Tilting the Networks… a MASSIVE Change

4 July 2015

Payments make up far more than 70% of my personal portfolio.  This investment strategy has been a great bet. Take a look at the 5 yr investment performance of Visa and MA. 333% growth in MA and 247% for Visa.  5yr return payment stocks

From Mar 9 2015 Seeking Alpha

5087541-14257348899867501-Market-Pinnacle

With this exposure, I keep close track on structural changes in the industry, which I outlined in my January blog Structural Changes in Payments:

  1. Risk and Identity
  2. Data/Commerce Value
  3. Consumer Behavior/Trust/Acceptance
  4. Issuance/Customer Acquisition/HCE
  5. Regulatory/Rates/Rules (Fees)
  6. Mobile/Payment in the OS

Will these structural changes… is my current V/MA at risk? Is there something else I should be moving toward? No way!  I think Visa and Mastercard are start ups that have just begun realizing the value of their network as they EXPAND NODES and SERVICES Let me try to explain why am I such a bull on these  payment stocks.

Network Tilt – Toward Merchants

As most of you know, V and MA were started as Bank consortiums (see Wikipedia and MA History). Rules (and rates) were thus defined by banks for both credit and debit (see this blog for debit history). As a former Banker I never fully understood the Retail view of Visa and Mastercard. For example, Walmart pays an estimated $1.3B in interchange. Most merchants would admit that the benefit from electronic payments and ubiquitious acceptance. Even Mike Cook says that “no one complains about the network fee side of card costs… it is the issuer side that everyone has a problem with”. In other words Visa and MasterCard earn their fees (it is the issuer reward schemes that drive merchants bonkers).

As stated previously Payments, in their simplest form, are a brokering business which manages value exchange between two entities engaged in commerce. Logically, a broker must be removed from the transaction to maintain the trust of both parties, and deliver value through managing the financial risk associated with the transaction. My view is that Card issuing banks, have lost the neutrality of their “brokering” role by creating a card rewards system that incents card use (paid by the merchant). However, this ideal “neutral” world is NOT the nirvana that we should seek, as no one would invest and we would be stuck with cash.

Complexity in payments is driven by the quest for control and margin of the various participants, NOT by necessity. This is what makes understanding payments so hard…. most of the changes are not logical, but political. The friction (inefficiencies and illogical design) in payments is what makes them work. As I’ve stated before, no engineer would design a payment system to operate the way we do today (see Push Payments). Thus there is beauty in this chaos! The V/MA model created incentives for 1000s of banks to invest in payments, and I doubt if we will ever see any other companies that could repeat this feat.

Both Visa and Mastercard realize that their future rests in leveraging their neutrality, thus “tilting” away from their prior “bank centric” model into something that is MUCH MORE merchant friendly. Bank issuers certainly WANT to be in this role, for example the largest US Visa issuer JPM has created a unique off VisaNet transaction routing (see blog) and is building a new data business (ChaseNet) to compete here. The bank efforts are completely stunted as there is no path for obtaining critical mass is a closed network that requires both merchant and consumer consent.  American Express is the clear leader here, but their network is also stunted through its focus in T&E, affluent and business travelers.

Visa and Mastercard win when consumers and merchants transact.  Encouraging use by consumers, and acceptance by merchants, is top priorityThe future of the networks is COMMERCE. This may seem like a logical statement, but historically Visa and Mastercard acted as extensions of the large issuers. Look for both networks to create new teams to rebuild relationships with merchants.. they know they have work to do.Visa-AmEx-Are-up-MasterCard-Discover-Are-Down-3 (1)

What is “Tilt”?

  • Phase 1 – Rules and Facilities to Enable Competition
  • Phase 2 – Merchant Friendly Services / Merchant Rules Setting
  • Phase 3 – Competing with Banks (V/MA Opening up to non Banks)

The First Phase of tilting involves creating network rules and facilities that are favorable to the merchant and/or take away control from issuers (to enable issuer competition). 2015 winners include

#1 VDEP (Data protection and $0 wallet fees)

#2 Visa/MA Token Facilities

#3 ApplePay requiring debit card enablement

#4 Mastercard’s new Merchant Insight Service

Payment industry is very heterogeneous and highly tiered. Large merchants like Walmart, Target and Kroger are able to support strategy teams that can negotiate very competitive payment rates with issuers and acquirers. Similarly the large banks can build multi billion dollar fraud and square pricingauthorization infrastructure. My rule of thumb is that the bottom third of any acquirers merchant accounts (SMBs) result is approximately 60% of their earnings (hence the success of Square).  As an example, try to find the cost of payment acceptance at Chase Paymentech, now do the same at Square or Paypal.

Tokenization and EMV have taken away issuer advantages (control points), enabling smaller issuers (competition). They have also enabled competition in eCommerce and POS acquiring (bringing down merchant costs). Take a look at this must read article from paymnts.com 13Nov14. “Tokenization has opened up this whole world for us to be able to use digital devices to be a meaningful part of the payments flow in a way that (those payments) wouldn’t have in the past,” – Scharf at BAML Banking & Financial Services Conferenceglobal digital snap

On this last point, Visa and MA are growing from 1.9B cards to their “network” into mobile, creating services that will be critical to deliver payments and authentication/authorization in the channel that is capturing consumer time like none other.

Phase 2 – Merchant Friendly services. The number one Retailer issue is “who are my customers?” As I outlined 3 years ago in Payment Enabled CRM, payment networks are well placed to solve this (given consumer consent). These articles provide an overview of 2 new services coming out.

  • 4 June 2015 – Loyalty360. Visa Commerce Network. From Michael Lemberger (Visa VP Offers and Loyalty Solutions) “creating strong connections across commerce is an important piece of the payment ecosystem. As such, Visa also is developing and employing innovative loyalty platforms for merchants to engage with their customers in meaningful and compelling ways”
  • Mastercard Market Insights. [Report] analyzes extensive purchasing data to provide insights into restaurant level econometrics and trends, such as changes in sales, average ticket prices, and customer frequency across fast-casual, casual and family dining restaurants

Phase 3 – Competing with Banks. Banks tend to believe that everything V and MA do is “theirs”. The predominant view was best captured by a former head of strategy “we built these companies once, and we can do it again”.  Thus the definition of competition is rather squishy as banks believe that they own everything. Today every Visa “member” must be a bank. We are starting to see consumer direct services and merchant direct services (Mastercard MoneySend/Omney, CYBS/Visa Checkout, Mastercard Local Market Insights, …). This is MORE THAN ANYTHING turns Issuers apoplectic.

