RIP MCX

17 May

Today we see in the press that most of the employees have been let go, and TechCrunch predicting “MCX to focus on Bank Deals”. Translation: MCX is dead, but we got a sweetheart deal from Chase on free payments (ChasePay) and discounts on all chase branded cards.. so we will keep the shell of MCX alive to capture these discounts (seem my ChasePay blog).  I believe Target and WMT will accept ChasePay in 2 yrs (after they complete their custom POS/CPT switch work….).

MCX was a great idea.. I’m not joking. Retailers “touch” consumers far more often than the average bank, and they must deliver value in every interaction (as stickiness is low). Retailers are in a unique position to unlock value (ie coupons), use transaction data AND create great in store experiences. My personal bets are all lined up behind retailer friendly value propositions….  MCX is not alone in failure..  (yes I have blogs for each one).

The history of MCX is not linear.. it involves many starts and drivers across current and former participants. I’ve traced itself way back to the early days of mobile 2008/9 with Discover, Barclays, Verizon, GE Money/SYFS.. all had some early involvement here.  Payment was always the core focus.. it is the common thing that 60 fierce competitors all agree to collaborate on. The problem is that payment has no value proposition.. none of us leave the store today without our merchandise because the retailer didn’t take our form of payment. Wallets must have a value proposition that expands beyond payment. My good friend Dekkers knows much more about mobile, retail, and payments than I do.. and saw this early.  But it is very hard to pivot a consortium of competitors from payments to the area they compete.

While payment is a common “infrastructure service” that all retailers agree to reduce.. marketing and data are NOT common services.. The mechanisms Retailers leverage to engage consumers, use data and market products is the core of retail competition (see my WalMart Pay Blog). Target is the leading payment innovator in retail.. by far. The entire MCX product began to resemble Target RedCard. However Target’s real advantage was Cartwheel… (see my video overview). Redcard was good, Cartwheel made it great. How many other retailers could create a Cartwheel from Scratch?? This made for a dynamic where MCX was the [small] payment ingredient in many custom mobile experiences..

Walmart and Target marketing/mobile teams were the principle teams guiding mobile decisions.. with MCX taking the much smaller payment only role. The launch of Walmart Pay is certainly what killed MCX (in my view). I think Walmart’s mobile/marketing team is 100% right for making this decision.. but it had huge implications. The CORE TENANT of MCX was NO CARDs and nothing about 35-50bps in cost of payments. Walmart Pay allowed the consumer to pay however they wanted to..

Future? While there is a small 10% chance, that MCX will indeed jump on board the Apple and Bank backed Clearxchange remake.. I think that it is likely to remain largely a payments routing shell with core LCR assets at FD and FIS focused on debit routing (and chase credit discounts).

Lessons learned for MCX are similar to those learned by Google, ISIS, Banks and others:

  • Payments is a poor place to start a mobile value proposition
  • Merchants are best placed to unlock value, and mobile is core competitive differentiator (Target Cartwheel, Walmart Mobile, …)
  • Retail, banking, mobile, consumer behavior are all undergoing tremendous change… with much experimentation. Small teams are the only construct capable of supporting the pace of change.
  • Consortiums need to move fast to establish first success and internal momentum… Starbucks offered MCX the option to use everything they had back in 2011.. Where would MCX be if they had started with something that worked and consumers knew…
  • Chase learning: while there are many better ways to design a payment system, there is NO WAY to earn more money than sticking with the existing networks. Also watch out when you bend over to win business.. you might get stuck in that position.
  • Paypal.. Paydiant arghhh..  What was a periphery app that retailers would give to 3rd party.. is becoming core “must have” with large retailers building their own. Paydiant will be alternative for next tier.

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).

 

29Oct

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

2013

MCX JPM

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.

 

What do Retailers Want in Mobile?

1 Nov 2014

Money2020 is next week, and I’m moderating the ApplePay session on Tuesday at 5pm… hope you guys can come. I’m more than a little sad that I can’t get any retailers up on stage with me. Why? The top 60 retailers are in MCX, and it makes little sense for them to get on stage and tell the world what they are NOT going to do and why. As I’m preparing to leave for Las Vegas tomorrow, was thinking “what could I write about? What unique perspective can I offer?” Well given I can’t get them on stage with me, let me try to articulate the Retailer’s view of the world. My twitter feed is blowing up as I work to explain why CVS and Rite-Aide turned off NFC. Please know I’m only trying to give perspective…

Payment Services are a brokering activity between two entities engaged in commerce. Logically, a broker must have the trust of both parties, and deliver some sort of value in managing the financial risk associated with the transaction.  Within Consumer Retail, Visa and Mastercard evolved from Bank owned exclusive networks of the 1960s (see History) to ubiquitous independent payment networks. Few remember that back in the 1960s, merchants took either Visa or Mastercharge but not both as the Merchant’s acquiring bank could only be a member of one of the networks. For merchants, the value proposition was clear: consumer credit.

Payment networks thus evolved from a closed and focused value proposition, to a settlement “infrastructure”. However the rules and governance process by which many parties (merchant, acquirer, processor, issuer, network, VASP, …etc) participated in defining operation of this “brokering” activity did not evolve. This is the central issue restricting the future growth of Visa and Mastercard. One I believe both are acting on. My firm belief is that rebalancing network rules will unleash a massive new phase of value creation for these networks.

Let me take a quick side bar here..

