26 Oct 2012

Today when you use iTunes, PayPal, Amazon or Google wallet do you think about which card in the back end your purchase will go on? Most of us take the view that “it just works”, and perhaps ensure that the default card is the one which allows you to accumulate the most points (Amex for me). When eCommerce started, there were few entities capable of managing card not present (CNP) risk hence specialists evolved (PayPal, Cybersource, GSI, …) that could manage this risk on behalf of the merchant/community. Payment cards/accounts had to be wrapped by these risk specialists in order for payments to be processed. As mCommerce evolved (think Apple iTunes), digital goods purchases where integrated into the “platforms” to allow seemless purchasing of content… thus starting the process by which cards were associated with “cloud” accounts accessed in mobile phones. Today, mCommerce sales are around $170B in the US, and mCommerce sales are around $10B (Digital Goods ~$4B and physical the rest .. which includes buying from Amazon on your iPad at home). Quite frankly card companies didn’t mind letting other entities like Amazon and Apple store your card information so that you could buy in either the eCommerce or mCommerce markets…. This is all changing for physical commerce because the PRIZE IS BIGGER.

With the Physical POS sales $2.4T (USA not including T&E, Auto, Oil/Gas)… The established networks and banks are saying “don’t wrap me”:

• Amex’s new Serve product 2.0 is wrapping other bank debit and credit cards
• PayPal’s new plastic is wrapping what they have already, Amex is threatening to cut both PayPal and Google down
• Visa has reportedly issued a cease and desist to Google at the behest of Chase (See NFC Times)

All of these wallets (Virtual, NFC, Cloud, …) are causing issuers to wonder “who is top of wallet”?.. and how does a customer select my plastic. They seem much more concerned about one physical plastic card wrapping them (ie Serve and Paypal) than a virtual wallet, but they are also very concerned about data and letting any ONE intermediary see transaction data (and add offers/services on top of them). In other words “DON’T WRAP ME” (see blog Paypal at POS). Of course there is not much to worry about yet. Paypal is reportedly doing less than 5 transactions per WEEK per Store at HomeDepot..  But the established players want to stop anything before it starts.

How do cloud wallets manifest themselves? Well it could be NFC/Paypass, physical plastic, a QR code, or a voice print (Square).. all you need is a form of authentication (see Battle of the Cloud). Add to this the complexity of retailer data, issuer pricing, loyalty and incentives and the market is just nuts. Who is doing what to whom…? its like a 70s drug and sex movie.