From an investor view I believe that Visa is much more cautious in remaining neutral, whereas Mastercard is much more aggressive in delivering new services. For example few know that Mastercard holds money transfer licenses, or may have purchased a processor (Omney). A key objective of MA may be to create a commercial payments business with debit cards as the key “down line” for disbursements. See http://apps.mastercard.com/#!/app_details/omney#top

The real battle will be on DATA. Issuers strongly feel that they have 100% ownership of payment data. Yet Visa/MA data also belongs to the merchants (for the restrictive and squishy purpose of loyalty and redemption). JPM felt so strongly about this rule that is specifically took its data out of VisaNet purview as part of the 2012 deal. Every payment player is chasing after ADS and Amex in their capabilities to become a “super charged marketing scheme”.

Mastercard has a BIG win by becoming the payment network behind the ApplePay private label enablement (as I discussed on twitter). Take a look at the private label graph above (relative to total number of cards). Private label is a super charged loyalty scheme that I’m keeping a very close (investor) eye on. I believe this may be the first REAL driver of Merchant Friendly “tilt”  that delivers substantial revenue. It is also a reason why I believe ADS will be aggressively chased as an acquisition target.

Revenue/EBIT

Visa and Mastercard are trading at roughly 30x earnings. Today they take less than $0.02 per transaction. Incremental revenue on existing volume through tokenization (see MA Digital Enablement Fees),  and new retailer friendly data services should add at least 10%-15% in near term depending on “wallet” success and merchant adoption. The future for V/MA profitability rests in their ability to balance the merchant Tilt with neutrality, and “stepping on Big bank toes”. As if this growth opportunity were not enough…

Global electronic payment growth is still positioned at 25%+ CAGR. The best industry payment report (IMHO) is from Cap Gemini https://www.worldpaymentsreport.com/ a must read for anyone. Globally electronic payments are in their infancy. Roughly 90% of the world’s electronic transactions happen in the top 10 markets (< 10% of the world’s population). What happens when the other 7B people on the planet get a card (with their phone)? The global growth opportunity for V/MA is 35% CAGR in just about any economic environment and independent of local market payment schemes (ie CUP, Rupay, ELO, …). The payments world continues to look for the “next Brazil” (BTW it is NOT RUSSIA), but it is everywhere. Paypal is another network that capitalizes on this global growth trend (in an eCommerce segment that is growing even faster than the “payment market”).  The emerging markets I like best? China, Columbia, Peru, Ghana, Nigeria, Tanzania, Pakistan, Philippines, Indonesia…  The markets I stay away from? Europe (see SEPA Blog).

Have a great 4th of July…. And go buy V/MA.

Visa’s VDEP is HUGE – Reason #1

VDEP is a MASTER STROKE! WOW! A Brilliant move by Visa to make payments, wallets, tokenization and USE easy.

I thought I was the last one to know about VDEP (see PR). Turns out I was one of the first.  Today I was at a top 5 Issuer and Google just called them to say Wallet (errr correction Android Pay) is delayed a little while they finish token integration.  Google initially wanted 15bps (like Apple) and had 6 or so bi lateral bank agreements in hand (see Bank logos displayed on Android Pay’s site for who signed).

android pay

 

Some of the banks (like JPM) said no way.. and you should pay us “Google you are no Apple”. The chaos of some cards not in some wallets was just about to hit, when Visa created common ground. Telling everyone (banks and wallet providers) that if you accept tokens, you accept all wallets (and all cards). Also setting rules to limit (read eliminate) data leakage from the transaction/wallet, and ensuring there is no discrimination (CARD OR WALLET). This basically BLEW UP all of Google’s bilateral deals (looks like 6 of them).. Google initially was more than a little upset .. resulting in CEO level conversations. I believe Charlie and Jim McCarthy told everyone why this was a good thing: Establishing a common token facility with wallet provisioning facility + new rules on use.

Banks can now expect to enroll in Google wallet much they way they enroll in Apple Pay.. only guess what ? NO 15bps!   This same flow will also happen for errr… Samsung Pay… and I would guess other token schemes like Visa Checkout (eventually).  This is just a masterstroke.. it would take me 10 blogs to explain in order to do this topic justice.

Now every bank can provision any Visa card to any wallet that abides by the rules of VDEP! This GREATLY simplifies the old NFC provisioning process.. as an example.

WHAT ABOUT APPLE’s 15bps?

Well good news for Europe and ROW is that it will be 0.. that is right.. no more bps for APPLE!! They question then becomes when does APple’s 15bps expire?  I have no idea..

Google’s NEW AGREEMENTS

Google is now running around with NEW agreements for rights to display the Google/Android Pay logo. Deals include mandatory advertising spend. My recommendation is to ignore this for next 4 months or so.. your card WILL BE ABLE to be in Google’s wallet. You don’t have to spend a dime unless you want to display Google’s logo somewhere.

… on a funnier/sad note.. Apple is rumored to have met with TCH last week to discuss an alternative token scheme (to Visa/MA). Good luck with that!

Why SamsungPay is Toast

Samsung Pay has 2 parts

androidlknox
Android L

1) NFC (Contactless EMV ISO 14443 stuff)

2) MST (Mag Stripe Emulation)

Both “could” work in the new Google world. But Samsung does not seem to be aware of the new Android efforts to build an organic security solution within Arm’s TrustZone that completely steps on the proprietary work they did (mostly with Knox). For background, see the following articles

– Android L vs Samsung (see this article)

Samsung Knox 2.4 vs Google For Work

Samsung nixes Knox – Bob Eagan

The BRAND NEW Google for Work Security Whitepaper

Historically, NFC wallets driven by GSMA’s SIM based approach require MNO support (keys for either SIM based or for embedded). SamsungPay was based upon a new software SE that ran within its own proprietary security architecture.

Android for work
NEW Android M

Problem is that Google’s new Android M steps on Samsung’s security architecture. Both are claiming the same space.. Sorry I can’t be more specific.. I’m almost 50 now and have lost most of my real skills.

Now Samsung could redesign its wallet, give up its security architecture and run within Google’s HCE environment. Samsung pay would operate as Google wallet does.. at Parity. But Samsung is not currently running in this model.. Samsung could also launch a loopPay only wallet that works in this model..

Why are Google and Samsung so focused here on payments and security!!? See my blog on Brokering Identity, and Authentication in Value Nets. The key to future profitability within mobile is about managing interaction between the physical and virtual world… security, identity and authentication is EVERYTHING.

Forget about technology.. here is the real problem

Let’s assume that Samsung solves ALL of the technical issues above and now SamsungPay works on all Android devices. Everyone knows that MNOs decide what gets pre-installed on the phones they subsidize (even Apple). Six weeks before MWC, Google made a strategic deal with the US MNOs to buy ISIS in exchange for Android Pay (the new Google wallet) becoming part of Google Mandatory Services (GMS.. just like search and gmail).  Part of this is also a new android registration flow that addresses THE KEY weakness of Android profitability.. it gets consumers to add a card and play account (Apple brilliantly required an iTunes… with accompanying credit card.. in launch of iPhone).