Network Theory – Openness

As I’ve stated many times, closed networks always precede open networks until scale is reached (Building Networks and “Openness”, 2011). Weak Links (nodal affinity) influences network creation, and there are VERY few open networks which exist in Nature. This is logical as Networks form around a function rendering generic open networks less “efficient” than specialized networks around any given specialized need.

Scale-free distribution (completely open networks) is not always the optimal solution to the requirement of cost efficiency. .. 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

Networks NATURALLY form around a function and other entities are attracted to this network (affinity) because of the function of both the central orchestrator and the other participants. Open networks (internet/TCPIP, Visa, NASDAQ, … ) succeed where a common infrastructure benefits MANY NETWORKS.

Visa and MasterCard have transitioned to become common network infrastructure, a position FAR MORE valuable than that of a closed credit delivery system. They are a network of networks. However their rule making and governance processes do not match the other open networks listed above (NASDAQ, Internet, …). Most Banks, have also lost their traditional role of “brokering” and risk management (in retail) by creating a card rewards system that encourages card use paid by the merchant. This creates a brokering incentive separate from the commercial transaction… impacting brokering independence.

What do merchants want? A neutral broker!!

A top 5 merchant told me a few months ago “Retailers like Starbucks have proven that we are best placed to deliver value and influence consumer behavior. I don’t want to force my consumers to do anything, but similarly I want to networks that let me play on an even field. These next 5 years are going to be complete chaos for consumers. What do we want them to do? Swipe, dip, chip, pin, tap, QR…? We have been planning for EMV for 3 years… am I really supposed to jump to Apple in 4 weeks?”

MCX

These guys are good friends of mine, and I think their business vision is well placed. They want a network where they can play on an equal footing. A neutral broker.. or at least one where they can have a seat at the table when rules are set. Will MCX be a massive success? It depends on the consumer value proposition. Are the merchants motivated to work together in creating a neutral broker? Hell yes.

One merchant said it this way “Tom I didn’t think we would ever have someone more difficult to work with than Visa and Mastercard, but I was WRONG. Apple is a nightmare! At least we knew what was coming with Visa and Mastercard, with Apple they don’t talk to us, respond to our letters, or offer any kind of value proposition. Why on earth would I want to let another brand in my store without understanding what it will do for me? They are a great company, with great products, and certainly have a much better approach to data than Google.. but anonymity is NOT a value proposition, in fact Apple makes our efforts to deliver value to the consumer even harder as we have no defined way of using Apple to engage our consumers”. See Brokering Identity – Part 1, ApplePay and Merchants, Digital Transactions ApplePay Issuer Agreement.

Getting a card number from consumer to merchant is NOT innovation. There is just no problem here. My payment friends are already rolling their eyes. Apple does have great security and great ability to manage fraud.. but fraud losses for CP are 3.2 bps. What about store data losses? That is not “fraud”, and certainly a problem for merchants that keep PANs. Tokens do solve this problem… but so does better security, and more intelligent approach to tracking loyalty. Apple must move to create a merchant value proposition, and define how they will help with consumer engagement. I believe Google will far outpace Apple here.

Retail is a zero sum game.. I’m not going to buy MORE gas and groceries.. differentiation is about switching, product selection and pricing on data, ..the fluxonce this flux dies.. steady state resumes.  Perhaps all iPhone owners will only shop at whole foods, but data shows that consumers don’t make decisions this way. In fact payment is not in the top 5 reasons for consumers choosing a new iPhone.

Why are MCX merchants turning off NFC? To give themselves a little breathing room, make Apple create a merchant value proposition (engagement), get a seat at the table in a new network, and help to establish a consumer behavior that works for them too (Most Important Payment Race: Consumer Behavior, Apple’s Platform Strategy: Consumer Champion ).

What do Retailers want in Mobile?

Following from my big blog Static Strategies and the Rewiring of Retail.

  • Consumer Engagement
  • Consumer Acquisition
  • Consumer Loyalty
  • Allow Retailer to be in control of data
  • Partners that allow Store’s brand front and center
  • A Partner either IN CONTROL of the consumer experience (Apple/Google) or one that already has massive consumer adoption (ie Facebook).
  • Creating a fantastic customer experience from end-end
  • Ability to manage campaigns, data or your business
  • A Partner that can reach/influence consumers WHERE THEY ARE.. not where you want them to be.
  • Payment..? I guess if that comes too… 

shopper marketing

How will this play out?

