ChasePay Thoughts (Don’t sell Visa Stock Just Yet)

09 Nov 2015 Updates

  • I did a Morgan Stanley call this week with Smittipon Srethapramote, ChasePay was a central topic. Evidently Chase is positioning this as a way for CPT to gain volume. Value Prop: we will clear ChasePay transactions at 0bps. Given that ChasePay and MCX don’t exist yet it may be a little pre-mature to take a bet against First Data. What is actually happening is that MCX retailers will be switching ChasePay transactions to Chase. So.. CPT may gain a few merchants.. and a little bit of incremental volume.. but it will be at 0bps. Also remember that FD has Citi, BAC and WFC as customers.. and they can do anything that CPT can do.
  • Problems with a merchant switch. The merchant switching on debit is outlined below.. not much issue here given Durbin’s requirement for dual routing. In essence debit can not be treated as PIN debit and routed directly to issuers/retail banks. However there are BIG problems with ChasePay as credit IF IT IS A VISA ACCOUNT.
    • ChasePay as a Credit must be routed through Visa and then to Chase’s ChaseNet. Merchant switching does not appear to be allowed. In other words ChaseNet Credit in an “on us” would only work if MCX merchants moved 100% of volume to ChaseNet.
    • ChasePay at MCX must be an approved card present method (CHIP or NFC). QR code is not an accepted method therefore it would be treated as CNP. Now Chase could set new unique rules on this transaction that would enable them to own the fraud, but they would need to own the acquiring as well. To own the acquiring they need more than just a “switch” from the merchant for ChasePay transactions only.
    • Tokens, VDEP and MDES. Chase is prohibited from discriminating against wallets in the new VDEP/MDES rules. Chase cards will be in ApplePay, SamsungPay and Android Pay. So consumer confusion will abound.. but also the advantages (liability shift, ubiquity, consumer experience) will make ChasePay on MCX hard to gain traction.
    • Creating ChaseNet as a new Visa. The issues above could disappear if Chase was able to create a completely new 3 party network (per section below).  But Chase has many hurdles to cross, as merchants AND CONSUMERS would both have to accept the terms of the new network and forsake the benefits of Visa. Chase is nibbling on the periphery and trying to enable a new semi closed network within an open 4 party one.
    •  Chase can deliver 0 bps payments anytime it wants to with any card it owns today. Issuers have always held this pricing flexibility. Now acquirers will pass on their fees, but this is only 20-30bps.
  • Chase has created a Visa war plan and I don’t understand why. Chase is the only major bank pushing The Clearing House to develop a token facility, they were also a driving force behind Early Warning’s purchase of ClearXChange… which is well positioned to be an EXTRAORDINARY new debit network.

As background, back in 2011 I told Gordon and Todd that they didn’t understand the dynamics of MCX. They believed they would win MCX because of relationships.. my prediction has turned out to be accurate. I said that I went in as Google and offered MCX 0bps payments with a potential of PAYING MCX to take GoogleWallet and MCX still said no . The margin in payments is in the long tail. The driver of ANY INVESTMENT here is in changing consumer behavior OR in delivering services beyond Payment.  Chase certainly has no credibility here. Payments and banking are ENABLERS to commerce.. they are NOT THE CENTER (see blog Tilting the Networks… a MASSIVE Change)

My top questions/unknowns

  1. Will ChasePay Credit be a Visa Card. If not will they acquire both consumers and merchants?
  2. Does chase believe that a ChasePay credit can run on 2 networks at once?
  3. Does Chase believe merchant based switching/LCR is permitted under its Visa Agreement
  4. What volume does Chase believe it will obtain through this product (BEYOND 0bps payments).



This quarter Chase has been a favorite target of my blog (ex What should JPM do). Coming out of money 2020 it looks like my timing was pretty good. branding nascar

I just don’t get it…. WHY!?

  1. Why would JPM want a consumer to pay through ChasePay in MCX and not use their Visa card?
  2. Why would any consumer want to accept new terms of a new network (ChaseNet) to use their account in new wallet (CurrentC) with another new network (MCX). Why not just use your Visa card?
  3. Why would I want yet another acceptance brand when Visa’s network fee is so incredibly small (5-15 bps). Branding at the POS is beginning to look like a NASCAR

Back in March 2013 I wrote 2 blogs: Visa’s Golden Goose on the Menu, and JPM/V Scenarios… Which one is it? This was only 4 months after Charlie left JPM and took the top job at Visa. Most of you know I’m very high on Visa now (see Tilting the Networks a MASSIVE change).  As I’ve stated before, the story (all pure speculation) is that Chase was furious with Visa in 2011 and either buying discover or moving their entire portfolio to Mastercard or buying Discover. JPM’s BOD found out about this and threw out Saunders/Buse, hired in Charlie and gave JPM everything they wanted in a DFS purchase (thus bi-forcating VisaNet).. hey but what do I know.. (go ask the CFOs of DFS and MA.. ). Visa must feel pretty screwed over here.. after giving JPM everything they wanted, JPM still looks to create their own brand, product and network.

Value of OPEN

JPM looks caught in a “I want to be AMEX” moment… at a time where Amex itself is looking to re-invent. The value of OPEN is huge.. and it is unfathomable that the largest issuer in Visa doesn’t see it. (See Building Networks and Openness)

The funny thing is that JPM’s efforts are only crystalizing other banks to work MORE CLOSELY with Visa. Quote from top 3 issuer “FU*^& Chase, makes me want to work with the existing networks even more…”. Now we know why Visa worked with Citi on Costco and not their “friends” in Columbus. MCX will not allow any network branded cards in their wallet.. and ChasePay certainly gives chase better interchange than ACH.. but do I really want to encourage a new acceptance method that is at a lower cost? I would if I’m facing prospect of 0 fees.. but is JPM really that circumspect on the value and behavior of Visa card use?