Samsung’s wallet could still work.. however IT IS NOT PRE LOADED.. so this is what the consumer would have to do (AFTER REGISTERING FOR ANDROID PAY):

1) Find out about Samsung pay

2) Install Samsung Pay

3) Register for Samsung Pay

4) Understand where they can use Samsung Pay

5) Wave it near the Mag Head reader

6) Then use Android pay for in-app and play purchases..

Forget about the technical issues. In a world where only 6% of iPhone 6 users have ever used mobile payments..  What Mobile wallet has ever succeeded without:

#1 MNO Support

#2 OS Support

#3 Merchant Support … PLUC

#4 An ACTIVE COMPETING WALLET in same phone

Samsung .. just drop it… !? there is no longer any revenue or data rights associated with it.

Short Post – is GSMA’s NFC Dead?

Is Google prohibiting SIM based NFC?  How does Android M impact the SIM Model? I’m tired of answering this question so here is the answer to this multifaceted question.

1) Android M
2) MNO Agreements, Google Mandatory Services
3) HCE

Take a look at https://developer.android.com/guide/topics/connectivity/nfc/hce.html. Android technically supports ISO 14443… so technically any OEM or MNO can build a handset with a GSMA SIM based wallet in Android. There is not a technical limitation in Android that would prohibit GSMA SIM Based Wallets. But why would you want to build one?

Google has created a new Google Mandatory Services  (GMS) agreement with Android Pay as part of it. Do carriers have to agree? of course not.. but it is a double edge sword, not agreeing to Android M + the new GMS agreement means MNOs/OEMs will not recieve the latest Android updates/capabilities (in app payment, biometrics, …). It is a great big support headache for OEMs and MNOs.. they are left holding the bag on Android support. Some can do it …. Android started out as a free open source software.. and it still is.. but Google’s core services have become much more secure running in SE Linux. Anyone can still use the free open source Android.. but if you want to use Google’s versions there are strings attached. Those services come in the form of OEM and Carrier agreements.

HCE + Tokens is a new construct supported by the card networks. I have many blogs on the topic. Google provides OEM, Banks, MNOs the API to build payment capabilities into the phone for free. A further BIG advantage is that Visa and Mastercard have set up fast “on ramp” services that drastically simplify card provisioning (all at zero cost to everyone). In essence.. this new approach has greatly reduced the complexity of the entire contactless payments process. My GSMA friends HOWL at how unsecure HCE is (compared to hardware/SIM based payments) but this misses the point. HCE + Tokens + Mobile Auth is far more secure then any piece of plastic out there today. See http://blog.starpointllp.com/blog/?p=3638.

See my blog What part of NFC is Dead (The GSMA Part)

On a related note, I just responded to an email on why Samsung Pay is dead

1) Agree that Samsung has new TZ architecture w/ SW SE
2) Agree that Samsung has not sold MNOs

What Samsung still does not get is that their new SW SE will NOT WORK in Android M. Google has also built a SW SE.. that COMPETES with Samsung’s … no one is writting about this. This is the issue beyond the US. Samsung spent quite a bit of effort making this work.. but now Google has defined the SW SE.

Net is that Samsung pay has problems for 3 reasons
1) no MNO support
2) No SW SE in US (OEM Config)
3) no load of their wallet on phone

” ———–Update 8pm  From anonymous source

It seems that in the US, Samsung plans to create and certify a new software secure element within the ARM Trustzone architecture that precludes the need for SE Keys, avoids US MNO SE Key Ownership issues (that can’t make MNOs happy) …

This is a great technical approach, but is doesn’t appear that Samsung has bothered to sell US MNOs on the concept (of going around them). Anything US MNOs subsidize they must approve.. Which means no pre-installation, particularly given the new Google relationship outlined below.

—————-”

 

Payments – June 2015 Current State/Updates

Mobile Payments – 2015 Current State

Lots of stuff going on right now.. hard for me to keep track. Sometimes just writing this silly blog helps me coalesce all the information coming my way.

As I outlined in January’s Structural Changes in Payments, payments and banking are evolving at an amazing pace. Thought I would cover news worthy items that touch on the top areas I outlined:

  1. Risk and Identity
  2. Data/Commerce Value
  3. Consumer Behavior/Trust/Acceptance
  4. Issuance/Customer Acquisition/HCE
  5. Regulatory/Rates/Rules (Fees)
  6. Mobile/Payment in the OS

 

Top Items

  • Visa and Mastercard have “won” the payment wars. They are in control of mobile payments, EMV, tokenization of cards, new rules (ex VDEP). They are now starting to “tilt” their networks to be more merchant friendly to enable commerce collaboration (see my blog from last week). Even in Europe where interchange will be capped at 30bps for credit and 20bps for debit the networks win (no change in network fees).
  • Visa working to buy Visa Europe.
  • Visa’s VDEP program. A major announcement. VDEP is to Tokens what VisaNet is to Cards. VDEP is the KEY ENABLER of Payments in the OS. Visa has established rules that will greatly accelerate mobile payments. Removing all economic incentives and data from wallet providers and enabling frictionless enrollment/adoption/use that is consistent with how physical cards work today. Wallets must find another way to make money. I am a very very big fan of Visa’s move here and the have greatly expanded their role as the hub of remote payments.
  • After the global adoption of VDEP (ie rollout of ApplePay/Android Pay), I expect to see a new V/MA rate tier for use of tokens in mobile. “Cardholder present” that will mean liability shift to bank and a rate reduction of around 10-25bps (in the US). Timeline is late 2016. Huge implications for paypal here.
  • Google’s Android Pay moves payment out of an APP and into the OS (Android). Not much in new features, but as this is based upon Host Card Emulation.. this has 3 very big implications: 1) Tokens and Proprietary Architectures have beat out the GSMA’s vision for SIM based payment (NFC) and 2) Google has expanded the Android platform to allow any app to take advantage of payment (see Google Creating Platform), and 3) Google has moved payment into Google  Mandatory Services (GMS) like maps, search and mail for Android M. MNOs and OEMs can still choose the free Android, or build their own.. but it comes at a big loss.
  • Plastic cards work REALLY WELL. Consumers just don’t care about mobile payments at the point of sale. Less than 6% of iPhone 6 users use ApplePay (Behavior change requires value)
  • Consumer behavior is continuing a massive shift toward mobile… nothing has ever moved this fast. Important to note that over 65%+ of interaction is within an App. This creates great opportunity for ApplePay/AndroidPay…

