HCE – Now the PREFERRED contactless approach

Feb 19

HCE Gains Official Support from V/MA today

So much for 2 NFC/TSM CEOs telling me that HCE was “not viable”.  I told you Feb was going to be a great month.. and this is not even the tip of the iceberg. As I look at the number of reference links below.. I realize that I’ve been talking about this stuff for far too long. For detail on what HCE is see my November Post HCE Breaks the MNO Lock.

Today’s announcement primarily impacts BANKs. Message to Banks, if you want to test HCE TODAY there are 3 options: Mastercard, SimplyTapp, or Android 4.4 DIY.  Before everyone gets too excited.. the same mobile payment hurdle remains: merchant adoption. Technically HCE looks exactly the same to a payment terminal as NFC and unfortunately it also has same (terrible) business model (everything is a Credit Card .. by Bank design). Credit cards cost 200-500bps (% of sales) vs a flat fee of $0.07-$0.21 for most debit cards.

What does this announcement mean?

  • HCE Token Presentment = Card Present Paypass/Paywave
  • No more TSM, Payment is in the OS, No more dedicated NFC chipsets, and the MNO lock is gone. (Sell Gemalto … loosing MCX and NFC in the same week?)
  • Visa/MA prefer HCE to NFC hands down. It allows them to own the tokenization of cards in mobile. HCE actually ALIGNS to bank and network (V/MA) objectives: keep intelligence in network and control with issuers. The Networks ARE the TSMs. Mastercard is 3-5 years ahead of Visa here (with actual pilots). Visa’s is attempting to make up lost time by creating a more flexible program to support HCE within Visa Ready (Issuer Support). Note “Visa is Developing”.. vs.. call up MA and start the pilot. Visa’s token focus had been on the eCommerce side (V.me), and will have to run hard to play catch up.

Visa Ready

  • Android Rules! Cards, Tokens and Door Keys in Apps. Your Citibank mobile app can pay at a contactless terminal, your Starwood App can open hotel room doors. Apps have access to ISO 14443/18092 compliant exchange.. with the support of Android. This is where it will get VERY interesting. Google created HCE based upon the contribution of SimplyTapp’s Software (via GPL). I believe it is a tremendous competitive edge for Android, and I would bet they work to “manage” the deployment of KitKat and approve applications that can leverage it, as they MUST be part of Google’s Authentication/Biometric plans. Why is this better than Apple’s Beacon/BLE approach? Google is a Platform that will allow hundreds of apps to access the radio where they will own security and authentication (open innovation). Apple is a hyper controlled structure where beacons will talk to your phone in defined ways through approved apps (managed innovation). OK this is a bit of simplification, but until Apple actually releases a product don’t complain about it.
  • Tokens, Tokens, Tokens.  I could write a book on the interplay here. Much of the V/MA stance evolved from the previous TCH Token Project (see Money 2020 Blog and Business Implications of Tokens). The banks were working to end run Visa and MA on mobile tokenization. Theme is “if there is a number in the phone, why would we [Bank] want it to be a Visa or MA number.. lets make it OUR OWN number (ie a Token). After 3+ years the effort floundered and now TCH is left to be the standards body. Visa and MA reacted, most likely because of all my excellent token blogging (not), and together with Amex announced a new shared token approach.

Important. In the mobile context think of tokens are constantly changing card numbers. In the early stage HCE tokens will be 16 digits to support current payment infrastructure, but will evolve in next 2 years to be complex token identifiers much longer than 16 digits. Visa and MA have both developed controls for how this will work, for example having a “token” that refreshes at a given rate based upon where the phone moves and how the phone transacts. A Token could refresh at different rates (10 seconds to 10 weeks) based upon how the user transacts or what part of the world they are in. In this model Token generation is a NETWORK responsibility, which is why V/MA love this model.  In the new token schemes, there is opportunity for the “mobile handset” to provide biometric and security information. As I stated before, NFC zealots will HOWL that there is no TSM, or security that a number will be stored in software. But SECURITY has DEGREES.. there is no such thing as 100% non-repudiation.  I will leave it a subject to a future blog how ID providers are paid for this service.


There maybe a few new readers on this blog, so let me recap a brief history of how this came to pass.