For the model of interaction, looks like I was close in estimating what the product would look like



2015 (post Money 2020)

ChasePay flow


Chase Pay? An account with two identities?

chasepay Options

I must admit to total confusion to ChasePay.. Hopefully the community can help in the comments. The only way this can bypass visa (see blog on wrapping) is to have it run under completely new rules. Will a consumer really understand that a single account runs under 2 different rule sets? On my Apple Phone with CurrentC installed what do I use at an MCX merchant that accepts NFC (ex CVS)? Or worse if Chase does indeed allow Chase cards on SamsungPay they have created yet another conflict with MCX (because of MST mag stripe emulation).

Chances of ChasePay Success?

The MODEL above makes complete sense for PayPal, Amex and MCX. To be clear I am very very high on MCX.. but this product? Perhaps Chase cards have a loyalty I just don’t know about. Or there is something missing in my assumptions. There are 3 models of ChasePay Interaction

  1. ChasePay within MCX Wallet
  2. ChasePay within the Chase Mobile App via MCX QR Code Directly (I think this will be prime)
  3. ChasePay presented via NFC/MST (ex Samsung Pay??)

Will Consumers accept new terms for a new product operating in a new wallet with a new network? Is that really innovation? Innovation is NOT ABOUT rewiring your assets, it is about designing a great experience for the consumer.

Sorry for the short blog, spent all my time drawing the pictures.


MCX is here.. and full of Good Stuff

Why all the negative press on MCX….? Getting 60 Retailers together across a network of 2 acquirers, 100s of POS/payment terminal configs, phones/OS versions, loyalty systems all moving takes time… currentc-retailers-logo640

Yes I would agree that MCX has not done a great job on PR, and sure its UI Design team may have come from North Korea… but there is MUCH behind the scenes here.

I just used CurrentC at Target and I am NOT IN COLUMBUS. The functional leader in the MCX consortium is Target. My personal view is that Target led the way over 5 years ago with the launch of the Target Red Card. It is the “baseline” for MCX product launch (see my 5 yr old Blog). The Target team is just out of this world..  not just for retailers.. it is one of the best payment teams in any company.

Target has done a FABULOUS JOB of Integrating VERY COMPLEX functionality into CurrentC. Did MCX do the work? Nope.. think of MCX as a dumb container for the Target Red Card, and Target’s Loyalty Program Cartwheel.

So what is NEW about MCX?

  1. First in the world integrated payment, loyalty with SKU level coupon redemption
  2. Integrated ACH Settlement (Redcard)
  3. Risk Management – POS – ACH settlement (FIS and First Data) Red Card
  4. Mobile Application Supporting multiple loyalty cards and programs with SKU Level Redemption
  5. POS Bar Code Scanning of Payment (.. starbucks like)
  6. Routing and Clearing of both ACH, Debit and Credit within Acquirers (FIS and First Data)
  7. Technology on-ramps and containers for both mobile wallet, POS/Point of Sale integration, and Clearing/Settlement
  8. Rules and pricing for all of this

This is a HUGE project…. I would say the UI needs MUCH work.. but don’t judge this network by the app!

See my short video below

The Day “Big Data” Died…


Long Live Federated Data™…… ( by Tom Noyes with contributions from Russ Schrader)EU Seperation 2

Big news “across the pond” today as the European Union’s highest court struck down the Safe Harbor Agreement. The court offered no grace period for firms to establish their new arrangements before safe harbor ceases to be valid. The court also declined to give extra time to the European Commission, which is currently renegotiating new terms with the U.S. See following stories for more detail:
Continue reading “The Day “Big Data” Died…”

What should a Bank do?

I had so much fun in the comments section today, thought I would make it a separate blog.  A ficticious “Jamie D” asked me a question “What should JPM Do”. My response is below

Jamie D…. you have the name of my favorite banker on the planet, so I will write with the assumption that he asked this question.

Two years ago Chase was the best Payments bank in the world. Best team, best market position, best strategy. They have completely lost their continuity, thus people must be at the top of the list. Payments is a brokering business.. which means you must play with both consumers and merchants. Gordon Smith was quite confident that he would win MCX 2 years ago I told him that the nature of payments has changed. It is now a LOSS LEADER (example google providing shipping for free and taking loss on payment). I asked Gordon “when was the last time you brought a consumer to a merchant”? Merchants use chase because of their efficacy and low cost in payment management. They don’t look to chase for solutions.. they beat you up on price because you deliver a commodity service.

To deliver a differentiated service you must be an easy bank to work with, you must enable COMMERCE. Today Chase is the hardest bank to work with on the planet, this extends from payments, to ventures, the partnerships. Start ups and the entire valley love Jamie, but run away from the rest of the team. Chase destroyed 2 companies (Payfone and gopago) buy writing term sheets and backing out of deals. It takes 2 years to get through chase procurement.. But by far the worst aspect of of Chase’s performance is their in ability to partner and listen. Your team acts more like the “Borg from Star Trek” (think Babylonians), they don’t listen and want everyone else to adapt to your strategy. Worse they “throw sand” in everyone else’s gears (example Chase was behind Visa’s cease and desist w/ Google). Being a “broker” and enabler means working to fit yourself into OTHER PARTNER’s strategy.. NOT MAKING THEM A COMPONENT OF YOURS. Google actually has this same problem.