YouGov-Smartphone-Owners-Mobile-Payment-Services-May2015

  • Real Time Payments in the US… What a mess! This month NACHA agreed to create 3 intraday windows. The Fed working group still pushes a string uphill with token bank support. The Clearing House (TCH) is trying to position itself as both the token utility and the hub for real time (to no avail). On this one the TCH board has asked them to move, but bank operating teams have told them to get lost. The Banks token pilot (3 yrs ago) hasn’t moved an inch.
  • Somewhat related to RT/P2P Payments, Mastercard seems intent on re-invigorating MoneySend as a way to enable a downline (ie disbursement channel) to support commercial business (ex dividend payments, insurance distribution, mobile wallet P2P). If I were Visa I would keep a keen eye on the bilateral debit routing facility established for ApplePay.. particularly transactions from CrossRiver Bank (as a sort of ODFI). Why is this in my “top items”…. ? If Mastercard is indeed doing this, it will set up a new competitive dynamic with issuers and commercial payments companies. Debit card heads don’t exactly like someone using their cards as free P2P platforms (see VMT blog from 5 yrs ago).
  • Microsoft rumored to be working on payments platform for Internet Explorer (as neither one of the Windows Mobile users were interested in using it on their phone). This would be a MAJOR hit to Paypal as Internet Explorer is over 50% of the global user base (all versions). Microsoft hasn’t succeed in its quest for “Live” accounts.
  • MCX has lost its CEO Dekkers Davidson (a good friend) and its platform Paydiant (sold to my good friend Dan at Paypal). My view is that MCX members agreed to collaborate on payments, but due to their competitive nature could not agree to collaborate on marketing/loyalty.  A payments only wallet had no future.  Paypal is a natural alliance partner of MCX and retailers.. but their 325-375 bps take rate must go down to under 50bps for this to ever work.google-io-20150100
  • Trust/Identity. Mobile + Tokens has created the most secure payment method in the world (far better than EMV). While there was some enrollment fraud at Apple, this has now been resolved. For more information see “Stripe of Identity” and, Structural Change in Payments. Google has also added biometrics into the new Android M.
  • JPM’s Payments Enigma (See Blog ChaseNet) is a running industry joke (ex asking Amazon to put a chase wallet button next to one click checkout). Unfortunately JPM pushed out (or moved to mortgage compliance) everyone that knew how to run it. One Card Exec said it this way “Chase is building a F(*(^ing island, the rest of us will be building a continent”. Another example of this is Visa’s support of Citi in winning the Costco deal (Citi is Mastercard’s largest issuer, JPM is Visa’s).
  • Lots of payment M&A Activity… Best source is FT Partner’s analysis here. The data space is even more crazy (ex Oracle on Datalogix/Bluekai, Neilsen, WPP, …)
  • MASSIVE Talent Churn. From the unfortunate death of Ed Gilligan, Amazon’s loss of its top 2 payment execs (Matt Swann to Citi, Mary Kay to Square), Google’s loss of Frank Young (to Global Payments), Bank of America (Jason Blackhurst to Visa), the industry is changing like never before.

Other Items

  • ISIS is dead bought by Google
  • Samsung Pay. Samsung bought loopPay for its MST technology filling the acceptance gap (non-EMV in US and Mexico) only to find out 3 months later that Google did direct MNO deals (in US) to make AndroidPay GMS. Samsung can’t load its own wallet on its own phone.. As of last month they still were telling banks everything is fine. I told the banks to go talk to Verizon
  • Twitter Acquires Cardspring.. I liked this one (Merchant friendly card linked offers). Problem is that Cardspring was built on FirstData’s Offerwise Platform (IBM) not their Unix/Clover stuff
  • Payment Terminals and Points of Sales. Heartland gives up on Leaf, FD is still pushing on Clover, and Verifone is pitching a new data service
  • Payment data is leaking everywhere.. CommerceSignals is working to help bring a little structure here

Android Pay Revealed – PLUS Major Token Announcement

28 May 2015

http://googlecommerce.blogspot.com/2015/05/android-pay.html

Google unveiled AndroidPay today.

What happened?

  1. AndroidPay = ApplePay without the 15bps from banks. Same tokens and everything.
  2. GoogleWallet is morphing into a P2P Venmo service.. plus Hands Free “Square Card case” see Google URL https://get.google.com/handsfree
  3. Most significant?
    • Google has greatly expanded its footprint up to the silicon to create a secure enclave equiv within ARM’s TrustZone TEE
    • NO 15bps for Google. Google created bilateral agreements with top 5 banks (like Apple) only to be shut down by the new Network programs (VDEP Below) where tokens don’t allow for wallet fees. Google then had to trash 2 years of work (on bilaterals) and remake them for marketing/branding permission (to use Android Pay logo). This means the Apple deal (15bps) will not expand out of the US and will be sunset quickly.
    • Google has made Android Pay part of Google  Mandatory Services (GMS) for next version: Android M (like search, maps, gmail, …)
    • US MNOs have consented to Android Pay as GMS (with rumored economics)
    • Google WINS BIG in bringing retailers along with their plan (Coke, McDonalds, Papa Johns, …) and BEATS Apple to punch with integrated loyalty cards.  Apple gets and F here.. and Google gets an A-.. (Would have been A+ if ready to roll out with McD’s)
    • This means no other NFC wallets on Android in US (phones are locked down)
    • Google is using same token service as Apple.. any issuer can sign up through Visa/Mastercard intranet sites
    • Samsung Pay (or any NFC wallet) is completely screwed in the US.. No wallet installed on the phone. Imagine the problem in getting consumer to 1) Load, 2) Register, 3) USE (with another competing app)
    • HCE is a green light.. but Google is in a place to certify all NFC/SIM based wallets in the Android M architecture . MNOs will need to decide if they want to take the Google carrot and accept the new GMS terms. Or follow in the GSMA/NFC/TSM/SIM based model with no revenue and no control.  Europe and China and Korea will be the most interesting. My guess is that these markets will keep the GSMA/NFC SIM based model..  I’m still trying to process what this means for NXPi, but with the success of HCE and the new TrustZone within ARM it can’t be a good for any silicon specialist.

Side Story… The Banks hate the Apple Pay deal (NEVER AGAIN)..  My friends in mountain view take a meeting with a large bank on AndroidPay “You guys can forget about the Apple Pay deal, it will never happen again, lets start the conversation on what you will PAY for the privilege of having my card in your wallet.”  The Visa VDEP program (and MA’s equiv) addressed this issue. Google did not get the 15bps.. and the Issuers got nothing (exclusivity, revenue, … ).  Per VDEP, If you use the network’s token facilities you can’t discriminate… Cards will be permissioned to any approved wallet. There is also a new iron fence around payment data use.. A VERY VERY big step.