NFC is a great technology, with a terrible business model. Developed by carriers in a walled garden strategy, they planned to charge $0.05 every time someone wanted to access a credential (like a credit card) in the “secure vault” within the mobile phone. The secure vault was the Secure Element (SE), with companies like NXP making dedicated chipsets for the function. See Carriers as Dumb Pipes.

Also seeNFC Handset

ISIS Platform: Ecosystem or Desert

Apple and Physical Commerce

Network War – Battle of the Cloud Part 4

Controlling Wallets – Battle of the Cloud Part 3

Apple and NFC







Token Activity – 10 Approaches?

11 December 2013

I’m preparing for a few institutional investor chats next week in NYC and thought it was time to update my view on the payment landscape. Summary: much chaos and noise, with existing players throwing sand in everyone else’s gears… lots of energy.. but NO HEAT. This blog contains a brief inventory of initiatives I’m aware of. One of the reasons I do this is to solicit further dialog from blog readers.. so your thoughts are always appreciated. It is very difficult for small companies to identify activities which will impact them.. turns out that most non banks and even Visa and MA are ill informed on some of these as well.

In my June Blog Tokens: Merchant Options, and September blog Money 2020: Tokens and Networks I laid out 5 token initiatives.. we have now almost doubled..

The key differentiation between these Token initiatives is WHERE the translation occurs (Wallet, POS, Processor, Network, Issuer).  Translation is also referred to as DIRECTORY, which I define as the mapping of consumer information to payment information (see blog Battle of Cloud Part 1). The owner of the consumer directory is the winner in all of this, as the value of payment pales in comparison to the value of data and the consumer relationship. This is the core of the token battle

Inventory is for POS payments only. 

Token schemes

  • Form A (TCH Pilot – Processor Translation)
    • Consumer Directory: Bank
    • Token is presented to Merchant at POS (QR code, NFC, Barcode, …)
    • POS forwards token to Merchant processor (ie Elavon)
    • Elavon translates token into card through TCH service
    • TCH can resolve token directly (switch to network), or forward to participating bank for resolution (switch to network)
    • Issuer sends Authorization to Elavon
    • POS settlement
    • Patent issues surrounding merchant processor translation of tokensTCH Scheme
  • Form B – Wallet Translation (Push Payments)
    • Consumer Directory: Wallet
    • Token is presented by Merchant and read by Wallet. Token represents MID, TID, Processor and Amount
    • Merchant POS is awaiting authorization as if a card was swiped
    • Wallet sends token to Issuer (circumventing Visa/MA). Note this is WEAK LINK as data connectivity required for Consumer’s phone at POS
    • Issuer translates token into authorization, sends to processor
    • Processor passes authorization through to TID as if card was swiped
    • SMS based payments done in this model for years. Form of tokens could be beacons, QR, biometrics. Difficult to patent as core for operation is consumer directing bank to make payment.
    • Key differences (globally) are how consumer IDs the merchant and amount, and how does issuer pass the auth
  • Form C (C for Chase with their unique VisaNet deal)
    • Consumer Directory: Bank
    • Token is card number, Presentment is TBD.
    • If Merchant is a CMS merchant, Card routes through JPM’s version of Visa net for offers/incentives (given merchant participation.. of which there is none).
    • If Consumer card is JPM then deliver Card Linked Offers. Again.. not much here.
    • Unique capabilities, but all based upon Visa’s network. Barrier to replication is the unique deal that JPM constructed to “branch” VisaNet
    • JPM Visa flow
  • Form E – EMV/NFC
  • Form G (G for Google’s old Mastercard proxy model)
    • Consumer Directory: Google
    • Token is a card number – Issuer is google (See blog)
    • A plastic version of this was planned in 2012 as reported by Android Police, but was pulled because of high stakes war involving top issuers and Mastercard.
    • Merchant runs transaction as normal
    • Google acts as issuer receives authorization request and routes to selected card (using facilities of TXVIA).
    • After receiving authorization from funding card, google authorizes transaction
    • Issuers make all of the interchange they did before, but don’t like being wrapped. They also don’t like the data leakage and the fact that this impairs their ability to offer unique services (10% off at Kinkos).
    • Note: this scheme has a value proposition for everyone.. and banks still don’t like it… Google loses money on every transaction.
    • Another little known fact is that early versions of GW ran in this model due to limitations within NXP’s chip (only supporting one card emulation app)
    • No Patent issues, few other companies could afford to take a loss on every transaction (buying data). Network rules are the primary issue.
  • Form H – Host Card Emulation  (Google, MA, SimplyTapp) I like – this one
    • Consumer Directory: Issuer
    • HCE Blog
    • Blend of NFC and Form V below. Simplifies the NFC supply chain
    • No dedicated hardware, NFC just another radioExposure: 000 : 00 : 00 . 156 %Accumulated%=0
    • Issuer Creates One time use tokens for EMV key generation
    • Merchant acceptance hurdle CURRENTLY same as NFC
    • Can be leveraged for non EMV purposes (Beacons, QR, wi-fi, …)
    • HCE is GPL, but ability to generate one time use tokens for EMV generation is unique.
  • Form M – MCX/Target Redcard
    • Consumer Directory: Wallet/Retailer
    • See Gemalto/MCX Blog
    • Very similar to Model S (Square) below except wallet is owned by the retailer and form factor is QR code
  • Form P – Paypal/Discover
    • Consumer Directory: PayPal
    • OK… this is not mobile yet.. but since I have Square down below, I thought I would be fair
    • Consumer registered for Paypal Card running on Discover network.
    • Consumer enters phone number at POS + PIN
    • Processor translates phone + PIN into Discover transaction
    • Discover routes to Paypal for authorization
    • Very similar to Model G above
    • Transaction authorized
  • Form S – Square/Starbucks/LevelUp – POS translation
    • Consumer Directory: Wallet/Square/Starbucks
    • Consumer account mapped to phone, ID, voiceprint, card, picture, location
    • POS translates ID to Card
    • POS request authorization as a card not present transaction
    • Consumer Authorization was taken during service registration
    • Consumer receives digital receipt for transaction
    • See Square Stand, LevelUp
  • Form V – Visa/Amex/MA – Network Tokens (TBD)
    • Consumer Directory: Network (Issuers don’t like this)
    • Press Release
    • See blog on Battle of the Cloud Part 4 – Clusters Form
    • Tokens will evolve to a very long number which will be translated to an issuer/account number. This is what Visa/MA do today.
    • Patents will be around generation, use and validation of token. In the future, merchants will not store your card numbers on file (COF), each merchant will have a unique token based upon your actual account number and their own ID.