What does JPM need to do? Here are my recommendations:

  1. Build a team that knows payments and knows how to partner. Their comp is not tied to building empires but on transaction volume and satisfactions. My funniest story on how bad the situation is in this blog here. Bank Grouponand How to Structure Bank Assets for Collaboration
  2. Continue focus on operational excellence in payments. You have a great core. These are the services YOU OWN
  3.  Build a team focused on how you can help others, enable collaboration. Consumers are NOT OWNED BY CHASE. How can you work with 1000 start ups and Fortune 100 merchants to create great consumer experiences (this is what I’m focused on). You are doing this with Paypal.. but with Amazon you actually pitched them a “Chase wallet button” to compete with Amazon One Click (and CPT was a partner for off Amazon)
  4. Data. Len is a great guy. I know his co-founder Michael well. You will not succeed in Data unless you can put on the clothes of a merchant and act like an partner. Amex is far ahead here and this is hard for me to say. Your team works well in payments operations.. not in VALUE DELIVERY. Data is about value creation and your data must be combined with at least one other source to deliver value
  5. Change the culture and the industry. Stop the Arrogance! Payments is not a business unto itself.. it is a commerce function. Chase’s assets extend beyond payment clearing. You have the opportunity to enable market and TRUST. These are far more valuable positions than low margin settlement. You do not have the leadership in place to function like this. Everything JD touches is on track when he is involved.. but atrophies in his departure. TCH is a clear example. If I had to pick one trait to change: collaboration.
  6. For God’s sake.. play nice with regulators.. you are bearing the costs of ignoring them for too long.

My top Blogs for Banks to read

eCommerce Thoughts 2015

29 Sept 2015

Money 2020 in 4 weeks! My session is on Tuesday at 11:35. We are talking data and collaboration. Look forward to seeing all of you.

I’ve been on the hunt for a good article on the impacts to “eCommerce acquiring” from tokenization, new rate tiers, authentication, mobile… and I’m still looking. Payments is a very enigmatic space! Its just hard to believe that top 10 payment players have no idea of what each other are doing. Industry consortiums and utilities are much more political than they are threatening.. as their support at the CEO level and at the operating level are completely different. Example “Real time payments”.. A regulatory driven initiative that no top 10 bank wants to say no to.. but with no business case. So it just plods along on a 10-15 year cycle. Why would anyone in their right mind want to work on this initiative? Particularly when Square, Facebook, Google and Paypal all do real time payments for free through debit networks.. NOW.

As I outlined earlier this year in Structural Changes in Payments, there are 6 key areas that are impacting all payments:

  • Risk and Identity
  • Data/Commerce Value
  • Consumer Behavior/Trust/Acceptance
  • Issuance/Customer Acquisition/HCE
  • Regulatory/Rates/Rules (Fees)
  • Mobile/Payment in the OS

Today’s blog is on how these structural changes, and new solutions, are driving changes within eCommerce (payments). eCommerce is a “lumpy” business with 4 “payment” players managing 70%+ of the $190B in eCommerce transaction volume:

  • Cybersource US $80-100B
  • PayPal + GSI $50-60B
  • Amazon $90B
  • $14B

Obviously adding these figures up shows volume greater than the $190B in eCommerce sales, so a little more detail is necessary (Example I believe Chase Paymentech clears for Amazon, part of WMT and PYPL). What do each of these players do? For example Cybersource nits together acquirers, fraud services and methods of payments. Amazon and GSI layer on Logistics, shipping and website hosting. These are 4 very different companies. There will be some VERY large changes in eCommerce Payments which positively impact merchants, but will be detrimental to pure-play intermediaries. What was a specialized service (fraud mgmt, cards on file, checkout hosting, … etc) is becoming a commodity. Due to the improved ability to authenticate and consumer moves toward mobile.

I was amazed that I couldn’t find any articles that go through eCom intermediary services, and the impending changes that will impact payments in eCommerce. The payments industry is certainly one of the most opaque… not only is there a lack of academic courses on the subject, you can’t find any public articles that articulate what is happening. For example, a logical question for investors: What will impact PayPal US margins in next 3 yrs? How does Cybersource compete against PayPal? How do the services compare? I challenge you to find this in the press.


Before I start a discussion of the disruption and margin, I’ll give you my view on the history of eCommerce. The entire founding team of Paypal knows this much better than I do.. but let me attempt to summarize. In mid 90s consumers could buy things on the web.. the challenge was that banks had no way to manage card no present risk and fraud. Paypal and CYBS created CNP risk models. The key change here is that perfect authentication destroys the need for most risk and fraud (exceptions are credit risk and 1st party fraud… like taking your grandmothers card and using it).

Early stage companies don’t have time (or capital) to invest in large payments teams. In the eCommerce world, online stores went to gateway providers, In the mobile world Stripe and Braintree serve this function. What do Gateway’s do?? I would love to see a service matrix for the industry.. but since I couldn’t find one .. here is my list:

Front End

  • Checkout page (hosting)
  • Fraud services
  • Management of cards on file
  • Distribution of merchandise (example GSI)

Back End

  • Acquirer integration
  • Payment acceptance
  • PCI compliance
  • Taxes
  • Receipt

cybersource US



As small companies grow up their needs change. In phase 0 most start ups can’t afford to create a payments team. As they mature and go global they can’t afford not to. How do I accept multiple currencies? Paypal? Alipay? JCB? Qiwi?… Then there is global cash management, tax, compliance, … AND THE TECHNOLOGY CHANGE.