Hands free with McDonald’s could be cool.. https://youtu.be/Qxet1VdpOQ4

 

Visa reveals Visa Digital Enablement Service (VDEP)

This is a MAJOR announcement, on part with the release of Tokens. The rails and rules for tokens. Think of this as “accept all cards” rule for tokens that is as important as VisaNet itself. A brilliant accomplishment.. WOW.. will write more this weekend.

http://www.marketwatch.com/story/visa-announces-new-commercial-standard-for-mobile-payments-2015-05-28

 

Internet 3.0: Collaboration in Commerce, Communities and Networks

26 May 15

This is under revision… pardon the typos..

Exec Summary

  • Consumers, Communities, Markets, Technology and Commerce are undergoing tectonic shifts. Over the last 20 years Companies “enabled a channel” in Internet 1.0 and 2.0. Internet 3.0 will bring about fundamental transformation in organizational structures, products and processes.
  • Internet 3.0 (i3) eliminates traditional competitive barriers (assets intensity, specialized skills, product design, distribution, marketing, brand,… ) enabling new forms of collaboration and asset utilization within a new set of non geographic communities.
  • Swarms of specialized communities are hyper meritocracies which react to serve areas that are: #1 inefficient, #2 opaque (ie wiki leaks, banking, advertising…), #3 poorly serve the consumer or #4 at risk (ie Darwinian). Today we see this dynamic take place in many areas: App Stores, Uber Drivers, MOOCs (College Learning), Wikipedia, Blogs (vs Newspapers), …etc. This may be analogous to the end of the Jurassic period (no more Dinosaurs).
  • The structure of most corporations is at risk (inefficient, opaque, poorly serve consumer, at risk). Information intensity and the ability to manage across internal boundaries and interfaces will be key to future margin (not economies of scale, asset intensity and competitive hurdles).
  • Large companies must reshape organizational boundaries to enable many connections (to source demand and execute) within their processes to create new products and reach an amorphous set of new dynamic communities. The “boundaries” of a company MUST become more open (as they are currently in your marketing and sales sides today).
  • Historically, acquisition and JVs were the approach to boundary growth. The future will see a much more loosely coupled approach to deliver value, one focused around common platforms, standards and networks. Best examples are Microsoft/Intel, and Uber were many independent nodes innovate and connect to successful networks, and each node is in control (with ability to measure and price) its unique value.
  • Regulation (ex Taxi Commissions and CFPB), societal norms, ability to measure value, and Risk management are the environmental factors most influencing boundaries.
  • Modularity is the key technical term describing how business must react to boundaries (specifiability, measureability, predictability). What services do you want to make available? This is NOT a technical problem, but a business one. Amazon is one of the clear leaders in this discipline (ex Legos). The rules in which modules operate are “platforms”. Most platforms have been internal only, with a few exceptions (RosettaNet, Windows/Intel, Java, Commerce Signals, ..etc). Networks are required for platforms to communicate, discover and interact with heterogeneous clusters.  Today the most valuable networks are Visa/MA, Google, Amazon, Markets (NASDAQ/NYSE), Alibaba, eBay, …
  • Most large companies struggle with internal complexity today. Internet 3.0 brings on a whole host of new problems for companies that don’t have a software culture, and have legacy infrastructures which resulted from thousands of small tactical decisions.
  • There are many exciting investment opportunities in this hypothesis. For example, existing networks have a big leg up in constructing new collaborative networks. Their success will be driven by balancing openness/governance with control and value exchange. I’m quite impressed with Visa’s move here (see this week’s press).

Year of Collaboration

I painted 2015 as the year of collaboration in my 2015 Predictions. Why? The structure of most corporations is at risk (inefficient, opaque, poorly serve consumer, at risk). Information intensity and the ability to manage across internal boundaries and interfaces will be key to future margin (not economies of scale, asset intensity and competitive hurdles).

Large companies must reshape organizational boundaries to enable many connections (to source demand and execute) within their processes to create new products and reach an amorphous set of new dynamic communities.  Historically, acquisition and JVs were the approach to boundary growth. The future will see a much more loosely coupled approach to deliver value, one focused around common platforms, standards and networks. Best examples are App Store, Wikipedia, Microsoft/Intel, and Uber were many independent nodes innovate and connect to successful networks, and each node is in control (with ability to measure and price) its unique value.

What are the 2015 drivers of collaboration?

1) Consumer behavior is undergoing a tectonic shifts (mobile, commerce, social interaction, employment, education, reputation, …).

2) Information intensity has outpaced the importance of economies of scale (asset intensity). Both in terms of efficiency (cost) and growth (revenue). Over the last 5 years new networks (mobile, digital communities, Uber, …etc) have destroyed the traditional structures of information creation, curation, distribution and use (ex Universities/MOOCs, Maytag Repair/Youtube DIY, Britanica/Wikipedia, ..). It is NOT ENOUGH to manage your data (ie Big Data), you must find a way to let it work with the environment (ex CommerceSignals). Traditional networks and closed systems are fragmenting (ie Commercial, social, political).

3) Awareness (the Solo Approach has failed). Fortune 50s have each spent over $500M (each) in attempts to build a Google (aka business platform) where everyone works with them. They have now realized that this myopic approach creates magnets of opposing fields. No one company can do build a platform.. platforms REQUIRE collaboration not ownership. Partnerships (closed networks/clusters) are the natural first response to this environmental change. However closed networks are challenged to gain traction in dynamic markets.

4) Google, Amazon, FB and Apple have become powerful Star networks threatening just about everyone (see below). There is a race going on today, some of which I outlined in Banks/Non-Banks and Commerce Networks. Also see Google Creating Platform for Mobile Economy. My NewCo, CommerceSignals is focused on helping everyone else collaborate and compete.

Information Intensity

If information is power.. where is it flowing? If we assume Networks are conduits of information, will mapping networks allow us to map power?

  • 500 years ago information was held in books. Books resided in academia and in monasteries. Networks were largely structured in relationships and affiliations (which were highly geographical).
  • 100 years ago public information (books) moved into public libraries, and commercial information (designs and processes) was held within commercial enterprises. Networks expanded in geographical scope (reach), specialization (scope) but transaction depth and information organization did not change. Power largely resided with the creators of information and distributors of information.
  • 20 years ago – Democratization of Data (access/structuring). Public information moved online and became dynamic (Wikipedia) while private information became organized within any given commercial enterprise (ie ERP/Big data). Information organization and access exponentially expanded (mobile, internet, google, broadband…etc), new specialized networks formed with many new specialists (stores, outsourcing, design, hosted services, …). Power began to shift to individuals, virtual access points for information, and new communities.
  • 5-10 years ago – New networks facilitated new connected communities (social, educational, business, ..etc). Expertise and content creation shifted from traditional geographically based entities into loosely structured global communities of experts. Time spent in community increased, as depth of information increased, and tools for dissemination improved (MOOCs, Youtube DIY, ISIS Propoganda, …). Consumer behavior shifted massively to new channels and communities. Private commercial data became actionable through new private networks (ex supply chain, advertising, …etc). Power shifted to communities and orchestrators of (public) small world information (Google, FB, Amazon, Apple, …). Risk and Reputation expanded beyond closed networks and new companies (ex Uber, Airbnb) leveraged information to connect existing (small) assets to consumers in new communities and commercial processes.

