Visa Payclick

Summary on Visa Payclick: “Partnering with banks” is very challenging…. do banks want Visa to deliver a “bank friendly” paypal competitor.. or would banks prefer to create something they can control? View Payclick today as an Australia “test market” of something Visa intends to grow, with an initial consumer focus on digital goods.

30 June 2010

Summary on Visa Payclick: “Partnering with banks” is very challenging…. do banks want Visa to deliver a “bank friendly” PayPal competitor.. or would banks prefer to create something they can control? View Payclick today as an Australia “test market” of something Visa intends to grow, with an initial consumer focus on digital goods.

Visa just launched Payclick (www.payclick.com.au) with plans to expand globally. I see this service competing more with Bango (see http://www.bango.com/) and payforit (www.payforit.com) than PayPal. There is no way for a consumer to withdraw funds placed in the wallet, or to be paid..  (it is not a wallet), it allows for the addition of current account funds through BPAY integration (note BPAY is a bank owned consortium in Australia providing common services like telephone and online bill payment). Allowing multiple funding instruments provides for a lower cost of funds, and BPAY penetration is over 80% in online customers. However the inability to credit the wallet, while  simplifying risk and fraud operational challenges, limits the consumer value proposition and the addressable market. Given these wallet restrictions, Visa has chosen an initial market focus on teens buying digital content… this narrow market focus may provide Visa the opportunity to “kick the tires” on the system before expanding it (geographically and demographically).

Re: Expansion.  I understand that Visa is “in flight” with expanding the AFT/OCT transaction set (See Patent) which is the heart of the Visa Money Transfer service. My global card contacts tell me that Visa is attempting to get issuers on board with credit push in an updated issuer agreement (see Visa Money Transfer Overview – Issuer presentation). The “incentive” for issuing bank to accept new agreement is a $0.50 revenue share. Banks are not biting on this (subject of another blog on Visa and card remittances).. hence my guess is that the Payclick service has “visions” for being bi-directional.. but not until issuers sign off on accepting OCT transactions.

We should not assess Payclick based solely upon current functionality, given Visa’s substantial investment here there must be plans for additional transaction types. The CYBS acquisition gives Visa assets to develop something much more comprehensive. For example, with the CYBS could serve as an acquirer for Payclick as a “light” tool for small merchants selling digital goods in mobile market places and app stores.  On the consumer side, Visa has a steep hill to climb in creating a value proposition which would drive consumers to store card information with Payclick (particularly given the competing payment methods above).

Risks I see for Visa in Payclick:

  • Initial target demographic is well served by both Bango, Paypal, iTunes Wallet, prepaid card (for my teen), payforit (UK), MNO billing, …
  • “Send only” functionality will not create critical mass in either consumers or merchants
  • Banks will not bite on OCT transaction set and service functionality will not be able to expand
  • Visa will loose focus after core innovation team departs
  • CYBS can acquire and service… but it will take serious marketing dollars to create a new consumer brand… as well as a solid value proposition.

Add these risks to Visa’s existing “dynamic” with  retailers (a group that is not favorably inclined toward assisting Visa nor any card network) in creating another payment type  (issues w/ interchange, compliance, fraud, payment system integrity, ..). Since Visa’s IPO,  Banks are no longer in control and also view Visa’s efforts through a new competitive lens. Banks also like the idea of having their own brand on payments. Thus, Visa is stuck managing a complex 4 party system with limited ability to create an innovative value proposition which all parties can agree on.

Visa is facing head on competition from “unshackled” teams like PayPal. In fact PayPal just launched mobile instant checkout today .

Feedback appreciated

PayPal Virtual Terminal – Accept Cards at POS

I can’t help but wonder how this pricing will effect Chase Paymentech (PayPal’s partner and merchant acquirer). Small merchants may indeed think twice of having their own merchant services agreement and specialized terminals.

PayPal Virtual Terminal

6 June 2010

Great job PayPal…. bringing down the cost of card acceptance to $30/mo. No hardware, no special agreements.. just add the service to your existing merchant account.

The only downside seems to be for the 5+ Valley start ups like SquareUp that were targeting physical POS acceptance in a “Craigslist” type environment. The head of payment strategy at a top 3 bank told me that making merchant acquisition easier was a priority for driving new card volume. Looks like VT can both drive TPV growth and address potential down market competitive threats at the same time.

I can’t help but wonder how this pricing will effect Chase Paymentech (PayPal’s partner and merchant acquirer). Small merchants may indeed think twice of having their own merchant services agreement and specialized terminals.