From Business Implications of Tokens

Business Drivers

As I outlined in New ACH System in US, my view of Bank business drivers for Tokenization are:

  1. Stop the dissemination and storage of Card numbers, DDA RTN and Account Numbers
  2. Control the bank clearing network. Particularly third party senders and stopping the next paypal where consumer funds are directed to unknown destinations through aggregators.
  3. Own New Mobile POS Schemes to protect their risk investment
  4. Improve ACH clearing speed (new rules, new capabilities to manage risk). In a token model the differences between an ACH debit and a debit card will blend as banks leverage common infrastructure.
  5. Create new ACH based pricing scheme somewhere between debit ($0.21) and credit cards
  6. Regulatory, Financial Pandemic, AML controls (per  blog on HSBC)
  7. Take Visa and MA out of the debit game (yes this is a major story)
  8. Maintain risk models (see both sides of transaction)
  9. Control Retailer’s efforts to form a new payment network

What banks seem to be missing is that mobile payment is not just about payment (seeDirectory Battle Part 1). Payments SUPPORT commerce, Banks therefore do not operate from a position of control but rather of enablement. Most retailers recognize that Consumer access to credit has resulted in improved retail spending, however most would also say consumer addition to bank rewards has been detrimental to their margin.

Commerce and Banking – What is the Difference?

21 Nov 2013

Warning… long blog.. random unstructured thoughts

This is the question I came up with in a lunch chat with my friends at Omidyar Network and not exactly something I can adequately address in a blog, a book, or a lifetime.. but hey some idiot like me may as well throw it out there.

Why am I asking this question?

My investment hypothesis is that Banking and Commerce will be undergoing a fundamental rewiring. Therefore I’m wondering who the winners will be? What needs to be built? What are the signs that progress is coming? These are my selfish drivers.

On the altruistic side, how can we massively expand the global economy? Enable millions of businesses and billions of consumers to participate in the world economy? Within emerging markets, which is more important to invest in? Banking or Commerce (see blog Expanding Global Economy).

Where am I coming from? Network View

Well I’m certainly no economist, but I do know a few things about networked businesses. How are Banking, Commerce, Society, Government influenced by network effects? How has it evolved?