Information in isolation delivers little value, particularly if you are the only entity that can act on your insight.  How many assets (and insights) do you have within your company that are discarded or underleveraged?

Internet 3.0 and Boundaries

Internet 3.0 (i3) eliminates traditional competitive barriers (assets intensity, specialized skills, product design, distribution, marketing, brand,…  ) enabling new forms of collaboration and asset utilization within a new set of virtual communities. Swarms of specialized communities are hyper meritocracies which react to serve areas that are: #1 inefficient, #2 opaque (ie wiki leaks, banking, advertising…), #3 poorly serve the consumer or #4 at risk (ie Darwinian).

Today we see this dynamic take place in many areas: App Stores, Uber Drivers,  MOOCs (College Learning), Wikipedia, Blogs (vs Newspapers), …etc. This may be analogous to the end of the Jurassic period (no more Dinosaurs).  The structure of most corporations is at risk (inefficient, opaque, poorly serve consumer, at risk).

Information intensity and the ability to manage across internal boundaries and interfaces will be key to future margin (not economies of scale, asset intensity and competitive hurdles). Large companies must enable many connections to source demand and execute  within their supply chain to reach an amorphous set of new dynamic communities.  The “boundaries” of a company MUST become more open (as they are currently in your marketing and sales sides today).

Boundaries and Collaboration ARE NOT a Technology Thing; It is a business thing.

Example – Uber

What makes Uber so successful? It created an effective market for existing assets, with an infrastructure to manage it. I see the core services in Uber’s network as:

  • Risk/Trust (driver vetting, insurance, reputation, insurance, reporting)
  • Quality of Service (Time to Pick up, Routing, Availability, Payment)
  • Consistent Rules/Terms
  • Cost to Connect (Customer Acquisition/Registration, Driver Registration, ..)
  • Value Added Services

What other areas of the economy have inadequate markets? Amazon started with books and leveraged to become the starting point for product search and reputation. Traditional university education is being threatened by Massive Online Open Courses (MOOCs), retail banking and prepaid cards, …etc

Platforms vs Networks vs Markets

Is Google a Platform or a Network? Visa? Verizon? All of these terms are over loaded and used too frequently. But there are very important elements loaded in here, with very large economic implications, thus worthy of discussion.

 

Platform Network Market
Technology Terms High Medium Low
Business Terms Poorly Defined Well Defined Well Defined
Investment Risk High Medium Low
Rule Making Closed Closed/Open Open
Number of Services +++ ++ +
Compliance Loose Rigid Rigid
Pricing Undefined Defined Bid/Ask
Control 1-3 Leaders Owner Members

Markets are defined by pricing (ie Supply/Demand) and neutrality. Networks typically have defined participants, value/services and pricing (payment acceptance, transportation, call routing). Platforms are largely technology constructs where collaboration may occur, but business terms are ill defined (example Microsoft and Intel). I discussed platforms in last year’s iPhone 6 blog, my favorite Platform book is Platform Leadership: How Intel, Microsoft and Cisco Drive Industry Innovation. The authors outlined 4 Levers of Platform Leadership

  1. Scope of Firm: What is done inside, how they encourage outside investment and focus
  2. Product Technology: Architecture, Interfaces, Modularity, What do they expose to partners?
  3. Relationship with Complimentors: Support of Complimentors, acting on ecosystem needs, path to consensus and standardization, profitability
  4. Internal Organization: What is the “core”, and how are resources allocated to core activities vs support for partners.

Networks are common facilities where heterogeneous nodes interact with a defined service(s) and rules. Networks “sticky”

in small world networks, building and maintaining links between network elements requires energy…. [in a world with limited resources] a transition will occur toward a star network [pg 75] where one of a very few mega hubs will dominate the whole system. The star network resembles dictatorships in social networks

Weak Links by Peter Csermely (viewable on Google Books here)

There are hundreds of platforms, millions of markets, yet only a handful of effective commercial (and social) networks. In layman’s terms could you imagine working across 10 different Facebook alternatives? Or installing rail road tracks next to your competitor? This is what the EU hates about Google and Facebook…  It is very hard for a competitor to break into this model.. as these services are already free (and open).

Networks are much more rare, they enable collaboration and unlock economic value. My top investment hypothesis: find networks where thousands of participants invest billions of dollars to make work (Visa, Mastercard, Nasdaq, Uber, Apple App Store, … ). Companies like Uber and Airbnb demonstrate how new networks can form to tackle inefficiency. It is only a matter of time before the swarm comes after your business. How do you react? Collaboration may be a good first step.

Can you “pivot” to a Software Company?

This is not just about “how we work with young innovative companies”, it is about your boundaries. How does a large company act more like a software company? See my blog on Braintree.  My favorite example today is Visa – See Forbes

“We’re telling [developers], ‘Please dream, please build new applications,’ ” says Taneja.

Don’t roll your eyes… Visa has great potential here. Certainly one of the World’s best networks (with much room to grow). After all, it is much easier for an existing network to expand services than an individual node

First a little “Buzz Worthy: background: Internet 1.0 was the static internet (indexing of publicly available information). Internet 2.0 was about user generated content, interoperability, transactions. Internet 3.0….

  • Value Orchestration and Partnerships (OK I planted this one)
  • Connective Intelligence
  • Internet of Things (IOT)
  • Mobilization of Everything
  • Big Data
  • Sharing Economy (Uber)
  • Shift to Hyperlocal
  • Innovation (sick of this one)
  • Trust/Reputation Portability
  • Remaking of businesses (not a web front end to the one that existed 50 yrs ago)

In Internet 1.0 and 2.0 companies treated the internet as a channel, business impacts were around getting your internal stuff into this new place: advertising (targeting consumers), consumer information (ex price transparency, reputation) and local fulfillment (online payments, shipping). The channel was new, and competition changed, yet businesses still created the same products, and didn’t substantially change internal operations.

The impact to businesses/economies from Internet 3.0 will be much more pervasive. How big? Answer these questions:

  • How much more efficient has your organization become in last 20 years (ex: net margin)?addon architecture
  • How long does it take your company to launch a major new product?
  • How long does it take your company to create a new partnership (with shared economics)?
  • How has your company’s core value proposition to consumers changed?
  • How long did it take your company to complete a major technology project?