Thoughts appreciated

US Senate tinkers w/ card rules and rates

The press seems to be focusing attention on the TBD rate setting and “swipe fees”, from my perspective they bigger long term impact to banks and the networks will be elimination of restrictions associated discounts on competing forms of payment. Specifically Mastercard rule 5.9.1 and Visa

http://on.wsj.com/coPzIH

US Senate Amendment Text

14 May 2010

The press seems to be focusing attention on the TBD rate setting and “swipe fees”, from my perspective the bigger long term impact to banks and networks will be elimination of restrictions associated with discounts (and steering) on competing forms of payment.

Amendment Text

“(b) Limitation on Anti-competitive Payment Card Network Restrictions.–

“(1) NO RESTRICTIONS ON OFFERING DISCOUNTS FOR USE OF A COMPETING PAYMENT CARD NETWORK.–A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment through the use of a card or device of another payment card network.

“(2) NO RESTRICTIONS ON OFFERING DISCOUNTS FOR USE OF A FORM OF PAYMENT.–A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, check, debit card, or credit card.

In June 2003, Visa and Mastercard signed the settlement agreement which provided for steering.

D. Merchants shall also have the right to encourage or steer customers from Visa and MasterCard debit transactions to other forms of payment.

This ability to steer has been somewhat ambiguous, outside of cash. For Example, the Mastercard rules show

5.9.1 Discrimination
A Merchant must not engage in any acceptance practice that discriminates against or discourages the use of a Card in favor of any other acceptance brand.

5.9.2 Charges to Cardholders
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments.

and Visa Rules

5.2.D Discounts at Point of Sale
5.2.D.1 Advertised Price
Any purchase price advertised or otherwise disclosed by the Merchant must be the price associated with the use of a Visa Card or Visa Electron Card.
5.2.D.2 Discounts
5.2.D.2.a A Merchant may offer a discount as an inducement for a Cardholder to use a means of payment that the Merchant prefers, provided that the discount is:
• Clearly disclosed as a discount from the standard price and
• Non-discriminatory as between a Cardholder who pays with a Visa Card and a cardholder who pays with a “comparable card”

Will update this blog later, but the US Senate’s amendment will have substantial impact on merchant payment strategy. I see a strong future for new cards issued by  merchants that embed strong loyalty program.. outside of the Visa/MC network (?ACH?.. PayPal…) with a substantial rewards program to drive adoption. Perhaps ACH POP will take on new life..

Card networks and issuers should get active in the merchant funded rewards space.. before the merchants own it

http://www.paymentssource.com/news/merchant-funded-rewards-spark-card-issuers-interest-2637491-1.html

NFC Break Out – VISA/FirstData/AT&T

Get set for a major announcement in next 4 weeks from Visa, AT&T and FirstData that will combine an AT&T pre-paid card account, managed by FirstData, and with services from several Visa led start up companies (both mobile advertising, couponing and NFC).

23 December 2009

Previous post http://tomnoyes.wordpress.com/2009/11/25/visamobpay/

Get set for a major announcement in next 4 weeks from Visa, AT&T and FirstData that will combine an AT&T pre-paid card account, managed by FirstData, and with services from several Visa led start up companies  (both mobile advertising,  couponing and NFC). Consumers will be issued NFC stickers for existing phones and can fund the account with existing card and deposit accounts. AT&T will also have an integrated reward system to reward payment activity with coupons, airtime and special offers with participating merchants. In addition to the NFC sticker, Visa will also be trialing other “other form factors” including: plastic, handset integrated NFC (new phones) and 3rd party hardware for OTA provisioning. FirstData will begin a new role as both the processor and Trusted Service Manager (TSM).

As stated previously, the US market is ripe for a break from the 6 party political “fur ball” that is hampering mobile innovation (Card Issuers, Acquirers, Network, Merchant, MNOs, Handset Mfg). Mobile Network Operators (MNOs) are better positioned to execute in mobile payment in all markets. AT&T is no stranger to credit cards, even today the ATT Universal card is the largest affinity card within Citi’s portfolio.  The implications for card issuers are unclear, given the uncertainty of “mobile payment” consumers behavior and payment patterns. There is a storng possibility that this initiative will be a “tipping point” in both mobile commerce, unleashing a new wave of innovation for all consumers (not just iPhone any longer). It will be very interesting to see if Apple is a part of this initiative. 

More to come..  