One of the big lessons we learned at 41st Parameter (now part of Experian) was that the market for eCommerce fraud services was very small. The big merchants (Amazon, Walmart, …) created their own tools, as did the big Gateways (Cybersource, Paypal, Digital River, etc) to serve the SMALL MERCHANTS. It was the medium size businesses that were too big to outsource to a specialist, and too small to create their own tools, where there was a market (example Airlines, Banks, Top Retailers, …).


eCommerce Service Providers – Long Tail Impacts




Of all the areas of payments, eCommerce is undergoing the most radical transformation. The reasons? All of the structural items listed above AND new entrants.


I like PayPal!


I am not a paypal hater, however I will continue to poke them for silly moves (like Xoom and Paydiant, and Kingsboro’s POS push). They are well positioned for 25%+ CAGR for years…. But they must change focus back to their core SMBs and “long tail” merchants.


Why long tail? Frequent readers of my blog know that roughly 60% of Acquiring profits are generated by the bottom third of the merchant base. Small merchants are where the margins are. If I were CEO of Paypal this is where I would focus my complete attention, as this is where Paypal has excelled (and it is where profitability resides). No one has proven an ability to acquire SMBs at scale other than Paypal in eCommerce.. NO ONE. Most of their competitive threats deal with consumer “Front End” components of the gateway value propositions (ex ApplePay). This does NOT address the merchant side (back end).


Paypal is by far the best in class SMB eCommerce Acquirer…. BUT

1) traditional acquirers are beginning to break in as the barriers to entry are disappearing AND

2) front end solutions like Apple Pay/Microsoft One Pay and VPP are coming to market AND

3) consumer behavior mobile shift

4) Payments are costs are moving to 0 and being bundled (ex. Google offering free shipping too)

5) Authentication is killing their core risk management asset

6) Networks are creating a new rate tier and shifting risk to banks for eCom (160 bps and no risk, vs Paypals 375 bps and merchant borne risk)


All these are threatening their existing base and growth. However most of these items DO NOT impact Paypal’s merchant acquiring directly. Paypal is a natural alliance partner of: MERCHANTS, CHASE, AMEX, and Private Label. I believe that something will happen here… the issue isn’t financial it is focus/alignment. Paypal is a super efficient on us network, that prices at Amex rates. Chase and Amex have this same strategy. Merchants want payments for free.. hence the challenge in working their directly without some other massive value proposition (see paypal at POS). My recommendation to Paypal is the same as the original founders: Stay focused on long tail merchants… forget about dragon slaying wal-mart… there is no margin at the high end merchants.


Networks – Card holder present


Tokens in Mobile, will make their way to tokens in browser and create a new form of mobile authentication which will enable payment networks to create a MUCH improved version of VBV/MSC, shifting liability onto the bank with an interchange rate between CNP and CP. Who can take advantage of this rate and liability shift? Entities that can authenticate the consumer on the mobile device (Apple, Google, ?MNOs), securely manage a token and broker identity with other parties (see Authentication in Value Nets).


How will Visa/MA roll this out? There are many, many lessons learned in the prior 3DS (VBV/MSC) roll out. Already V/MA have been talking to major issuers and eCommerce service providers. Token issuance is currently a bit of a hang up as the issuers want to get their own TSP services up and running, and the Google/Amazon, … want to run their own TSPs. If everyone would agree to use the V/MA TSP services this could happen quite quickly. But because this is NOT the case, ApplePay and Visa Checkout seem to be the only services positioned for this move.


As I outlined in December 2014 mCommerce/eCommerce Converge, there will be a new rate tier: Cardholder present. When? Next 12 months is my guess. What does this mean. Merchants that accept tokens in eCommerce will get a reduction in fees (assuming acquirer/gateway passes on) AND liability will shift onto issuing bank (aka VBV/MSC circa 2006). In the US this means 140-180 bps AND liability shift….


As I stated previously in my ApplePay blog, when this new rate tier hits, it will free Apple (and others) to transfer the token to the merchant across a greater number of protocols. In store this means that NFC will compete with a BLE experience, with NFC carrying a CP rate and others carrying a Cardholder present rate (and bank liability) that is very close to the CP rate.


I must end here.. I have been working on this silly blog for 4 weeks (part time).


Sorry for typos

2015 End of Summer Payments Update

15 September 2015

Well kids are back in school and Europe is tan. 6 weeks left till Money 2020.. and I just completed our Series A here at Commerce Signals.. wow what a summer!!

This blog is a little bit more of an inventory of things going on.. mixed with some views and general rumblings.

EMV. Its going to happen in October and the big merchants are ready. Two top processors told me that small merchants are in big trouble, particularly as the issuers will be pushing back all fraud to non-EMV merchants VERY aggressively. Think of it this way. EMV does NOTHING to help the small merchant.. currently no business bares cost of fraud in card acceptance. In October merchants must change to accept EMV or they will have the risk of fraud on their business. ISOs to the rescue? This will be a great opportunity for Poynt, Square and other merchant friendly POS/Payment providers.

Acquirers. First Data is moving toward IPO. This is a very tough business.. but as I’ve said before my bets are around companies that can be merchant friendly.. Acquirers are the entity that own the merchant relationship in a 4 party network.. so it is theirs to lose. Nothing has really taken off (incrementally here), Clovr, Card Spring, First Data’s Palantir. Why?? Acquirers have largely been put into a pricing box at the top 500 merchants with a well defined service (not much room for incremental services), and have had their reputation impugned through the ISO channels at the low end (5-7% cost of acceptance). For any Acquiring CEO reading this blog.. my action for you today is to take a look at the invoice you send to a merchant. 2-4 pages of fees that are indecipherable.. When merchants don’t trust you they don’t buy more from you. This is why I would not invest in this space without a clear understanding of the disruption.