One of the most influential books I’ve read on this topic is Weak Links by Peter Csermely (viewable on Google Books here). If I had one book for you to read during the Holidays this is it. This book is tremendously arcane, detailed, technical, deep.. but I guarantee you that you will have a new view of commerce, banking, advertising, social networks, payments, and society after reading it. Example below on Peter’s insights into how the creation of money altered society, established “weak links” and Capital Markets (p 263)


Wow… just when I thought I knew everything about payments. The advent of money led to the development of concept of PERSONALITY!? (Certainly a new way of thinking about networks). The idea that increasing use of money drove new social and economic structures is obvious; less obvious are the connections formed, the “weak links”, beyond the flow of funds: non monetary data, relationships, reputation, …etc. I prefer to think of this “personality” dynamic, within weak links, as behavior (as influenced by Malcolm Gladwell).

These “weak links” represent the world’s most complex network, and this network is going through a FUNDEMENTAL change as communications networks have greatly improved the efficiency of network creation to a near frictionless flow information. There are 2 fundamental questions for me here:

  1. What is the cognitive limit to networking (ie. associations, data, ..etc)? and what are the tools to improve them (ie Platform which I will cover later), and
  2. How do we connect the unconnected?

Most surprising to me, within Peter’s work, was the idea that scale free distribution (completely open networks) is not always the optimal solution to the requirement of cost efficiency. For example, Peter states in his book

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.

Therefore, there is a case to be made for specialization and “semi open” networks when it comes to COST efficiency. Logically, the boundaries for star network size are associated with the value of connection exceeding the cost.

Given the complexities of weak links discussed above, we can see (from a networked view) why managed economies (like the old USSR) lost to social structures where dynamic networks could be formed on value.  We can also see how consumers at the bottom of the pyramid are more heavily influence by the the few links they have (ex social programs, corrupt dictators, populists, …etc).

This all leads to a question for us, as a society, where should we try to “centralize” services and functions? Would it be better to provide the tools to “connect” and educate the mass market on how to discover services (ie value, reputation, price, …)? Or force everyone into a network with no other options? (Sorry for the Healthcare tangent).

Star networks naturally occur, but they also occur artificially. Banking has both dynamics, as connectivity and strong links are required for efficiency. Banking System’s network dynamic is also strongly influence by regulation that manages the connection and the information flow. What would an unmanaged banking system look like? This is what we see today in BITCOIN.

US Bank regulation impacts participation, services, value, location, communication, … etc. In a world of free information flow, should consumers have a choice? What choices should they have? The need of government is to track financial information for the purpose of taxes and management of economic activity. The need of consumers is to connect to the economy efficiently.  Thus star networks exist both as natural (self organized communities) and unnatural (regulated services, dictatorships) phenomena.

How do consumers select a Bank? Well back in 2006 we commissioned an analysis and found that branch location (convenience to home/office) was the number one factor in consumer bank selection. In the last 2 years we have seen a SEA CHANGE as US banks now work to thin out their branch network. Many drivers here, but it certainly doesn’t help that the fee restrictions from Durbin led to a consumer banking environment where the bottom 40% of consumers are no longer profitable (see Future of Banking).

Where are these bottom 40% going? Pre-paid (see Bluebird). Although Banks don’t want the bottom 40%, they also don’t want Walmart to succeed. Retailers like Walmart love these consumers, as they are their core. Banks products are becoming “banking lite” services productized and sitting on a retail shelf to buy. Pre-paid “specialists” have thus materialized, and established players hate the idea that consumers will to think of bank services in this light (a product which can be bought.. and switched). Of course it makes sense to ask your regulator from protection against consumer choice, but this is certainly not to benefit the consumer.

How do consumers select a retailer? Not all commerce is retail, and I can’t possibly do justice to answering this question. The CEO of Safeway also outlined how 80% of any given Store’s customers were within a circular proximity of his stores, and that store location was driven by density/competition/demographics.  However, this is convenience selection process is NOT the dynamic with Amazon or Walmart. It would seem that the value of connecting to Walmart and Amazon is different for certain population groups. (see Future of Retail).

Quantitative Data

Big picture first. How can we measure “networks”? Perhaps the real question is what are we trying to find. We could look for efficiency of the network itself, or the financial health of the nodes, or the scale (number of nodes). The last one makes little sense as everyone participates in Commerce and Banking to some extent.