From Previous Post

For those outside the US, US MNOs have substantial control over handset features and applications, they 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 another party (beyond issuer/acquirer), with much room for improvement in authorization, authentication and consumer “control”. 

Outside the US, the situation is much different, as consumers have great flexibility in switching MNOs, have ownership of their handsets, and are largely on pre-paid plans. The MNO challenge for payments in this environment is largely regulatory.  Many countries (EU, HK, Korea, Japan, SG) have open well defined rules for MNOs role in payments (example: ECB ELMI framework within the EU), while other countries are highly restrictive and are in the midst of developing their legal and regulatory framework.  Even in the countries where MNOs participation is defined, they have largely benefited from the complimentary role that the service plays with pre-paid plans (not in interchange at POS).

Globally, MNOs are looking for a payment platform where they can benefit from interaction between consumer and merchant, with flexibility to deal with a heterogeneous regulatory environment. The competitive pressures on Visa/MC are much different then they were 5 years ago (when both were bank owned). The network fee structures and rules were written with banks and mature markets in mind. Emerging markets present a much different set of opportunities, as MNOs lead banks in brand and consumer penetration within every geography.

All of this leads to the case for a new “Mobile Payments Settlement” network, a network which will alienate many banks.  I expect to see Visa roll out the initial stages of this network in the next 2 months with an emphasis on NFC. Quite possibly the best kept secret I have ever seen from a public company. I’m sure many Silicon Valley CEOs are crossing their fingers (with me) on this, as a “new wave” of innovation is certainly close at hand that will drive growth (and valuations).

For those not keeping up with the 50 or so product announcements a day on NFC, handset manufacturers committed to have NFC enabled phones to consumers in mid 2009 in the GSMA 2008 congress. NFC capabilities are numerous (Vodafone YouTube Overview), and may represent a true disruptive innovation surrounding payments. There have been many very recent product announcements that will enable existing phones to use NFC, and P2P Capability. All of which will blossom in a more “fertile” mobile settlement environment.

Side note: This is not all bad news for Banks, as the structure will certainly provide for existing cards (debit/credit) and may deliver substantial revenue through cash replacement (small < $50) transactions.  More details on structure of MNO in settlement 2 weeks….

Select Product/Alliances Below:

Visa – New Mobile Payment “Rails”?

Word on the street is that Visa is set for a major mobile payments announcement in next 6-8 weeks. Separately, US MNOs are also rumored to be collaborating on Near Field Communications (NFC) payments with acquirers. Could it be that the log jam on NFC is about to be broken? Is Visa developing new rails to support mobile payments?

25 November 2009

Word on the street is that Visa is set for a major mobile payments announcement in next 6-8 weeks. Separately, US MNOs are also rumored to be collaborating on Near Field Communications (NFC) payments with acquirers. Could it be that the log jam on NFC is about to be broken? Is Visa developing new rails to support mobile payments? Let me say up front that this blog represents “connecting the dots” more than a definitive market projection.

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 improvment in: authorization, authentication and consumer “control”. 

Outside the US, the situation is much different, as consumers have great flexibility in switching MNOs, have ownership of their handsets, and are largely on pre-paid plans. The MNO challenge for payments in this environment is largely regulatory. Many countries (EU, HK, Korea, Japan, SG) have open well defined rules for MNOs role in payments (example: ECB ELMI framework within the EU), while other countries are highly restrictive and are in the midst of developing their legal and regulatory framework. Even in the countries where MNOs participation is defined, they have largely benefited from the complimentary role that the service plays with pre-paid plans (not in interchange at POS).

Globally, MNOs are looking for a payment platform where they can benefit from interaction between consumer and merchant, with flexibility to deal with a heterogeneous regulatory environment. The competitive pressures on Visa/MC are much different then they were 5 years ago (when both were bank owned). The network fee structures and rules were written with banks and mature markets in mind. Emerging markets present a much different set of opportunities, as MNOs lead banks in brand and consumer penetration within every geography.

All of this leads to the case for a new “Mobile Payments Settlement” network, a network which will alienate many banks. I expect to see Visa roll out the initial stages of this network in the next 2 months with an emphasis on NFC. Quite possibly the best kept secret I have ever seen from a public company. I’m sure many Silicon Valley CEOs are crossing their fingers (with me) on this, as a “new wave” of innovation is certainly close at hand that will drive growth (and valuations).