Private Label. Rumor is that both Amex and Paypal are looking at M&A here. Makes sense for Amex particularly given need for transaction volume, 3 party model and their state of the art infrastructure. Merchants love Amex customers.. and Amex does the best job in the industry of proving the value that they bring (justifying their hefty cost).

MCX. They are set with payment infrastructure from FIS and First Data. The payment capability is there, and it takes time to build a highly scalable payments company. I just don’t see the need for stand alone app. My guess is that there will be an MCX payment instrument that sits in Apple/Google wallet… just silly to compete on “presentment”. Is the alliance fracturing? I think all participants would love to have a payment instrument that they could own and control. The issue is that there is no agreement on anything beyond payment. Mobile is too important a channel to delegate to a consortium. Also, these are fierce competitors.. The real challenge? Creating a great consumer experience, quite frankly their product team was one of the worst I’ve ever met in any company. No wonder they were considering paydiant.. one of the only options out of the DIY.

Poynt and Square. This seems to fit right in to the flow..  I love both of these companies. Why? As described above the payment industry has been VERY unkind to retailers. Poynt and Square give retailers a greatly simplified hardware, software, and acquiring solution. As a small merchant moving from 5-7% acquiring to 2.75% is a rather simple value proposition. I believe Poynt has several significant advantages over Square: 1) Square has a 6month+ certification process on Apple devices. Whenever it changes anything in its app… it has to go through recertification by Apple. Poynt is the ANDROID of Point of Sale solutions 2) By staying off of Apple AND adding a separate stand alone processor for non-payment applications, Poynt can deploy more applications more quickly and act as a platform for other services. 3) Poynt has a powerful data solution that puts merchants back in control of their data, 4) Ergonomics/Design. Just beautiful. Chip/DIP, Chip Contactless, QR, BLE, customer facing touch screen (not a swivel stand) all work seamlessly without having to pick up the terminal and try to stick your card into a slot. Well done Osama and team.

Paypal? Not much of a stock pop.. I’m very high on the Dan and Bill. But their core asset (eCommerce risk management) is being rendered moot by great mobile auth. When Microsoft (OnePay), Google (Wallet), Visa (Checkout), Apple (ApplePay) all moving into eCommerce they also risk loosing consumers. One of my biggest beefs is their treatment of Venmo volume in TPV (it is 0bps). Rumors are also that they will lose Uber within next 6 months.. and worked a special deal to keep them with take rate below 90bps (perhaps a driver of their margin drop). Merchants are a natural ally here, but Don K really mucked things up with their POS try. It will take 2 years to get things in shape here.

Visa/MA.. They are my biggest holdings.. no change in my views here. VDEP and MDES have positioned both with new power to tokenize and own the rules on mobile. I expect to see a new CNP rate for tokens within next 9 months.

Google. Big news 9/10 (See Blog). Google wallet now on all phones KitKat 4.4 and above (50-60M in US). I love it.. This is the PLATFORM FOR PAYMENT INNOVATION. The user experience is not on par with Apple (or even Samsung Pay).. but Android users are more technical (only 6% of iPhone owners have ever used ApplePay). There are some BIG pluses over Apple, I love that it shows the ereciept and location of purchase for instance (most issuers). Very surprised that Google is still looking for bi-lateral deals from issuers (in order of $10M with no bps). This is why we don’t see many issuers at launch.  What is funny is that there is a “free path” to issuers as well. If they don’t want their card art.. issuers can still just “turn it on” via the V/MA intranet tokenization route (register BINs). Funny that the big hold out is JPM.. given its data play.

Apple. I wouldn’t be surprised to see an ApplePay product announcement in October at Money 2020. Note that my track record is near perfect here so I don’t want to mess up 2 years of predictions. I know that Apple has ApplePay working in Safari, don’t know if they will roll this out our not. I also know that Apple went back to issuers asking for an “Amex like experience with eReciepts”. The issuers said “sure we can do that.. lets first tear up that 15 bps contract and talk about what you will pay me”. My sources say that beacons are a part of the next launch.. they could be just feeding me *&^*(&.  My guess on new release? 1) New Developer Support Program and rollout of Private Label/ Synchrony, ADS and Citi. 2) Improved “eReciept” process (like Amex) in order to compete with Google. 3) ApplePay in Safari (60% chance.. it is working but don’t know if they want to push yet before new token CNP rate tier). 4) Beacons at POS. Improve retail experience with beacons (40%.. again working in lab but don’t know of readiness).

The big Apple news that everyone is talking about is their plans to finance phones directly (end running carrier subsidy dependencies). As I’ve stated before, Apple’s phone is already capable of enabling a virtualized SIM. This is the one step needed before Apple enables consumers to “switch” to the lowest cost network every month.. or every day. This obviously has big implications for Gemalto as well. Google is 2-3 years behind, but is making more progress in enabling wi-fi as network option.

Innovation. Chain getting investment from NASDAQ, Visa, Citi.. is big news. I remain very positive on use of bitcoin as a disruption to Payments (see blog structural changes to payments). I also live industry specific solutions where payments are combined with something else to solve a problem. hyperWALLET for global payroll, justpushpay for construction, WEX for fleet/gas. I also love payments and data (hence commerceSignals), in this Klarna and Sofi are just tremendous ideas.