With respect to Banking and Networks, NYU’s Thomas Philippon published jaw dropping research detailing how Payments and Banking are one of the few network businesses in the HISTORY OF MAN to grow less efficient (rail, telecom, energy, …). Consumer banking examples are plentiful: is how can the banks justify paying 0.2% interest on your savings, but charge you 15% on your card? (See Future of Banking: Prepaid..?). Obviously regulators are protecting bank margins, with some Bankers ACTIVELY discouraged from rate competition. This is the DEFINITION of regulatory capture (regulators DISCOURAGING philippon_newfig1consumer competition).

Commerce is far too broad to generalize. It encompasses manufacturing, services, retail, infrastructure, rules, codes, …etc. Logically improved information flow should improve transparency, improved transparency should lead to improved consumer choice and growth of specialists focused on serving ever smaller niches of demand. We certainly see this dynamic today in HighTech manufacturing (Cisco, Samsung, Apple, …), US capital markets, telecommunications, professional sports, ..etc. How can we measure this? One of the best scholarly articles I’ve read on networks and global commerce is from Humels, Ishii and Yi (See paper as published by US Federal Reserve). From the abstract

Using input-output tables from the OECD and emerging market countries we estimate that vertical specialization accounts for up to 30% of world exports, and has grown as much as 40% in the last twenty-five years. The key insight about why vertical specialization has grown so much lies with the fact that trade barriers (tariffs and transportation costs) are incurred repeatedly as goods-in-process cross multiple borders. Hence, even small reductions in tariffs and transport costs can lead to extensive vertical specialization, large trade growth, and large gains from trade

From a Commerce (Manufacturing) network view, over 30% of export growth was fueled by network effects associated with specialization. These effects (growth) were highly correlated to trade barriers (ie, network friction) and  infrastructure (payments, commercial banking, transport, logistics, communications, …etc).

How has information flow impacted Retailers? Net Margin in retail has taken a nose dive (from 4.2% in 2006 to 2.8%, see data by industry from CSI market). Retailers have no one to protect them from the forces of competition (ie Bank regulators) and therefore have a much tougher job as they work to sell commodity goods at the highest possible price, in a world where they don’t know the consumer’s name (see Retailer CRM).  It seems obvious that data transparency (ex show rooming) and new networks provide price and reputation information and that consumers are changing behavior.retail margins 2

Commerce and Banking

Summary: the only difference between Commerce and Banking is REGULATION. Banking is a highly regulated activity…. Commerce is not. Providing access to financial services is a much harder problem to crack because of local regulatory hurdles (see my notes on MPesa and Reaching the Unbanked).

If commerce, networks, banking, government and society are evolving how SHOULD we change our artificial structures (ie regulation, government, …etc.) to support? Have we reached an apex where the pendulum will swing quickly from centralization to hyper democracy? And hyper capitalism? Where SOCIETY creates and evaluates rules which are established based upon their aggregate network effects, not on lobbyists, politics and junk science?

The most immediate areas impacted are those networks that do not deliver value, as barriers to entry and switching costs are overcome value and scale of alternative networks and new business models. 200 years ago we could walk into our local country store and ask the shop keeper to put our purchase on our account. We could barter for goods and services.  Today, the regulatory hurdles for a store to provide this simple service are substantial.

Banks, manufacturers, retailers, service providers are all capable of issuing credit based upon identity, reputation, history, use, …etc. A home builder could take on the ability to sell, lend, lease and repair a home. Yet the enormous regulatory requirements on selling, lending, leasing inhibit the viability of this vertical service integration.

With respect to payments, as my friend Osama outlined to Tim Geithner, what if the future of payment profitability was driven not by interchange, but by the flow of data? What if Apple were to give away new iPhones, with free connectivity, with the provision that they share data on preferences and behavior? This is NOT some future state, these discussions are happening today. We tend to view these discussions in context of the companies, products and structures that exist today (ex. how could Visa enable this?). Yet existing networks have proven an inability to adapt, as they were formed around an existing value proposition in which each node became “attached”. If you change the core service, you change the entire network.

The inability of other networks to adapt is FAR less concerning to me than regulation that will destroy innovation and create artificial PROTECTIONS around existing structures. In the example above, what if the government mandates controls around PII making the prospect of free phones and free data non-viable. Who wins? Consumers gain increased protections on their PII, but loose a service. Should they not be able to make this trade themselves?