For those not keeping up with the 50 or so product announcements a day on NFC, handset manufacturers committed to have NFC enabled phones to consumers in mid 2009 in the GSMA 2008 congress. NFC capabilities are numerous (Vodafone YouTube Overview), and may represent a true disruptive innovation surrounding payments. There have been many very recent product announcements that will enable existing phones to use NFC, and P2P Capability. All of which will blossom in a more “fertile” mobile settlement environment. See one example “future” Visa mobile service here: http://tomnoyes.wordpress.com/2009/09/24/googleoff/

Side note: This is not all bad news for Banks, as the structure will certainly provide for existing cards (debit/credit) and may deliver substantial revenue through cash replacement (small < $50) transactions. More details on structure of MNO in settlement 2 weeks….

Select Product/Alliances Below:

[youtube=http://www.youtube.com/watch?v=2AmeM33r7wM]

EMV in US? No Way

Update Sept 2014

Did EMV in the US happen? Well to the surprise of issuers, Visa announced a scheme change in the US in August 2011 (see PR). The big issuers were not consulted about this program prior to rollout, as the dynamics described below in my previous article were occurring. Additionally banks were working on a new scheme that would leapfrog EMV: Tokenization.  The large banks were working on this scheme without the involvement of Visa and MA. If successful, this new token scheme would have bypassed V/MA altogether. I believe one of the reasons for this EMV push by Visa was to reassert its control of the network. Today we see quite a bit of friction remaining here between issuers and networks. See my blog on Chip and Signature for a view on some of the remaining chaos.

The new EMVCo token scheme announced in October 2013, formalized in March 2014 and rolled out first with ApplePay in Sept 2014 is the new “best” scheme on the planet. In this scheme, the networks have taken over the original bank token model. Of course banks can also serve as TSPs, but none of them are currently prepared (as of Sept 2014).


 

Original Oct 2009 A

As I was reading an article concerning “why US Card issuers should move to EMV”, I was struck by the amount of “disconnectedness” on this topic in the industry.

A quick background for those unfamiliar:

  • EMV is a “Chip” that replaces the mag stripe on a credit card http://en.wikipedia.org/wiki/EMV
  • Rolled out in Europe in 2004 w/ hope that fraud would go down (it actually just shifted to Card not present “CNP” transactions)
  • European issuers are also acquirers. In US these functions have been separated w/ exception of AMEX
  • Europeans banks are complaining that US cards in EMEA markets and EMEA cards in US markets are the weaknesses in their beautiful vision of a “Chip world”. EMEA acquirers are also threatening to stop accepting US (mag stripe) cards.
  • US Adoption of EMV would take 10+ yrs for banks to re-issue cards and for all merchants to replace all terminals that use the mag strip.
  • Issuers in the US don’t collaborate very often because of anti-trust concerns. Rules are set by networks… in which banks are Board members. Big banks like competing through “best practice” in fraud management. Small issuers have trouble in the arms race.

US Issuers are exercising sound judgment in not jumping on the EMV bandwagon, yet many industry pundits (without access to the data) continue to push a POV that we in the US are somehow backward. Just take a look at the UK fraud data, the card losses have grown from 122M GBP in 1997 to 531M GBP in 2007, and 610GBP in 2008. What did the EMV investment “buy” the UK issuers? A detailed look at this fraud data (APACs confidential) shows that fraud adapted to the next weakest point in the card chain: CNP.

The US banks are highly motivated to do the right thing here, but the solution requires coordinated movement by 4+ highly fragmented groups (Issuers, Acquirers, Networks, Merchants).  The US banks do get together to discuss these topics, primarily at the Philadelphia Fed.  The top request from the banks (to their regulators) was to free their hands in working together on fraud and standards without fear of anti-trust reprisals.. A request that took on no owner, as the number of agencies involved were challenged to work between themselves (FTC, OCC, Fed, …)

http://www.philadelphiafed.org/payment-cards-center/publications/update-newsletter/2009/spring/spring09_06.cfm

Independent of the political challenges that the issuers face in the US, EMV is not the initiative to bring them together.

  • Old technology (will not last the 10yrs it will take to roll out in US)
  • Expensive (POS, Card). Costs are not borne equally in network
  • No proof point, fraud did not go down in UK, CNP was not addressed. http://www.computeractive.co.uk/computeractive/news/2238913/apacs-releases-fraud-figures
  • Fraud Shifts to the next weakest point, it is not static
  • Big issuers like to compete on risk management
  • No benefit from “incremental” rollout of any technology (below)
  • “Health” of issuers (below)

The “true” benefits of EMV will not occur until there is 100% adoption at POS (complete elimination of the mag stripe), and all other weaknesses are addressed (primarily CNP). That is the conundrum facing any new technology here:  New Plastic must completely replace the old. In other words there is no “Incremental” fraud savings to an incremental rollout.