Going South

Samsung Pay. No change in my views here. What is sad is that they didn’t know that their entire application is incompatible with Android M (until they read my blog). Working with a competing app on their own phones with no registration.. just sad.

Card Linked offers. Guys don’t believe the press.. all of these things are dying. Even the most successful (cardlytics). Citibank is rumored to have called EDO to come pick up the pallet of their equipment (after 300M+ spent).  The good news is that their transactional data is in better shape for use.

Gemalto. Stock is at a 5 year low.. I told you guys to be short here. NO MCX, No GSMA NFC SWP… now Apple is pushing the SIM out of the phone altogether (or soon will).

Monitise. I want to end on a humorous note. This company did a great job at enabling online banking 8 years ago.. enabling “check your balance” functionality via a quick integration to the ATM switch. They pivoted in 2006/8 to support development on an array of handsets (Nokia, RIM, Apple, Samsung, …) with their only competition being mFoundry (acquired by FIS). But the phone complexity went away with 2 mobile OS (Android and iOS) and the rapid shift of mobile from the periphery to the center of the customer relationship. No bank will outsource the CENTER.. mobile development was a specialized skill.. now it is mainstream. As if this were not sad enough, they hired a US network exec with no EU experience, no mobile experience and no network of issuers (that liked her). Then she pushed out the founder.. only to quit last week.  Wow .. I hope the BBC can make a Silicon Valley (HBO) equiv.. only make it more of a Shakespearian tragedy.

Android Pay Now Available

10 Sep 2015

Big news for 50+M Android phones with NFC in the US. Expect to see a very fast international expansion to this as well.

Why is this big news?

  • Payments are now in the OS (see blog). This is a PLATFORM not a just a “wallet”. If you compare Android Pay to Apple Pay the user experience is not quite a good, and most would ask (logically) what is different than the Google wallet launched 4 years ago. Under the covers the new AP “changes everything”. Google’s approach to security (Trust Zone, tokens, authentication, Host Card Emulation,…) and management of secure credentials has moved into the Android OS. Google Wallet (not mentioned in this PR) is an app that uses the standard Android Pay APIs at parity to any other wallet. This means that Google could care less about “wallet”. Can banks create their own app that does payment? Yep… Can a retailer? Yep.. can a health care provider store secure credentials? Yep..
  • Google is the “open” platform for Banks and Retailers to innovate on. As I’ve stated before, the objective of any platform (and network) is to have millions of people investing to build value. Payments work very very well… Google is approach is to let consumers and merchants decide what they want to do… and we will provide the “reference implementation” (See Open Innovation, Structural Changes in Payments). This first release works on Android KitKat 4.4 and above. The next release (within Android M) will bring about some massive security changes (TEE/Trust Zone) that will render other apps like SamsungPay obsolete. Google Android and Apple iOS are working to establish an identity brokering role that is FAR MORE VALUABLE than any role in payments.
  • Google is creating a PLATFORM for a new mobile ECONOMY (see blog). If you were a bank or a merchant what mobile platform would you invest in? There actually isn’t another choice… Apple is not a platform.. Apple wants to define, own, and brand the consumer payment experience. Apple has chosen NOT to create a platform. As I mentioned in blog above, this platform effort involves 5 primary vectors:

-Enable Android as the secure platform (SE Linux, Trustzone)

– Incentives for all to invest in commerce “network / platform”

– Improve physical world insight/data collection to enhance targeting and attribution

– Capture and manage consumer identity

– Create/enhance consumer engagement platform for commerce


  • ApplePay volume is leveling off… yes it is still growing, but usage is not taking off. I still believe that the ApplePay experience is the best consumer mobile payment experience ever designed. But it does nothing differently than my card. Actually my card swipe is faster. Perhaps it is muscle memory.. Apple has gone back to big issuers asking them to for transaction notification (ie “Amex like experience”) as today banks have not provided. Bank response? This is funny…. Banks said “sure we can do that.. but lets first tear up that 3 yr 15bps agreement and talk about what you will pay me to make that work”. Apple’s consumer base is just amazing, but they are a TERRIBLE PARTNER (see my blog). ApplePay has managed to alienate both Banks (15bps) and Merchants. They listen to no one. Alternatively AndroidPay is like a set of Legos… build what you want..
  • 50M-60M phones turned on at once. While Android demographic is 3x the phones.. they are at the bottom of the spending quartiles. But there is power in numbers, particularly given the fact that merchants are very reluctant to do anything the doesn’t help all of their customers. Remember the first Google wallet was limited to Sprint and Citi (GW 1.0) the next enabled all issuers (proxy card) but mobile operators still did not support (GW 2.0). In this latest iteration Google acquired the US MNO wallet consortium Softcard and has their buy in. Additionally when Android M rolls out.. all payments will go through them (Sorry Samsung I told you so).
  • Tokenization/VDEP/MDES. This is the first major rollout post VDEP/MDES with 0 bps for “wallet” providers. In an odd twist, google is going to market with only a handful of banks as it requires a marketing bilateral for marketing spend.  One issuer told me the fee was $10M.. ! wow.. So if you want your card art on.. and Google press you must pony up the money. If not.. your card will work otherwise.. same issuer registration process as with ApplePay.
  • Beats SamsungPay and the new ApplePay update to market (more on this next week). AndroidPay completely kills SamsungPay (see my blog with Loop CEO depating with me). Samsung is not built on Android M.. so all the user interaction for card registration will have to be done all over again when redeployed on Android M.. unless Visa and MA do the work of reissuing tokens during the OS upgrade. SamsungPay may have an edge on AP on user experience.. but this product is 4 years too late to market (the MST Loop Stuff). The idea of it launching just before the EMV Oct date is just plain silly. One retailer brought up the idea of putting a lead/iron sticky strip on the terminal (over mag head) to keep it from working.



