3 February 2015
Payments, commerce, data and mobile is this blog’s focus. I’m very very fortunate to have so many great friends, customers and partners in this area. My thoughts are not my own, as I’m greatly influenced by my “environment”.
I’ve made many new friends because of this blog. The funny story that comes to mind was in August of last year when the CEO of a Fortune 50 company comes into the room and says “ahh.. the INFAMOUS Tom Noyes”… (never a good way to start off a first date.. but we had a good laugh and thrilled he reads my blog.. ). Honest dialog has a way of creating great friendships. Thanks to all of you for providing such a fantastic environment! You make writing this thing fun.
2014 Prediction Eval
Before you bother reading my 2015 predictions you should probably see if it is worth your time. Best way is to evaluate what I projected last year in my 2014 Predictions
- Consumer Privacy. Grade – C. Not much happened in 2014 on consumer side. I’m holding with my prediction, just not certain of timing and “tipping point”. How will we know when it happens? Imagine a Sony like incident with consumer data.. Regulated businesses like MNOs and Banks are highly attuned, Apple is the best in class here (consumer champion of privacy see Blog). The Ad industry is dependent upon tracking and data sharing in a very, very grey market approach. There is a better way… 2014 is perhaps the year of “awareness” with Snowden, DEA tracking license plates, State department keeping all of our phone records, to new super cookies on mobile. The next logical phase is ACTION.
- Retail banking. Grade – A. Huge transformations going on. Prepaid and GPR products are segments growing at over 35% CAGR, US branch footprints are shrinking (see Blog)
- Debit Volume. Grade – D. Not much going on here, after the DC court of appeals struck down Judge Leon’s ruling on debit interchange (March 2014). Not much consolidation in PIN debit either. I do believe US debit will evolve to look like Canada’s Interact and Australia’s EFTPOS.
- Mobile BEACONS. Grade – F. Nothing happening in 2014. Looks like more of a 2016 thing. I’m holding to my projection.. but missed timing completely.. thought Apple would launch beacons at their Sept 9th
- mCommerce Payments. Grade – B. Summer 2015 is where we will see substantial progress. We see that the networks have turned over the new 3DS CNP scheme to EMVco last month (see link). As Payments move into the OS (see blog), Paypal doesn’t have one. Amazon, Google, Apple, will make SIGNIFICANT dents in Paypal as the platformcontrols authentication and authorization. Amex/Visa/MA’s new rules on tokens, combined with consumer privacy concerns, will accelerate the trend.
- Specialized HardwareGrade Gives way to Commodity Hardware- Grade A.. makes way for commodity hardware and software. Launch of POYNT and CLOVR are best examples.
- Host Card Emulation. Grade – B (for 2014), Grade A (by August 2015). Google did indeed push HCE into Android. With the death of ISIS and SEs in US phones.. things will be heating up in 2015 with a new Google launch.
- EMV. Grade – D?. It appears to be happening.. I bet it would have been pushed back… I have the cards, but don’t yet see the retailer infrastructure. The chip and signature (vs Chip and PIN) is still a very strange one. It would take me 3 days to explain the politics behind it. What really baffles me is Samsung’s planned launch of LoopPay this summer (with Visa support).
- Banks have given up on payment innovation. Grade – A+. I have a copy of the ApplePay issuer agreement (Sept 2014). Just can’t believe the banks have taken it on the chin like this.. not only ceding mobile to Apple, but Tokens to the Network and 15bps. What do they have left?
- ISIS WILL DIE.. Grade – A+. Money ran out in Dec 2014, sale will be complete by March.
- Apple will have NFC. Grade A+ … ApplePay 9/9/2014.. I was wrong on 3 things.. I projected October (it was 9/9) and there would be no SE, and Beacons would be part of launch (to wake up payment app). Big news (below) is that ApplePay will be in browser by summer 2015.. Paypal will be crushed with a double whammy on “value”: usability and a new rate tier (20-40bps off credit) for tokens in CNP.
- Unlocking the cloud and authentication. Grade – B+ . Apple has done an amazing job here. See my blog on brokering identity.
Summary Grade: B+ . Looks like I’m a little aggressive in projecting the new stuff (Beacons, Identity, EMV, HCE). Except for EMV and Debit, I’m still confident in the predictions (philosophically) but my timelines are too aggressive in most cases.
These predictions based upon the Structural Changes in Payments which I discussed last month.
Big Picture Predictions
- The Year of Partnerships, new Clusters and multi-tenant walled gardens (forced by Apple/Google Dominance).
- Mobile moves from Small World organization to Real World Orchestration (my next blog)… starting with merchant friendly value propositions. You must be where customers are, or influence them in the real (offline) world. We have spent the last 10 years enabling a handset that does more than take calls and connecting it to the virtual world. We will spend the next 10 connecting it to the physical world. From POS Payment, Google Shopping Express and Beacons to Door opening and document signing.
- Tipping point of Privacy (Apple Defines Best Practice)
- Politicization of networks. Government regulation in internet prioritization, payment networks, social networks, advocacy networks and advertising networks. Networks are needed for the efficient life of a firm. Star network resembles dictatorships in social networks, and “channel masters” in business networks. Star networks are optimal for business, however we have grown quite used to the state of `organized criticality’, the scale-free, democratic and highly complex social net. Government involvement in networks usually does not improve efficiency and can lead to significant disruption. Take a look at what Europe has created in SEPA.. a standard that no one will invest in.
- Collapse of “wallets” into Payment in the OS – mCom trumps eCom. Tokens take over in eCommerce w/ ApplePay, Visa Checkout and Google Wallet
- Marketing… the year of measurement… and beginning of pay for performance
- The most trusted consumer brands will remain: Apple, Google and Amazon… with banks suffering most as their products become commodities and mobile rendering physical footprints moot.