  • Much has been made of the MCX contract provisions that prohibit participating retailers from allowing other forms of mobile payment. This is just not accurate. Any retailer can choose to turn on NFC, any retailer can sign up for MCX. Can an MCX retailer turn on NFC? Yep.. Large retailers are not participating in ApplePay because Apple has completely failed in a merchant strategy, they have not articulated one, nor have they worked directly with merchants. This is really no different than Apple’s failure to work with Banks. Banks are just fuming over the take it or leave it terms Apple offered to them. Merchants had no terms…
  • Apple will rollout a merchant friendly beacon product, and loyalty product for consumer engagement in next 6-9 months, this will also include a renewed focus on BLE. The product will fall flat until they can create an new merchant organization. Google has 4,000 sales people working with merchants, apple has around 16… so it is a big task.
  • Apple will ROCK in App payments.. it will be their homerun… I will make a further bet: Apple will WIN in every situation where they can control the consumer experience from beginning to end.
  • Visa and Mastercard are beginning a shift toward the merchant. They may not win the top 60, but Visa has 36M merchants.. that leaves 35,990,940 that will be open to new ideas. These are my biggest personal holdings, and I know both of the CEOs. Everything I’ve written here they know already.
  • Consumer authentication is VERY disruptive to retail and banking. As Ross Anderson said “if you solve for authentication in payments.. everything else is just accounting”. The need for an independent broker and their services are dramatically different if either the consumer or payment can be authenticated (ie cash, bitcoin). Why do you need a payment product at all? Just present the identity to the bank. This is what Sofort/Klarna does… Why not do this? Because the banks have no ability to MONETIZE the transaction (no merchant agreement). There are many better ways to leverage authentication, but no other ways to currently MONITIZE IT (outside card). Perfect Authentication… A Nightmare?
  • Apple is pursuing an “anti-google” approach: keep no data, closed platform, control everything. Google is 2-4 years behind on platform security.. but is catching up. The Google platform is much easier to build in and control (ex HCE), but consumer adoption lags as each Android participant must move consumer to their vision. Apple has successfully delivered security and authentication, but has not laid out a way for many apps to leverage it. Retail is a REALLY big business, with 1000s of specialists. It cannot be throttled by one company.. thus Apple will work fantastically in environment it can control. (sorry to restate).
  • ApplePay and overall contactless adoption will begin with small merchants and infrequent purchases. Most phones have the capability today. MCX will not stop contactless.. but it will impact consumer behavior substantially

ApplePay Vs Google

  • Is NFC/Contactless Acceptance required as part of EMV rollout? NO!!  This is the most widely held mis-understanding. While the large terminal manufacturers have no products in their official product list without contactless, the top 60 merchants order bespoke or custom terminals to fit their needs.

Risk – Carving it up in Payments

27 Feb 2014

I was reading this Wharton paper on Risk Management in Financial Institutions and the lead paragraph struck me

Financial institutions exist to improve the efficiency of the financial markets. If savers and investors, buyers and sellers, could locate each other efficiently, purchase any and all assets costlessly, and make their decisions with freely available perfect information, then financial institutions would have little scope for replacing or mediating direct transactions. However, this is not the real world. In actual economies, market participants seek the services of financial institutions because of the latter’s ability to provide market knowledge, transaction efficiency, and contract enforcement.

How would I adapt this to cover a Financial Institution’s role in Commerce and Payments? Let me share a few background points to provide context:

  1. Risk Based Pricing (of Consumer Transactions). This is perhaps the #1 “ask” by the big retailers I work with. For example, Amazon, Apple, Paypal, Visa/Cybersource, Google all do a fantastic job managing eCommerce risk. Their fraud numbers are below 20bps. Why do they still get hit with CNP pricing? We know the answer here of course… Each issuer gets to set pricing and there is no network scheme to price based upon demonstrated fraud/risk performance.
  2. Selective Settlement Risk (SSR – my term… I just made this up). In the POS world, my local Kroger would be quite comfortable taking the settlement risk on my grocery transaction, after all they have seen me purchase about the same amount or groceries for 20 years (using the same debit card). At the POS, Retailers want to be able to leverage their data to take risk on certain transactions, and shift it to other intermediaries when they do not want the risk (big screen TV). This is the central challenge for Target Red Card (and perhaps MCX) in a decoupled Debit model. For those thinking about check fraud, make sure you take a look at the Fed’s 2013 payment study “Checks had the lowest fraud rate by number (0.45 basis points) and a fraud rate by value of 0.39 basis point”. Thats right, checks have a lower rate of fraud than credit and debit cards (not PIN debit in isolation).
  3. Instant Credit for Commerce Transactions. PayPal’s billmelater , and Macy’s, Nordstroms, Kohls and other leading Private Label Card (with Citibank leading the sector) to a fantastic job of taking credit worthy customers off of Open Loop bank cards.  The successful programs are unbelievably profitable for the retailers. With the card held by highest spending, most loyal customers.. and 1500bps on ANR. It wasn’t that long ago that most retailers had their own in store credit (see blog on Private Label), they also accepted checks.
  4. Authentication. As I outlined in Authentication – Core Battle for Monetizing Mobile, and Apple in Commerce, and Who do you Trust, Authentication is core to the platform (Google, Apple, ..) role in Commerce. With respect to Payments, how does a Bank PAY GOOGLE and APPLE for performing the authentication role (example using handset biometric features)?  In this model they are mitigating transaction risk. This is shaping up to be one of the key issues with HCE and Tokens as the new token spec has fields for authentication. I’m not speaking of the technical issues here, but rather the business issues.. how do payment providers compensate an authentication service for reducing fraud? As a side note, for US readers, there is no better service in the market than what Payfone has right now.. with access to both Telecom network integration and Bank ID/Acct verification information.

payment-value

What makes modern financial markets unbeatable? The ability for many parties to identify and segment risk, specialize and a market which allows all of these specialists to interact with transparency. Consumer Finance in general, and Payments specifically must take on some of these features.

Yesterday Jamie Dimon was quoted saying that Google, Apple, … all want to “eat our lunch” in this metaphor I guess consumers like me 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 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 and specialized risk management. Today, it would be almost impossible for 4 party networks to adopt to a flexible “risk based pricing” model. My view is that Paypal, Amex, and Discover have the infrastructure to support this today.

Surprised? 30 years ago most retailers began to abandon roles in transaction risk… only to be taken to the cleaners. Hence we see investment to reassert their roles (ie MCX, Private Label, …).  Retailers have no choice but to build consumer financial networks which allow for the (selective) assumption of risk (settlement, fraud, credit, Authentication…)? This taken together trends of branch closures, prepaid, mass market retail profitability make for a very chaotic environment.. (which is ripe for a new leader that can deliver value).