No Design

Opening up your organization is not easy. Most Fortune 50s have system architectures that resemble this unique structure.  No one starts out with a design like this, it is rather a result of a 1000 tactical decisions, acquisitions, one off projects, and evolving technologies. This is not solely the fault of your CIOs, as technology is strategic area where strategic discussion and decision making is most deficient. What other area has so little discussion from lines of business? CEOs see a vision of what they want, but the ability to evolve is hampered by the high cost of reconstruction and inability to create a consensus design across the organization.

One of my favorite personal stories here was from my time as Senior Director or Oracle’s Global Solution Architecture Practice in 2001.  We met with the new CIO of Motorola where he asked our help in consolidating 124 different ERP systems into one (118 or them were Oracle). His quote “It may be our fault for letting you sell us your software 118 times, but you must share in the burden of helping me clean this up”.

Little wonder “big data” is popular, as gaining insight into the internal mess you have is just the first step of realizing where your customers are and how they interact with you. Most of you know JPM is building a Data Division, one driver is Jamie’s view that Banks have better data than Google. As a former banker I can tell you just getting a report on my customers across products and countries within the bank is a major accomplishment! The idea that I can also manage external data for millions of companies and billions of consumers is ludicrous.. and then deliver on a VALUE proposition to consumers I touch once a month is just plain silly (and myopic). Commerce value is unlocked by working with consumers, merchants and manufacturers.. Commerce is interaction. So how are you improving your interaction!?

One of the obvious challenges of opening up your organization is opening up the ugliness of your infrastructure. For example, FirstData created the OfferWise API a few years ago. Unfortunately this API only worked for merchants that were on its IBM mainframe (not it’s 3 other systems). Similarly its new Clover API is one of the best in the business, yet it only works on the Clover platform. As an advertising partner.. how are you to know what to develop on?beautiful house

Google, Facebook, Apple and Amazon have huge advantages in design as they operate like software companies run by engineers where design matters. In Amazon for instance, each and every service in the company can be leveraged by any other part of the company. It’s own systems architecture allowed it to create Amazon Web Services (AWS).  Integrating internal heterogeneous systems is hard. Exposing these services externally is even harder.

Another of example involves Google/Citi.

Citi was a launch partner for Google Wallet in 2011 and asked the Google team to freeze software deployment while the card provision application was certified. Google said “what is a freeze”? Citi said “you know stop any changes while we certify”. Google “we operate under continuous integration, changes are pushed out every day… we can’t do that”. Citi “what part can you freeze?” Google “I guess we could freeze our API to you”.  The old and new worlds of software design collided here (waterfall vs. Agile), integration is very complex…

How massive is the complexity? Here is a simple advertising picture… you tell me how card data fits in here. To get around the systems integration complexity, companies have begun the dangerous process of sharing the raw data. In the Datalogix model, 340 odd Retailers give DLX a daily copy of all loyalty card information and SKU level purchase information. If you are a CEO.. do you even know where your data is going? Who has it? What would consumers think? There is a better way (shameless plug call CommerceSignals).

landscape

Back in 1997, while I was at Gartner Group, my good friend Roy Schulte coined the term Service Oriented Architecture (SOA). An evolution of what he had referred to as software through contracts. Central to both of these models are the concepts of modularity (specifiability, predictability, measurability) and abstraction.

Today we have MANY interoperable software technologies.. but we have no way to unlock collective intelligence. One of the core problems here is how do you share value (measure) what any one company provided toward “success”. This is not a “big data” problem.. it is a network and market problem. This is what I’m focused on in Commerce Signals.. but more on that in a few months.

Action Plan

Where should a fortune 50 CEO start? People would make the most sense, but big companies are getting a BAD name. For instance JPM had 600 world class mobile engineers working out of Palo Alto.. and assigned 300 of them to Mortgage compliance.. not something you emphasize in your recruiting.

The US is fortunate to attract the World’s best software talent, and the best people attract the best people. The US amplifies this advantage by giving this world class  talent access to capital (willing to take risk).

Apple, Amazon, Google have all taken very different approaches to creating platforms and operating within networks (see Google Creates Platform for Mobile Economy). Most would agree that Apple is the worst partner, whereas Google partners heavily in areas it controls (search, advertising, ..). Amazon is the only company that has made great strides in creating a platform for 1000s of other businesses (retail store, distribution and AWS).

Common to all three companies is their senior management attention to technology and software. Execs get their fingers dirty in it and hire the best people.. then they LISTEN to their technology people. Google’s problem is that they don’t listen to anyone else. Apple’s problem is that software is a second stepchild to hardware/design.. but I digress.

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 …

 

The “Stripe” of Identity

16 April 2015

Making Payments easy is a very hard thing to do (see post).. the same can be said of authentication. Apple has created a new standard for biometrics/identity and authentication with TouchID.. and platform security (with iPhone 6). Problem for entities needing to authorize using Touch ID (ex Banks) is that Apple doesn’t pass the raw biometrics.. its actually against the law in Europe (which makes sense as fingers are rather hard to re-issue). 

How can banks leverage Touch ID for authentication/authorization of their bank app? There are 3 parts to the problem:

  1. integration with Touch ID (Trust of TouchID),
  2. Trust of the Phone (phone ID)
  3. Authorization for the Service. 

I can’t believe I’m going to write this next part.. it breaks most of my rules.. but a Bank Consortium has actually innovated!!  Early Warning’s purchase of Authentify may be the best bank innovation of the last 10 years. With Authentify, banks now have a consistent way to implement biometrics, manage trust, and authorization across iOS, Android and other platforms.  See press release below. 

http://www.earlywarning.com/news/press-releases/2015/early-warning-to-acquire-authentify.html

Early Warning’s other components include Payfone (jointly owned by US Banks, US MNOs and Amex), and the US banking industry’s top secret fraud fighting utility (which has migrated from ACH, Checks, Debit into Credit and lending) .

Early Warning has completely remade itself over the last 5 years.. becoming a the US Banking Industry’s best consortium for innovation and value creation. Congrats to CEO Paul Finch and his fabulous product, M&A and Tech team.. and to all of his bank members for making this possible. 

Apple Brands Payments!

28 MarchapplePay - Terminal Branding kit

I told you so in September.. Apple has created its own acceptance brand. Retails can now buy a decal kit on Apple’s site (ApplePay Kit). Great overview in Apple Insider this week covering merchant instruction where to put the decals “above all others” (door, register, terminal). From  I received this picture. 

Why would Visa, Mastercard and Issuers allow this!? I’m just flabbergasted. Banks pay 15bps, V/MA do 90% of the work.. and Apple creates a new acceptance brand without doing any role in the financial process?

As I predicted.. payments are not in the top 10 reasons most consumers buy a new iPhone, with only 6% of iPhone 6 customers even trying it (per the Apple insider article above).

