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.

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”

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?”

The EMV of Payment Terminals – SHA-1

9 Mar

Never one to shy away from even the MOST ARCANE areas of payments… There is a firestorm in payments encryption right now.. SHA-1 is a hashing function (securing data for a counterparty without the use of public/private keys) that has long since been sunsetted by Microsoft, Google and others as “too weak” and “easily cracked”. Continue reading “The EMV of Payment Terminals – SHA-1”

P2P Payments Update + MA/Vocalink

9Mar 2016

Short blog. I can’t believe it has been 5 years since I wrote Real Time Money Transfer in US. This week we see rumor that Mastercard is looking to make 1B GBP bid to buy Vocalink. Per my Apple and P2P blog there are 4 primary options for “real time P2P” in US:

  • FIS/Vocalink/Paynet
  • Mastercard
  • Visa
  • ClearxChange/Early Warning
  • (FUTURE) Real Time Payments with TCH

Continue reading “P2P Payments Update + MA/Vocalink”

Card Holder Present Update

Presented yesterday at KBW’s annual Payment Conference.. have a few updates in the rumor mill..

I predicted September of this year for CHP in in previous blog Card Holder Present last month. Issuers don’t like this one bit.. as there is no upside.. Merchants with large numbers of cards on file (Amazon, Google, Paypal, Walmart, …) will not tokenize until they obtain a risk based rate (Companies like Amazon manage fraud down to under 3bps).

Rumor is that one large issuer has been quite vocally against the new CHP rate coming into effect. My guess is that the issuers just funded $60M at The Clearing House (TCH) for them to create a new token utility based upon Bell ID…. and the banks want to use this beyond “faster payments”….

Continue reading “Card Holder Present Update”

Last Mile Redesign (Processor-Merchant)

21 Jan 2016

My favorite blog of the year was written by famed UK computer scientist Paul Graham – The Refragmentation. Paul’s blog aligns very well to the work of 2 Nobel prize winners in economics: Oliver Williamson (2009) and his mentor Ronald Coase (1991). Both were focused on the factors governing the “nature of a firm”. (particularly Transaction Cost Economics).  I covered how TCE relates to the sharing economy and the future of collaboration in my August blog Collaboration and the “Sharing Economy”.

If I were to pick the proof point for ‘refragmentation’ and TCE within the payments industry it would be processing. If payments is a network business.. processing is undergoing open access (think MCI/ATT), nodal redesign (think iPhone vs rotary), big data (democratized access), enterprise software (ERP/CRM), and direct sales (amazon) … ALL AT ONCE. Continue reading “Last Mile Redesign (Processor-Merchant)”

Cardholder Present – September 2016

Update 23Feb2016.. now see this being delayed until 2017. Top issuers threw a fit. I’m writing an new blog.. my guess is that issuers want to delay until they get their own token facility up and running at TCH (BellID).


 

As I outline 16 months ago in mCommerce/eCommerce Convergence, there is a new V/MA rate tier coming: Card Holder Present (CHP). CHP is coming by summer 2016 (70% probability), and can be thought of as a remake of what was VBV and MSC in 2006/7 using the new token utilities built for ApplePay. Continue reading “Cardholder Present – September 2016”