mass produced NFC handset over next year or so.

Clearxchange. Finally! A bank initiative with some legs. I really like the fact that the top 3 banks are getting together on this. P2P is a no win for any non-bank.. I wish that they just bought Cashedge as opposed to building it themselves.. but hey getting 3 banks to agree on something is close to 8th wonder of the world.

Square.. Billion dollar valuation!?. See the electronic transaction article above for more detail… I wrote a blog showing that PayPal is 7x more profitable per transaction than Square. Talking to several Square employee prospects I understand that they want to get the MSB licenses to enable ACH funding.. my eyes squint on this one.. they are a TPPA… they don’t have  consumer solution.. they are a merchant solution. Perhaps they have some new secret sauce I’m not privy to.. BANKS.. this is what happens when you let an acquire capture customer contact information and why you should shut them down (see related post).

NXP Reports that they anticipate 100M+ NFC chips in next year.. WOW!! Given that Apple is not in this game.. RIM and Samsung/Android will have a great new market for devices if this projection holds. (see NXP CEO quote)

Verifone building a new business plan to support enhanced POS terminals. This is not a terrible plan.. on paper. But most merchants view the payment terminal as a nice little processor controlled device that enables them to stay away from all those nasty PCI compliance issues. Doug’s earnings chat last week indicated he was building a business around keeping these new devices fresh with applications (on the Payment Terminal). I wonder what IBM, NCR and Micros think about this? Or even the store CIO? Most stores at least actively manage their cash registers.. can you imagine creating a whole new IT team to manage version control, release planning and testing on the terminals.. Heck this is why retail stores freeze these things.

Durbin.. banks are down in the dumps this week as $12B in debit revenue goes down the tubes.. the final rate may be above $0.21.. but its not a win for the banks. There are some very big investments being made by the banks to further reshape products. In this I completely agree with the Electronic Transactions article above.. I see consolidation of the 6 debit networks.. and at least 2 banks experimenting with their own branded ATM/Debit card. Why should Visa get any cut of the $0.21?

Rumor mill .. instant offers..?

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Update June 9

Visa Acquires Fundamo for $110.. Visa.. if you want to keep these things confidential … best not to do a road show before the announcement. Nice of you to throw Monitise a few crumbs in the PR as well ..

Strategically Monitise is set up to serve mature markets and existing customers. Fundamo will focus in emerging markets. This actually makes some sense..  Fundamo is a great little company. Hope Visa can leave it alone so they don’t kill it.  I’m sure Visa wants to integrate the remittance/VMT service in there.. and would love to take part in the upcoming “wave” of G2P payments.  Of course global banks have the real edge here.. more thoughts on this later.

——————————————————-

 

Many rumors floating around about the big card network based in California.

1) Instant offers. Merchant.. if you send us all of the line item detail in level 3 we can send your customers instant offers. Funny I should hear this rumor today.. I just got an SMS text from Visa on my offer of the day: 15% off Rocky Mountain Chocolate. Yeah.. great deal… I DON”T EAT CHOCOLATE

What is the merchant’s upside? reduced interchange? Nope… issuers get to set that.

I get the “privilege” of Visa talking to my customers directly? Yep.. I also get the honor of giving both Visa and the issuer my detailed pricing information!! As a merchant do I really want Visa and the banks to hold my price list? Remember I’m a banker.. so my friends (if I have any left) whom are  reading this are probably saying “Tom will you please shut up”.  My hope in writing this is that many banks will just skip the hassle of participating in yet another failed initiative. This business model does not work.. it is not retailer friendly and Visa has NO EXPERIENCE in running an ad network or communicating to consumers BEFORE the sale.

To summarize, there is nothing wrong with Visa’s technology here.. but this is not a technology problem. Retailers will give their consumer data up very selectively.

Rumor #2

Visa  has a new strategic relationship with Fundamo.. My friends in India and ME tell me that Visa and Fundamo are making the rounds together. What about poor Monitise?

Rumor #3

Obopay is a partner in Visa Money Transfers.. Another marketing announcement with no business value.

All of these seem to further the impression that Visa is pushing many strings up hill in the hope that something sticks in mobile. My recommendation from my last blog holds.. Create a new company and let your innovation group spin out. You will not be able to effectively deliver innovation in your current 4 party model. You must establish a new payment network which you can control…. perhaps you should think about buying Discover…