Thoughts appreciated

Debit Card Wars

5 Jan 2014

Happy New Year everyone. Short blog today on debit card and a new battle taking shape on debit card.payment trends 2013

Debit 101

From last month’s Federal Reserve Payments Study we see that the number of debit card payments increased more than any other payment type from 2009 through 2012. Given that the average transaction value is $39 for Debit and $94 for credit, debit has 64% share by number of transactions, but only 44% by volume.

For Non US readers, the Debit network is split between PIN debit and Signature debit (see US PIN Debit Consolidation). General-purpose PIN debit card purchase transactions at the POS, have roughly one third the fraud rate (0.45 basis points) of Credit (Note this is not shown in graph, this data point is from FED based upon exclusion of ATM fraud). This PIN fraud rate is as low as checks, a rate lower than for ACH (0.72 basis points), and a rate far lower than any other category of general-purpose card payment. In other words, PIN Debit is our “best” most secure card product which consumers PREFER to use for many small transactions.

Debit at Visa

Today Debit processing accounts for around 19% of Visa revenue. Visa famously won very big here over MA in the US starting in 2002, and as recently as 2009 Visa’s processed well over 50% of PIN and Signature Debit (Visa does not break out the categories). Post Durbin, Visa’s debit processing volume fell over 50% but has now recovered half of that loss as they acquire non Interlink PIN transactions and have established large merchant incentives (see Article, and Visa Policies). However I see this trend reversing again, the top 5 retail banks handles over 60% of debit transactions, and sources tell me that all of them are working with processors directly to route all debit transactions as PIN transactions (PINless PIN Debit) to avoid network fee AND DATA LEAKAGE. This is a MAJOR point.payment trends bar 2013

The Volume share picture on the right is from 2009 (not accurate). Durbin has shaken this industry up substantially, with Mastercard near parity to Visa in debit processing. Remember Durbin has set PIN and Signature rates the same.  Today, the most significant difference between PIN and Signature is routing, with merchant able to route PIN transactions directly to a Bank Issuer (avoiding network fee, a complex area still reworked Judge Leon’s ruling ). Visa’s advantage here is that DPS hosts many banks debit authorization services (they are the IT system provider for the Issuer’s Debit Product).

Push to Credit and Resistance on Real Time

With debit pricing dropping from 120bps to $0.21 (Durbin) and now likely to move toward $0.07 (Judge Leon), Banks have little incentive to push Debit cards. Particularly when the bottom 40% of mass consumer retail accounts are not profitable. Banks had a plan to institute fees on Debit, but Bank of America’s Moynihan jumped the gun in Oct 2011 and bore the consequences. Thus there is risk in moving aggressively toward Fees… so what are banks doing to encourage credit card usage?PIN Volume2

  • Throw Dirt on Debit (See ABA’s Target PR and the NRF Response)
  • Promote consumer protections on Credit
  • Enhance consumer rewards
  • Make ATM card the default card with your account, with a longer process to request Debit Card
  • Enhance Fraud prevention on Credit (EMV)
  • Focus all mobile initiatives on Credit only
  • Keep ACH slow moving (see WSJ Article)
  • Institute new “token” network that provides another form of Bank control
  • …etc

Retailers need to start being aggressive in supporting Debit.

Honor all Barcodes?

As I outlined previously, MCX is pursuing a Starbucks like Barcode approach. Most of you know that the MCX merchants have universally refused to accept contactless at Payment Terminal (with a few legacy exceptions in CVS/Walgreens). The reason? Bank led initiatives in contactless are 100% credit cards (200+ bps). Why would any retailer want to encourage their customers to use this product when they just won the Debit war.

The new news this month is that Visa (and perhaps MA) are working on a Barcode scheme as well. Why? The logic goes something like this,

  • Get consumer bar code version of card in mobile wallet (given NFC Failure and Starbucks success)
  • If MCX merchants support barcode payment, work to make Visa option, for example by allowing consumers to provision a Visa Debit bar code without issuer consent (or for DPS banks)
  • Create confusion at the POS, why won’t the merchant accept the Visa Barcode
  • Try to leverage the honor all cards rule
  • Steal market “ownership” of barcodes from MCX

I can’t believe I’m writing this… going from NFC, to Tokens, to HCE to Barcodes.. seems to be walking backwards technically.. but Visa can’t afford to miss a payments party. It is also consistent with what I wrote 3 yrs ago on their “Portfolio Manager” strategy.

Investor notes (January)

I see Visa’s debit revenue falling off much faster than anticipated.

I’m very negative on Paypal’s volume. Amazon, Apple, Google, Visa, and the MNOs will all be entering both the eCommerce and mCommerce space in a very aggressive way. As payments move to the OS, Paypal doesn’t have one.

Stay away from specialized hardware players (Verifone, Ingenico, Gemalto, NCR…) as dedicated hardware moves to commodity hardware and software.

Related Articles/Blogs

 

Accept all Barcodes?

 

Gemalto CEO: We will make “hundreds of millions” from MCX

4 Dec 2013

I had a large institutional investor forward me this article.. it is 60 days old.. but still I spit out my coffee laughing, so be careful.

gemalto

http://nfctimes.com/news/gemalto-offers-details-mcx-deal-vendor-will-earn-fees-transactions

Gemalto CEO’s assertion that he will make “hundreds of millions” from MCX is a big pile of… um… “optimism”.  Given he is a public company, I can’t imagine how he could possibly give forward looking statements that are so completely and utterly unfounded. Perhaps communication by public companies in Amsterdam is a little more relaxed (a trip to the “coffee shop” with Bob Dylan. I better watch out, or I may be treated like Bob was yesterday see CNN – Bob D Inciting hatred).