- Apple will launch aggressive effort to bring ApplePay into Browser by Summer 2015
- We will have a new rate tier from Visa and Mastercard based upon tokens in CNP (see EMVCo 3DS PR)
- Google will GO BIG in launch of new wallet in an HCE model akin to ApplePay. It will have dynamic tokenization. Google will excel in getting retailers private label and loyalty cards integrated, and pass Apple in BLE integration (in store).
- Alliance Data will be bought by JPM, C, Paypal, Hedgefund+Acquirer or Amex. ADS is my top stock recommendation for 2015, V/MA are my long term.
- Samsung will Launch LoopPay with support from Visa by September 2015.
- Visa will complete purchase of Visa Europe (hopefully at a 2015 discount) with strong dollar and weak EU growth.
- MCX will pivot to a payment instrument within another wallet (think Target Redcard) vs a wallet unto themselves .
- Beacon pilots will launch in top 20 retailers. In store navigation, product location, couponing and gamification will be first uses.
- Facebook payment will go live and be integrated into a new form of social advertising, where you are paid based upon your ability to influence your network, will see first pilots. Facebook will remain king of CPG advertising
- Behind the scenes there is tremendous progress in the collaboration of Banks, Telecos, and Mobile Platforms to Validate Identity. Short term impact is near elimination of mobile payment fraud. 2015 will be year of formalizing an identity verification infrastructure (in the cloud).
2015 the year of Partnerships
Google and Apple against Everyone Else?
I don’t have time to go over all 15 of my projections.. will do so in coming weeks. Over the last 6 months network and system design has consumed my thoughts like nothing else: proprietary networks vs. open networks, integrated vs modular, distributed innovation vs controlled platform, Apple vs. Google, Amex vs Visa, net neutrality vs. prioritization. At what point does OPEN win? My blogs on the subject was Value Creation and Distributed Innovation, Banks non-Banks and Commerce Network and my two favorite books are Platform Leadership and Weak Links by Peter Csermely (viewable on Google Books here).
Any analysis of this area must focus on Apple. Wow! What a machine! The most loved brand, the most profitable, highest in consumer satisfaction, most sales per square foot, creator of new categories, inventors of new consumer experiences, trusted by the most affluent demographic, champion of privacy… on and on. Is Apple an exception? Can any company ever aspire to replicate their success in any industry? How can anyone else compete in areas they touch? Do the rest of us just pick up the crumbs? Apple’s latest results show that their model is improving, garnering over 86% of the “mobile” industry’s profits (see Forbes).
Open networks are harder to build, and are certainly less profitable than closed. My prediction on “year of partnerships” is due to necessity, NOT the efficacy of collaboration. Few companies can compete with the data advantage of Google, Amazon and Facebook. Apple’s trust and reputation advantage is perhaps even more insurmountable. For large companies it may take 2-5 partnerships in a focused area. Imagine the data challenges small companies face. This is not a technical challenge as much as a business one. How many successful partnerships have you seen (elephants dancing). Remember that are injured elephants facing as structural changes in consumer behavior, mobile, information, distribution, trust … impact products and strategies. CommerceSignals is working to help bridge this gap, but that is for another blog.
Where Google, Apple and Amazon are self sustaining Stars (networks), clusters and multi-tenant walled gardens are forming to compete in a quasi open model. The challenges here are not technical, but organizational and value creation. History reveals few consortiums renowned for their efficiency. Value is best created where it can be controlled and monetized in “small worlds”. Networks in business are functional in 2 areas: around a specific function with broad use (Visa/MA, Credit Bureaus, ?Android?) and where market forces can take operate (NASDAQ, …). This is my big hypothesis… would greatly appreciate input here.
2015 must be the year of merchant friendly value propositions. Logically, the majority of commerce happens in a retailer.. and hence the “solutions” must as well. The inability to partner will give way to platforms that enable partnership… optimally platforms that would allow millions of “lightly structured” interactions to test 1000s of value propositions until something sticks (this is Commerce Signals). Take beacons for example.. we know that Apple can maintain security and confidentiality.. but the retailer must install beacons that work for everyone and have a business case (consumer insight). Consumers want to know how insights will be used. How do you manage the agreement between Manufacturer, Beacon Provider, Apple, Retailer and Consumer?
iPhone 6 – Tipping Point for Platforms
As I outlined in iPhone 6 – Apple’s Strategic Opportunity, I believe the iPhone 6 represents the dawning of a new age of mobile “platform”. What was a music manager with a phone has turned into the most secure, easy to use device ever created. The factors of competition have changed, it is no longer about camera resolution, storage, and screen size. The visible (obvious) attributes of competition have become a commodity; as are the “problems” that your phone solves (telephone, music, calendar, pictures). Where previous phones helped you manage items in your “small world”, the iPhone 6 has become both the secure key to the cloud with the ability to broker interaction in the physical world (NFC, BLE, identity, tokens). The “convergence device”. See my blogs Brokering Identity and Authentication in Value Nets.
Unfortunately, Apple is so focused on the consumer it has no ability to partner. While there is no company better in creating devices that thrill a consumer, there is perhaps no company worse at building partnerships and business models where value is shared. Given Apple’s cash hoard, my top recommendation.. create a new division focused on network.. helping connect consumers to the physical environment they live in (thermostats, health, retail, cars, advertising, …). This is NOT a handset function.
Abrupt end here.. this blog has been in partial completion mode for 6 weeks. I had to get it out. Will articulate my views on the other “Top 5” predictions this month.