Collaboration and the “Sharing Economy”: What does that mean?

5 August

As I wrote back in my May blog Internet 3.0 Collaboration in Commerce, Communities and Networks, we are transitioning to a new era of collaboration. The industry buzz word is “sharing economy” but this is a little too altruistic a moniker for my liking.  If an elephant was taken down by 1 million ants there would indeed be sharing… of the carcass!

Indeed the implications of collaboration and reduced Transaction Cost Economics (TCE) are much broader than “sharing”. As Uber demonstrates, existing industries will be taken apart and re-assembled through external orchestrators.  How can companies deal with the “unstructured complexity” of new market based orchestration, open APIs with unstructured requests for their data across thousands of new partners? This is our focus at Commerce Signals.


I’m currently reading the works 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). Here are a few of the books I’m reading (for those interested):

There is no way to summarize the work of 2 Nobel prize winners in a blog, but I would like to focus on one element: Transaction Cost Economics (TCE).

Transaction Cost Economics (TCE) dictates the structure of a company


Ronald Coase, used a TCE framework for predicting when certain economic tasks would be performed by firms, and when they would be performed on the market. From this Williamson Paper

Ronald Coase posed the problem more sharply in his classic 1937 paper, “The Nature of the Firm.” He, like others, observed that the production of final goods and services involved a succession of early stage processing and assembly activities. But whereas others took the boundary of the firm as a parameter and examined the efficacy with which markets mediated exchange in intermediate and final goods markets, Coase held that the boundary of the firm was a decision variable for which an economic assessment was needed. What is it that determines when a firm decides to integrate and when instead it relies on the market?

Today, our network, and services, are evolving in a way that supports new mechanics for transacting: Authentication, reputation, coordination, contracts, risk, discovery, trust, …etc. Uber is the best example of this. We all agree that Uber’s success is reallocating the “assets” of production in a more efficient form.

As stated in my blog, the boundaries of [established] organizations will be changing as a result of changes in TCE and common facilities to construct agreements and partner outside of their organization. Modularity is the key technical term describing how business must structure boundaries (specifiability, measureability, predictability). What services do you want to make available? The answer to this question is NOT a technical problem, but a business one. Amazon is one of the clear leaders in modularity. The rules in which modules operate are “platforms” (technically) and “markets” (from a business perspective). After if everyone built their “API” in a different technology with no common directory it would be useless. For those interested, CommerceSignals is this neutral directory, never looking at the data.. but switching it as directed.

Collaboration what does it mean?

I guess it depends on your point of view (the elephant or the ant).  Look at the Google Buy Now Button (see my Blog). Google gets everything I’m saying in this blog (guess they listen well). Google Buy Now is a Partnership Platform (see blog on Google’s Strategy) for advertisers and physical retailers. Local retailer uploads store inventory, google helps them get customers to buy.. and ships the goods to the customer’s door twice a day with an Uber like delivery services (shopping express).  With all of these services Google will be in a position to guarantee sales.. For example if I’m a local specialty retailer Google could propose: I will drive $100k in sales for $1500… This is a MUCH bigger deal than Uber.

Who do you work with? Are you the lead? Are you the follower? Who decides? Who sets the rules? My favorite collaboration story at Commerce Signals is from the Chief Marketing Officer of a National Movie Theater chain. Brent said “Tom I’m the anchor tenant at 500 locations, I’m surrounded by 10-15 restaurants and 20-40 retailers in each of them, when I win they win. It is my community that competes with my competitor’s community, yet I have no facilities for collaboration. My data just falls into the trash can, how can you help us”?

For example every Fortune 100 company wants a “big data team”.  These companies have internal plans based upon internal data driven by internal teams.  While I agree that determining what products and consumers are profitable is a key area for everyone, the REAL VALUE to be unlocked is at the intersection of your data with something else. Afterall what company can compete with Google, Amazon and Facebook in consumer insight!?

One of the MOST SIGNIFICANT developments in last 5 years is that there is now a broad recognition that collaboration is necessary. For example Bank’s spent over $400M (EACH) trying to make CLOs work, MNOs spent $600M trying to make payments work, .. I could go on. Commerce is about markets. Markets are about connections. We are moving from an era where every Fortune 50 built their own closed market (where no one showed up) to a model where at 2 or more work together (Closed to semi open to …??open). The early battle in this shift to collaboration is Google, Amazon and FB (GAF) vs Everyone Else. What ONE COMPANY could possibly compete against GAF?

Collaboration is more than just advertising and demand how do you work with specialists? What parts of your organization are not best in class? When should you have your own internal team, vs an external one? When should you build and when should you buy? Technically we see this dynamic in great companies like Salesforce and Amazon Web Services. Uber and Google Buy Button have given us business led examples.  The challenge for existing enterprises to adapt is tremendous. From a management perspective how do you manage a collection of suppliers vs a hierarchy of employees? If you have challenges managing internal compliance, how do you do it across many external organizations? How do you specify the “unit of work” to be performed and how do you measure it? What is a 1099 employee? In which country/State?

This is where trust, reputation, markets and the strategies of (distributed) modularity come to play.