Let’s do a little math.

MCX will likely process payments in a decoubled debit model with a net payment cost of  $0.05 (plus 10-20bps for fraud). If Gemalto were able to get 10% of $0.05 ($0.005/tran) it would take 20 BILLION transactions to generate $100M in revenue, at $40 per average transaction that would be 800 BILLION in sales. For perspective, total US retail sales are $2.4T (not including restaurants, auto, services, gas).  Wow…. Quite Gemalto has quite an “aspirational” view on MCX adoption. I wonder if Gemalto’s CEO knows that the US operates in a competitive free market??

The only possible way to (re) interpret quote is that MCX will make 100M TRANSACTIONS. This means that Gemalto’s revenue from MCX would be $500,000 (at the VERY top end) in Year 5. I hope the institutional investors priced this “cloud” revenue…

I’ve yet to meet any vendor that has not left in tears after working with WalMart. These guys are supply chain Pros.. and no one makes hundreds of millions.. and if you were.. you sure wouldn’t go tell the press about it before your product went live.  Gemalto’s innovation is a pretty QR code.. they are complete idiots if they think that they are the only option for presenting a payment “token” to a POS (see Gemalto QR codes for detail).

12 Party

I own no Gemalto stock, but if I did.. it would be a short position. Their bread an butter businesses are handset SIMs and Credit Card Chips. My view of the world is that dedicated hardware is moving toward software. For instance the SIM card.. most have seen Apples plan to virtualize the SIM (see blog).  Gemalto’s hopes for NFC are also dashed by things like Host Card Emulation (HCE) and the 12 Party supply chain. See this picture on the right? The 12 parties… ? Well they ALL need to make money.. and I can tell you with great certainty that the NFC suppliers in this market don’t have 2 dimes to rub together on NFC.. everyone is taking a bath. Gemalto represents 2 boxes of the 12 (UICC and TSM).. Twice the risk.. non of the cash. Investors look at it this way.. do you really want to bet on Gemalto over both GOOGLE and APPLE? FUBAR!

What is left for Gemalto? EMV Cards.. They will see a bump in demand over next few years due to US reissuance.. but Gemalto is a commodity supplier here. I see nothing in their future that will help them evolve toward a software model.. MCX revenue projections are complete bull&*^*&^

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Chip and Signature!?

4 Decemberblue_credit_card

I finally received my very first EMV compliant piece of plastic from Citi this week. As I travel frequently to Asia and LATAM I’m very happy. This should help me avoid situations like being stuck at Vancouver Airport without anyway to buy a tram ticket from their ATM like ticket machine. Just one thing missing in the package.. a PIN. !!

I went online to see why there was no PIN https://www.citi.com/credit-cards/template.do?ID=chip-technology-questions

chip and signature

Can you believe it… we now have something unique to the US.. CHIP and SIGNATURE!?

Wikipedia tells me that the US, Australia and NZ are the primary countries for this model… I described some of the dynamics in my 2012 blog “EMV Battle Impacts Mobile Payments

From Chip and PIN to Chip and Choose? Visa wants  encourage signature as these transactions must be routed through them.. my position (and that of most non network people) is that AUTHORIZATION and AUTHENTICATION are completely different problem sets. The availability of real time approval means nothing if you don’t know WHO you are approving for WHICH CARD.  PIN answers the “who” question and the chip is the account number or “how” you are going to pay. I just can’t believe that Visa has come up with this story.. but they must in order to support “contactless”. Most consumers don’t know that today contactless transactions have limits. These limits are set by the issuer, in Europe they are typically around $25. However the issuer can choose to increase the limit (no PIN required), or require a PIN with a contactless payment.  All of this is a little absurd for Visa as PIN is always viewed as key to authentication, AND Visa just waved the signature requirement for mobile payments. So no signature required for Square.. but Visa wants it optional at the merchant POS so it can retain the volume?….  Expect some Regulatory involvement here.

 

Large Merchants are very, very aware of this strategy to improve the credit transaction mix and make mobile/contactless payments a “premium” service. The top 20 retailers have put their foot down and said “no way” will we be putting contactless readers in our store (MCX members particularly). The terminals that they are ordering DO NOT have contactless capabilities.. only EMV chip and PIN. Most retailers agree that signature is a worthless authentication mechanism. Visa clings to signature in order to ensure transactions are routed through them. Expect MCX to look toward a PIN model..

 

So this EMV “battle” has many sides to it.. it impacts mobile payment adoption, EMV rollout, plastic re-issuer, consumer behavior, consolidation of national PIN debit networks, EMV compliant ATMs

So WHY chip and SIGNATURE? The 30 second summary is that “Perfect Authentication” is a Nightmare to Banks (see blog). If there is no risk.. then anyone can be a card issuer. (Credit risk as opposed to the billion dollar fraud/authorization systems).