See my long blog on the issues that this branding will cause Apple – ApplePay and Merchants (Sept 2014).

What are Banks to do? Merchants? Focus on value both individually and collectively. Payments are a brokering business.. Creating a new brand that no one can control is not a fast way toward “partnering” with either businesses or banks.

Oh.. and for goodness sake .. say a little something about this branding. Perhaps adjust the decline rate on AP relative to cards.. ?? (Apple didn’t authenticate you.. we would like to approve)

My View?

Apple’s brand will succeed in Apple’s “walled garden” Banks and merchants are well positioned to kill weeds in theirs.

For my Bank friends – Inventory of Payment Decisions

28 Mar 2015

(a partial inventory for Issuers)

Payments are normally a very sleepy business which changes at a glacial pace. Rule of thumb has been it takes 20 years for anything truly new to develop (Debit Cards, ATM, NFC, …).  All this has changed … as identity, authentication, trust, acceptance, value, regulation, infrastructure, cost of issuance, speed of issuance, consumer mobile preferences, consortiums, standards, bitcoin ..  ALL are shifting rapidly. I covered much of this in my January blog Structural Changes in Payments and 4 years ago in Banks Will Win in Payments! … But Which Ones?. With the top 5 structural changes:

  1. Risk and Identity (Authentication and Authorization)
  2. Data/Commerce Value
  3. Consumer Behavior/Trust/Acceptance
  4. Issuance/Customer Acquisition/HCE
  5. Regulatory/Rates/Rules (Fees)
  6. Mobile/Payment in the OS

payment-value

It’s not just payments that are changing, bank branch footprint and the core deposit account are under threat. Not just pre-paid… companies like TMobile, Wirecard, Vodafone, and even Google are thinking of offering direct deposit and bill pay (See this week’s Recode and Future of Retail Banking: Prepaid?, T-Mobile – Great Move into Banking,  )

branch visits

Before we get into an arcane list of initiatives, let me tell you a few stories on just how bad the situation is.

12 months ago, Chase shows up at Amazon to present their new secret creation: ChaseWallet. The Amazon guys didn’t know before hand what JPM wanted to talk about…. On hearing the opening of the JPM pitch Amazon thinks its some kind of joke (…. listening for the punch line). But Chase was serious..!! the Amazon team is almost rolling in laughter/pity. As opposed to telling them how silly the idea is (Amazon has a little One Click button with 400M+ consumers registered) they ask how this is different than the initiative that Chase Payment Tech is leading to enroll merchants in One Click.. The Chase Senior Exec (consumer side) is silent.. “I’m not aware of that”. Can you believe that largest bank, shows up at the largest online merchant to pitch an idea for a wallet to the company that invented it!? Sorry Chase, but you deserved that… What was once the nation’s leading payment team is now a bit of a joke in the valley. (Chase went to Google with same idea following week).

Jamie Dimon was quoted saying that Google, Apple, … all want to “eat our lunch” in this metaphor I guess consumers are on the menu. As much as I respect Jamie as the best banker on the planet, he continues to miss the consumer view… we are not owned, we migrate to where value is provided. Rather than working to specialize in delivering value to consumer, Consumer Banks tend to work to build higher walls and create rules which work against the specialization. These walls will become their own jail if they fail to focus on value, knowing your customer and specialized risk management.

A flip side story.. ApplePay was a closely held secret (other than my blog). Apple only allowed 9 companies into the tent: 5 Banks, FirstData (and Star), Visa, MA, Amex. Within those companies employees had to sign a strict confidentiality agreement and only 5-15 employees could be made aware (within issuers).  I was with 20 of the bank fraud heads 20 days after launch of ApplePay, the guys were telling me how bad the binding process (enrollment fraud) was going to be. Apple wouldn’t respond to banks, networks or anyone.. not by phone, mail. It was a take it or leave it.  Thank goodness for Money2020.. helped get bank fraud guys together with Apple Product.. but the path for collaboration was just abysmal (Apple’s fault)

Inventory of Payment Decisions (Bank Issuer)

  • Bank/IssuerDebit Card
    • Credit Card
    • Debit Card
    • ATM
    • EMV
      • Creditpayments pyramid
      • Debit
      • ATM
    • Tokens
    • Token Vaulting
    • PIN
    • ACH/Wire
    • Check
    • Cash
    • Private Label
    • Pre-paid
    • Private Label
    • Bit Coin
    • Networks
      • Credit
      • Debit
      • ATM/PIN Debit
      • ACH
      • FED
      • SWIFT
      • FRB
      • CHIPS
    • Network Services
      • Tokens
      • Cross Border
      • Pricing
      • Money Transfer
      • Rules/Rule Changes
      • CNP Liability Shift
      • Virtual Card
      • Digital Wallets
      • Alerts
      • Debit Processing
      • Offers
      • Loyalty
      • Redemption
    • Digital Wallets
      • Card Provisioning
      • Partners
      • Apple
      • Google
      • Samsung
    • Infrastructure
      • Card Issuance
      • Measurement
      • Fraud
      • Authorization
      • AuthenticationPayments Council
      • Billing
      • Call Center
    • Partners/Vendors
      • Processing
      • Loyalty
      • Networks
    • Consortiums
      • ClearxChange
      • Early Warning
      • The Clearing House
      • NACHA
      • ABA
      • FSTC
      • ??
    • Regulatory
      • Fed
      • OCC
      • DOJ
      • FTC
      • Policy
      • Fincen
    • New Initiatives
      • Data
      • Offers
      • Fed Faster Payments
      • NACHA
      • Clearxchange
      • Tokenization
    • Standards
      • emvco
      • ISO
      • Open/Android
      • …etc
    • Structure and Organizational

What is a Bank to do?

How do you Prioritize or Organize in this Chaos?

Step 1 – Admit you have a problem!  Then find people that know about it. Look around your organization and find the 5 people that can give an informed view of 50% of the above.  If you don’t have them.. you should go get them.

Step 2 – Create Structure. Where Bank enterprise payment strategy is discussed, with a senior exec champion.  You need some young payment techies and some old hands in the mix. My blog Need for Bank Payment Counsils provided an overview of the structure and objectives of such an org.  CEO should be involved to show importance.

Step 3 – Assess your situation

1) Where is your Revenue today?

2) How do you deliver value in top 5?

3) What are your core Assets? How competitive?

4) What revenue is most at risk?

5) Is there a clear path to win or uncertain future?

Step 4 – Prioritize and create a plan of Action

Step 5 – Assess Partnerships and Assess Impacts. Payments is a networked business. No one can go it alone for long (message to JPM).

Step 6 – Act Quickly. Both Strategically and Opportunistically.

Step 7 – Measure and Adjust. We are moving from 20 year cycles to 12 months. Banks have not run this way before. They must find a way of adapting to the environment.