My Fortune 100 recommendations (from previous blog)

Action plan

1) List out your most valuable consumer insights

2) List your top growth opportunities

3) List the top sources of new revenue from existing customers

4) Where are your greatest threats?

5) What are you not acting on?

6) Who can act on them more effectively?

7) How can you partner one time?

8) How can you enable 100 companies to run with the opportunity?

9) What needs to be measured?

If you don’t take action.. the swarm will …


Sizing up Paypal’s new competition

16 July 2015


Huge announcement yesterday on “Amazon’s Prime day”. Google rolled out the first glimpses of its new cross organizational product yesterday “a Buy Now Button” just in time for rain on Amazon’s Prime day

This has potential to be both an Amazon killer and a Paypal killer. My frequent readers are going to roll their eyes .. but to recap I’ve been consistently championing the view that the future in profitability for retail, mobile and payments (and Google) is in Commerce Orchestration. See Blogs

The Buy Button is a HUGE effort by Google that represents well over 3 years of work and spans multiple divisions (search, ads, local, payment, shopping express, android, maps, …etc). Sure Google builds cool stuff and then looses focus as its engineers go on to do the next cool thing. But how many efforts within Google have spanned 4 lines of business and took 3+ years to pull off!? This one is a VERY VERY big deal for Google. Lets talk about WHY they are doing it.. and what it is.

Why a Buy Button?

Most product search now starts with Amazon. Amazon has become THE STANDARD source for price and reputation… but it is also the PRIME hook (I’m very loyal). Searching for a product is THE MOST important source of consumer intent advertising and “commerce orchestration” are both dependent on understanding this intent.

Google wants to create a PLATFORM for commerce (per blogs above), its current customers are merchants, and consumers… While Amazon is redesigning RETAIL Google is enabling Merchants to compete (with Amazon). This will bring both merchants and consumers into Google’s world to interact. Google is creating a MARKET to help millions of merchants and consumers (in both virtual and physical world). Where Amazon is creating a new retail model that destroys most existing retailers.

The problem with this Google vision is that retailers (and consumers) are loosing substantial data within this interaction and that you must use all Google components to make this work. My newco Commerce Signals is working to facilitate this same commerce interaction without the Google “lock in” by enabling each entity to own and control their data (federated data) with NO DATA stored centrally. After all what organism in nature exists that knows everything about everything… the “God” structure..!? (hmmm same first two letters.. ).

What is the Buy Now Button?

As you can see from Google’s site, elements are

  • Search with buy button (was offer ad extension)
  • Integrated local store inventory
  • Payment
  • Google Shopping Express (delivery)
  • Android
  • …?

With this utility, a local merchant can upload their inventory and compete with Amazon. The consumer can receive the goods to their house same day (via Shopping Express). This is just brilliant.

How on earth can Paypal compete with this bundle? Particularly as they divest their distribution business (GSI spin off announced today).

Visa Checkout

I’ve been a little bit skeptical on this but have actually come around based on conversations with top 20 retailers and Acquirers. Visa has a carrot that I never knew about. The Visa Preferred Partner (VPP) program. Anecdotally, Visa works with acquirers to guarantee a blended rate across all cards. This can be as much as 30-40bps. VPP has been around for a few years, but this year Visa has evidently made promotion of Visa Checkout a requirement for participation. This incentive, combined with tokenization and new rate tier (card holder present) and a forthcoming liability shift means that total blended eCommerce costs could be as low as 160bps for credit with Bank issuers holding liability for CNP transactions.

WOW. This is a BIG BIG Carrot. I project that 80% of the top 20 US merchants will have Visa Checkout by next year. Why not!? Visa has the added benefit of CYBS assets to move this to market quickly.

Paypal’s headline eCom rate is 375bps.. with no liability shift. You don’t have to be a rocket scientist to do that math.

ApplePay Private Label

5 July 2015

Last month I discussed on “twitter” how Mastercard has enabled private label on ApplePay. Thought I would back that up with a short blog. First I recommend reading Jason’s article on Re/code from June 9 and the Mastercard Press Release outlining its role as “First Network to Add Tokenization Support for Private Label”, and this Synchrony PR outlining use of MDES.

Private Label Today


General flow of Private Label Plastic today

See picture below from an excellent Green Sheet Article

PL Switching


Private Label issuers Citi, ADS and Sychrony are leveraging Mastercard’s presentment and acceptance applications, as well as their TSP (token services) to route private label through the MA network. Key requirements for ApplePay Private Label:

  1. Card emulation application on the iPhone (card presentment)
  2. Card acceptance application on the payment terminal, and
  3. Acquirer processor to “route” the transaction to the “bin sponsor” and private label issuer. Remember that many payment terminals are “owned” by the acquirer.

Within the latest June ApplePay announcement, there are 3 options for PL integration.

Option 1)  Private label card looks like a MasterCard through authorization. Benefit: no payment terminal mods, no acquirer involvement.

Con: Everything would process fine in this model, but there would be limited integration of PL incentives (real time) at the merchant POS. For example if PL customers had a special discount.

Option 2) Leverage Mastercard for card presentment and tokenization with a “new card acceptance application” at the POS. I believe this will be the primary model for most PL programs, thus requiring a software upgrade to the Payment terminal to translate the MA token into the PL card. Think of this as MA powering the “token service” for PL cards.

Apple PL

Option 3) Of course PL cards could just be held statically in the wallet, but this would challenge “security” at 2 levels: Issuance/provisioning (binding card to APPROVED user), and Fraud (use of PL without ID)