Business Drivers

Visa/MA

  • PIN is not a desirable consumer behavior, PIN is despised by both Banks and Visa
  • Grease the skids for contactless EMV. Who wants to waive their phone and THEN enter a PIN!? Visa/MA understand that it makes no sense to force a PIN on plastic and provide a “pass” for a waive.
  • PIN provides fantastic fraud prevention and therefore decreases the NEED for other risk management services (by Network and Bank)
  • Ensure that transactions are routed through them (signature debit is primary transaction type at risk).
  • The January 2013 Visa Mandate was a complete surprise to Issuers. I asked a top 3 card issuing CEO why did you commit to EMV. “Tom I found out about it the way you did, in a press release.. Visa has yet to come by my office to discuss EMV”. This gives you an idea on issuer relations. Why did Visa push EMV? to encourage reterminalization and enable mobile (credit card) payments.  Visa knew the big issuers would hate it.. but the Chip and Signature was a “meet in the middle” strategy. Visa created opportunity to enable contactless, and big issuers kept their PIN less advantages.

Issuers

  • Shifts Fraud to Merchants who do not have compliant POS payment terminals
  • Allows large banks to continue to leverage their multi billion dollar investment in fraud infrastructure (Signature + $$ Fraud Infrastructure == security of Chip and PIN)
  • Keeps consumer behavior away from PIN
  • Big banks win, enabling them to leverage multi-billion dollar fraud system investments at the expense of smaller banks. Banks that can not make the investments will be challenge to support contactless, or EMV, without PIN. This again demonstrates how large banks continue to exert substantial leverage over the card networks in rule making and incentives.
  • The only EMV products coming out in the US are Credit based. Payment strategy is centered around increasing consumer use of credit card products.
  • See my blog on PIN Debit (Signature Debit is Dead).,PIN Debit enjoys a slightly higher growth rate (15.6% vs 14.3%), consumer preference (48% vs 34%), lower fraud rate (2009 fraud numbers: Signature $1.12B, $181M PIN debit card),  and obvious merchant preferences (interchange and fraud; 96% of PIN fraud losses assumed by issuers, vs 56% in Signature). Source FRB report

We have an environment where Large Banks and Networks are purposely rolling out a less secure payment product. From the FRP report  http://www.frbatlanta.org/documents/rprf/rprf_pubs/120111_wp.pdf

PIN verification provides superior protection against fraud losses… Signature based losses were 13 bps compared to 3.5 bps for PINfraud dollar losses 2

Obviously PIN is more secure, and DEBIT is where EMV should be focused.. But banks DON’T WANT TO MAKE DEBIT SECURE (no margin here). To a non-payments geek this must look completely insane. Is there any wonder that large merchants are working together on a new payment network (MCX)? To understand the payments industry you must throw out all logic.. and look at the incentives. Moves here are NOT logical..  Networks are measured on volume, the entities which are in control of volume are Issuers (switch portfolios). Merchants are motivated by cost of acceptance.

Another Bank Consortium? Paydiant

Banks have not put all of their eggs in the TCH basket. There is another Bank Consortium around payments which I have not discussed: Paydiant has been working with 27 odd banks around a “Push Payments” pilot for last 2 yrs.

PUSH Payments – 27 Bank ‘Consortium’

Summary

  • Banks have another “consortium” on payments I have not discussed: Paydiant Push Payments
  • Trials have been underway for over 2 years
  • Competes with TCH tokens
  • Led by BAC, FIS, and other top banks
  • Objective: minimize changes to POS, through a new payment terminal which displays QR code.
  • Flow: Customer takes picture of Payment Terminal QR Code (which contains MID and TID), Code sent from Consumer Phone to FIS service, translated in to card (currently), Processed in normal Auth flow, then Auth PUSHED to POS terminal.
  • Elavon in primary processor for TCH tokens, FIS is focused on Paydiantpaydient

Background

On a flight to SFO today and I’m looking at 50 odd emails from last week questioning my blog on Host Card Emulation (HCE). It has certainly caused a stir with the NFC community. As most know, companies like SimplyTap have been able to make this work on the Blackberry platform for some time…. I don’t mention vendors by mistake… but can’t tell you much more here other than it would be worth your time to work with them if you want to evaluate HCE.

How does HCE play in a world of Tokens, QR codes, merchant run networks, NFC, and Push payments? Well quite frankly nothing is happening now, and until a critical mass of Banks, retailers and platforms start to deliver value (beyond payment) nothing will.  I’ve stated many times that existing networks are ill equipped to drive fundamental change. For example banks look at mobile as a chance to cement use of credit card and maintain control over payments (and consumers).

Those that have read my numerous Token articles know that Banks have been working to disintermediate Visa/Mastercard. The theme is “if there is a number stored on the mobile phone, we want that number to be one we own and control.. not a V/MA number.. but ours”. This number is the Token I referred to in Tokens – Volunteer Needed, Directory Battle, and Tokens and Networks,  …etc. Last month Visa, MA and Amex launched their own competing token scheme to ensure Issuers did not end run them. This has put significant dampers on the TCH project, together with the loss of its early bank champions (Paul Gallant now CEO of Verifone).  The TCH project is likely to morph into ACH and perhaps debit tokens, as well as coordinator of standards, with the Card Network consortium winning the battle over Card tokenization. The only significant piece of new information on this is that the TCH bank champions were emphatic that Regulators would FORCE TOKENs in pending rules. Lets see if that happens.

PUSH PAYMENTS

Banks have not put all of their eggs in the TCH basket. There is another Bank Consortium around payments which I have not discussed: PAYDIANT (http://www.paydiant.com/). Paydiant has been working with 27 odd banks around a “Push Payments” pilot (see blog for Push discussion).