Where there is chaos there is opportunity…

With respect to card use at the POS in the US, prospects for NFC in mobile handsets is very exciting. NFC enabled handsets provide great customer convenience and the cost(s) are not borne by the banks. I highly recommend the business whitepaper below for those interested in the subject.

http://www.gsmworld.com/documents/gsma_pbm_wp.pdf

Other Data

NCL losses of Top Issuers for 3Q09

Top 5 issuers have seen their businesses deteriorate substantially, as NCLs moved from ~3% in 2007 to 10-12% currently. 3Q09 Examples (Data is for QUARTER)

  • – Citi.  NCL of $4.2B,
  • – JPMC. NCL 9.41% (ex WaMu) Card Net Income ($700M) for quarter
  • – BAC. NCL $5.47B, 12.9%
  • – CapOne. NCL $2.3B, 10%

 

http://www.javelinstrategy.com/2009/08/06/emv-us-magnetic-stripe-credit-cards-on-brink-of-extinction/

iPhone at POS? PaybySquirrel – updated

Twitter founder Jack Dorsey. Card swipe on iPhone.

Roberto Garavaglia was nice enough to share this finextra story on linkedin. Is this a consumer play.. or a “merchant play”? Will I see my local ticket scalpers taking credit cards on their iPhone? This start up was certainly “in the black”.  Data we know:

  • Squirrel has a “signature” line in the app
  • Have hardware on the phone
  • Alpha test in NYC
  • Receipt in engadget pic above shows consumer payment (you paid)
  • Mind behind it is Dorsey
  • Top VCs know about it, and seem to think it is a merchant play.
  • Very US centric.. no EMV (Chip and Pin)

There are certainly some conflicting data points. If a consumer play.. this signature will not be valid… and transaction will be treated as a CNP (so why the signature?). If this is a merchant play who would possibly want to act as acquirer (fraud loss)? The merchant use would make most fraud heads loose a little sleep, for they would have a whole new threat vector. Can you imagine the buyers of the merchant use?.. The bank and I will have to worry about every kid in a fast food window and every waitress holding my card swiping on their iPhone (in addition to paying for my dinner). My guess is that squirrel has the technology working.. but haven’t figured out the “banking side”.

Fraud attacks the “weakest link” in payments quickly. Would love to hear from others on the community, but my view is:

  • Interesting as a merchant play…. but acquirers will shy away from originating transaction in either network without solid fraud controls. The merchant owns the loss here by rules of network in a “CNP transaction”. Signature capability will be debated…
  • Squirrel biz model.. questionable as anything but a hardware business. The fraud numbers of leading merchant selling digital goods is astounding. All top merchants have had to develop their own internal specialist teams to handle.  If Apple and PayPal have trouble with teams of 300+ (after 10 years) this will be a challenge for any new “merchant”. As a payment method, squirrel will have to take this on. Having access to the physical card may allow them to try something disruptive like MagTek which reads the randomness (noise) in the card stripe to establish a “unique” card… which has the downside of card registration. Something like this would push squirrel further into a “US centric” model as it appears that they do not support EMV (aka Chip and PIN).  
  • “No go” as a consumer play. Why not just keep my card at the Apple app store? or at PayPal? What is the incremental value that this provides me? Why not just key in my card data.. why add a reader to my sexy iPhone .. .in its sexy case.

Innovation in payments is tough…  if I were going to add something the Steve Job’s product plan for the iPhone what would it be?

  • Global
  • Ubiquitous
  • Unique to every person
  • Globally Accepted for use in Payment and Authentication, by merchants, banks, networks, regulators
  • Low error rate
  • Impossible to clone
  • Difficult to crack

The answer is… (   ). OK so nothing fits my criteria, but any appendage on my iPhone must certainly seek to optimize the goals above. Only item I’ve seen that comes close it IRIS scanning.. now being miniaturized to fit on a chip the size of your thumbnail (below). Just for fun.. I bought “paybyiris.com” domain as I finished this article (today). 

http://www.nydailynews.com/archives/news/2002/01/07/2002-01-07_credit_card_cloners___1b_sca.html

http://4g-wirelessevolution.tmcnet.com/news/2009/08/19/4331395.htm