Paydiant Flow

  • Merchant has specialized Payment Terminal that can generate a Paydiant QR Code. No POS change necessary
  • Consumer has Paydiant application or Bank white labeled version
  1. Merchant pushes normal card button on ECR
  2. ECR sends Payment amount to FIS Card Reader
  3. FIS Reader Generates Unique QR code based upon Amount, Merchant ID (MID), Terminal ID (TID)
  4. Consumer launches application and takes a picture of the QR Code
  5. Application sends QR code to FIS/Processor for transalation and asks consumer to confirm amount/payment instrument selection
  6. Consumer confirms transaction
  7. FIS sends transaction through normal payment Auth flow.
  8. FIS receives Auth
  9. FIS Sends Auth to pending MID/TID
  10. Merhant Payment Terminal receives Authorization and communicates to ECR
  11. Transaction is completed

I think of this as a reverse Starbucks. Consumer reads a QR code instead of the other way around. In a perfect world this is a great example of push payments. Only supporting issuers can participate, and they can set rules for interchange, fraud or anything else they want to with Merchant. Banks can also completely circumvent Visa and Mastercard as actual card number did not have to be used.

This solution, while very attractive, does have a few problems. In my own personal experience

#1 Connectivity. Over half of participating merchants had to install wi-fi hot spots as consumers did not have data connectivity in stores. This makes for a very bad (and slow) consumer experience.

#2 Glare. I couldn’t take picture of the terminal without holding another hand up to block glare. Of course we could solve this with Bluetooth LE, or some other factor.. but today it is a problem.

#3 Learning curve. Taking a picture of a QR code is not something most of us do..  Cashiers are not in a place to help

#4 Why? This entire solution is cool.. but why? It is MUCH EASIER to just pay with my card. Just as in Card Linked Offers, there are very few advertisers or other offer content to make this attractive.  FIS seeks to offer LevelUp like loyalty services, but currently in its infancy.

Bank Chaos

The reason I’m telling this story is  to show you the chaos going around mobile payments. Just because the technology works doesn’t make this a great idea. However, I do like this particular initiative very much, as it is the BEGINNING of a new network and a NEW APPROACH to payments that could reinforce Bank roles in authentication.  The flow makes sense to me.. we just have a few problems with the phone to Payment Terminal interface.  Imagine if I could couple this with a SQUARE voice experience and Apple’s new fingerprint technology.

Paydiant was quite sure they were going to win the MCX business. The solution’s complete dependence on processors and issuers made this quite unattractive, and hence Gemalo’s win (see blog).

I have a number of friends in the payment s industry, and each bank seems to be involved in multiple intitiatives:

  1. Tokens
  2. CLOs
  3. NFC
  4. Paydiant
  5. Apple/Google Wallets
  6. MCX
  7. EMV/Reissuance
  8. Visa/MA/Amex Scheme
  9. …etc

It is a crazy time. Small companies and mobile investors need to be aware of this Chaos, and understand the diffusion of focus.

US Payment Innovation and Regulation

A core “investment assumption” by TCH banks was that “regulators” were going to force the use of tokens in the US. As a primary means for meeting obligations under BSA/AML. The “value proposition” pitched to pilot participants was thus “regs are coming which will drive PayPal out of business.. everyone will be required to tokenize.. pilot participation means you can have a jump on everyone else.” Obviously this has not been the case..

29 Oct 2013

Short Blog.. will update next week. Sorry for Typos

Is anyone else struggling to see the logic of Bank led token initiatives? These folks are smart people.. we obviously see why they want to do it (control)… but they are smart enough to construct some kind of value proposition. It’s not as if they can MAKE every merchant and wallet service convert.

Well… this is NOT necessarily a good assumption (value proposition). I met with a few folks this week, each touched TCH SecureCloud.  A core “investment assumption” by TCH banks was that “regulators” were going to force the use of tokens in the US. As a primary means for meeting obligations under BSA/AML. The “value proposition” pitched to pilot participants was thus “regs are coming which will drive PayPal out of business.. everyone will be required to tokenize.. pilot participation means you can have a jump on everyone else.”  Obviously this has not been the case..

The Banks wanted to start with tokenizing eCommerce Cards on File (COF), as this enabled them to keep the favorable credit card mix (75%+ credit) in a new mobile world. If would have been much easier if they just pushed all of the consumers approved payment products down to Apple, Amazon, Paypal, Google… but Banks don’t really want consumers to have a choice.. they want friction and fear in debit.  This Credit on Mobile Strategy may not be a STATED goal of TCH tokens.. but it is certainly a corollary which Banks don’t care to address.

Visa/MA/Amex did an end run on Bank token plans with a proposed interoperable standard. It thus seems that the 20 odd Bank TCH token participants will give the utility to the networks, with the hope that there will be a continued credit focus. What will TCH do? Probably be a standards body of some sort, and be the token authority for things like ACH.

The ACH LOCKDOWN strategy had 3 prongs: NACHA Rules, Regulation, and an alternative. See related Post around NACHA Rules. With respect to alternative.. this is the driver of Clearxchange, a real time ACH that circumvents NACHA…

One of the Bank leaders quipped “in 5 years we hope to put Paypal out of business in the US”… implying banks could lock out non-banks in riding ACH rails. This would also have significant implications to MCX… My view is that there are ways to get around all of these grand plans IF they ever materialize (ie Bank partnerships).

All of this seems a little too smart, too complex, too dependent on regulations by a regulator that isn’t really doing much to help Banks these days.

Message to Regulators.

PLEASE DON’T FORCE TOKENS.. but rather allow risk to be owned by non-bank entities (ex MSBs) originating transactions. There are so many new ways to mitigate risk and authenticate a customer. Mandating tokens will kill innovation and keep control locked inside intuitions that innovate at the rate of glaciers.

Reminds me of a joke. Did you hear about the Bank mobile SVP that tried to commit suicide? He threw himself in front of a Glacier.

Authentication is key to unlocking billions of dollars in revenue and bringing enormous efficiency to the market… allowing for the REWIRING of Retail, Advertising, Commerce.

Regulators should not focus on payment tokens, but facilities for managing distributed TRUST and AUTHENTICATION. Allowing other entities to assume risk in payments. This may mean creating new quasi bank licenses (regulated trust authority) or a new federally approved MSB that does not hold any deposits. A first start may be to open up Fed Wire to non bank participants. With ability to take risk on settlement funds.

I actually agree with Banks in their token plans.. IF they are ultimately accountable for EVERYTHING.. they must control EVERYTHING.

 

Money 2020

10 Oct

Great Conference! In fact I would vote it the best networking conference I have ever attended. Kudos to Anil, Jonathan and the rest of the Money2020 team.. !

I’m backlogged and jet lagged but had to get a few thoughts out.

MCX IS REAL

I was fortunate to have lunch with Dekkers, though I can’t comment on anything relating to product, I will certainly comment on what I think is most surprising. Dekkers related that the degree professionalism and warmth of welcome has surpassed anything he has ever experienced in his career. It is NOT a herd of cats.. ! It is also not just a bunch of  interchange focused treasury guys.

Retailers are sick and tired of being handed rules by people that have no understanding of their business. They are competitors.. just as different as the Yankees and Red Sox… but they do agree on common rules .. and are determined to set them within their own “MCX” league.

Tokens

My panelist were great.. the content and answers were predictable.. hence the session was a little dry.  What is clear?

Banks want us all to believe that they support V/MA/Amex token efforts.. and this is all about security. I can assure you this story is complete BUNK!  At least from a business strategy perspective.    Card CEOs are furious at the thought of ANY ENTITY delivering value on top of their cards (see don’t wrap me):  Cardspring, Visa, MA, Retailers, Google, PAYPAL. There is an all out war to stop them.. the war is about DATA AND CONTROL and ESTABLISHING CREDIT as the primary mobile payment product.TCH Scheme

Consumers prefer debit for most POS transaction 8:1 (in Grocery).. but credit usage dominates eCommerce due to the better protections available to consumer (Reg Z) and reluctance to share debit card information online. Logically TOKENS should first extend to DEBIT in order to address these issues and ensure debit account security. Whether from action or inaction, most banks WANT to extend consumer UNCERTAINTY over eCommerce debit use into mobile.. CAN YOU BELIEVE THAT? Of course they would recast this statement “we want to deliver value to consumers [on credit] and ensure consumers are protected on mobile [using credit].. and we are making investments [in credit] to make this happen”.

Banks are investing over $1.5B (collectively) in data, offers and new ways to add value to CREDIT CARDS. However Banks don’t give a hoot about Debit (except BAC and CUs), the rest want to establish credit as the PRIMARY payment mechanism (in mobile POS payments). Their token moves are focused on protecting WHO CAN ADD VALUE TO CARDS ..  Make no mistake, token efforts are focused on protecting CARD BRANDS and the VALUE they deliver, with safety/security a distant second. Supporting Data:

  • Credit only in ISIS
  • No EMV
  • Bank investment in Data/CLOs
  • Bank investment in Tokens
  • Lack of investment/strategy in Debit
  • …etc

These credit focused banks know they can’t move as fast as Google, Square, PayPal.. hence they must stop them from adding value to cards. THIS IS THE PURPOSE OF TOKENS TODAY. Banks are seeking to create a new DATA Network that bypasses Visa/MA to deliver this value… Tokens are just part of it.

We all know this to be the case.. Bank preference for CREDIT the elephant in the room.. it’s the reason ISIS switched from Discover/Barclay card.. it’s the driver behind tokenization by an entity (TCH) that has never touched a credit card in their life. Along these lines, Jim McCarty did a great job of articulating Visa’s Value: [it’s not just about transactions, but a BUSINESS MODEL to drive revenue among network participants].  Credit drives MUCH MORE value to Banks:$0.03-0.12 /tran vs 2%+ of the SALE!

I told the bank head of the TCH initiative  “start with debit and everyone will jump on board … DEBIT FIRST is the only thing you can do to rebuild trust with retailers.. and you can do it without support of V/MA”  his answer  “what if we do both”?

My message to merchants, wallets, acquirers, mobile operators, … do nothing on tokens unless debit IS FIRST. It is how consumers pay at the POS today..  Banks are NOT doing the heavy lifting on mobile payments.. they are NOT the center of Commerce but a supporting actor.  We will never move this ball forward unless we create value to consumer and merchant.. we CANNOT operate in a model where only banks benefit and control the rules.

My view of MCX’s objective is clear and simple.. enable retailers to deliver value in a debit like model. Banks are not making investment here.. so we must find a way around them.

V/MA/AMEX Tokens

They have ALL the Carrots and ALL the control of existing rules on existing cards.. I see no way around their leadership.  The banks are very upset …

The network opportunity is to involve all commerce parties in rules construction.. a retailer said it best “Visa and Mastercard DO things to me.. they never talk to me.. they direct me.. the never listen.. they mandate… “  (see Network Tokens). Also see my blog outlining the different token strategies.