Another example is Prosper in social lending. A great example of innovation which was “guided” by the SEC to become a securities dealer (see Wikipedia, Crowd Sourced Credit, and my blog on Reputation). Now every loan must be registered as a security (see example) . This may be the right thing for us to do as a society, transparency and auditing are valuable functions which increase the flow of capital and efficiency of a market. But must we be required to submit to these regulations when we want to take on another type of risk? Having the government certify “accredited investors” or “accredited borrowers” may be best as an optional service that must prove its value.

In the emerging markets we see the MASSIVE success of MPESA. With few exceptions (Philippines, PK, Colombia, Peru, Ghana), we see every other country working to ensure this DOES NOT happen in their market. India is at the top of my list of offenders, where entrenched bureaucrats and regulators work to protect domestic banks at every level, regardless of the potential macro economic benefit (review IMPS for example).  Beyond banking the same dynamic plays out in Commerce as well capitalized companies like WalMart are hammered for making unapproved INVESTMENTS in infrastructure (see WSJ).

Clearly the pain point is around banking, but it is not something that banks alone can address as they themselves are regulated, it is a regulatory issue (see US Payment Innovation and Regulation).  Europe has done a fantastic job addressing the regulatory issue (within the ELMI construct, SEPA, …etc.), their problems are around nanny state consumer protections and EU rules do not make their way into domestic law or regulations. A government that protects against everything, inhibits free association, consumer choice and the assumption of risk. (now I sound like Milton Freedman).

“Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.”
― Milton Friedman

“Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government– in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.”
― Milton Friedman

“The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both”
― Milton Friedman


Just as use money enabled a specialization and concept of “personality”, telecommunications is opening up a new world of free form association, both business and societal.

Open Source is a model most of us are well familiar with. (further reading… I ran across a very nicely done paper from 2 MIT students: Implication of Open Innovation and Open source to Mobile Device Manufacturers).  Given that mobile, advertising and payments are all networked businesses… business models supporting distributed innovation should advance at a faster pace than those controlled by a single entity. For example, Amazon, Samsung, Motorola, LG, HTC, Verizon, ATT, Vodafone, .. all make much larger investments in the Android platform (than in IOS). (I would love to see an analysis of combined capital investment in android platform)

From my blog Stage 4 Value Shift

…this distributed innovation hypothesis is NOT playing itself out (ie Apple). Apple’s 1Q12 showed iPhone revenue alone was $24.4B, which is bigger than all of MSFT revenue combined.  Analysts have shown that Apple now garners 75% of mobile handset profits, with only 9% of handset market share.  So while Samsung alone has outsold Apple in Units this quarter (41M vs. 32.6M), and Android just topped 50% market share (vs Apple’s 30.2%).. Apple’s handset business PROFITABILITY dwarfs that of all of the competition (COMBINED).

So… What are the factors of competition today? Can someone else change the game?

The big downside in distributed innovation is complexity, there is a need for a “channel master” or chaos reigns. Many Android users witness this chaos when an app won’t work on a new hardware/OS combination.. Distributed innovation is not something that established businesses are good at. It has proven most successful in product PLATFORMS where the pace of change in each component is changing at a rate where no one company can make the capital investment to remain competitive (ex. Moore’s Law, PC architecture through present day). Intel played a very important role in this process, as it worked outside the scope of the CPU in areas such as: Intel Architecture Lab (IAL, developed common standards like PCI),  stimulated external innovation (developer training, testing, Intel Capital), industry marketing, patent/licensing. Intel defined what the PLATFORM was.. something that is common sense to us today.. but rest assured it was not given to them, rather it was something that they stepped into and took leadership of.

From Delivery to Discovery

Commerce and banking have many effective platforms to coordinate supply chains and payments. Today the nature of commerce competition is on quality, price and distribution (delivery). What if the nature of competition shifts from delivery to discovery? Shifting the model by which “weak links” are established today.  Today an individual must sift through mountains of search results and travel sites to find the best deal. We see complete garbage in banner ads and TV.

Who can proactively help you form networks of value, and expand how consumers manage their network, identity, personality? Most would agree that Google is best positioned here. I’m also very excited about the prospects of a company I’m incubating in this space. Ok.. this is getting off track quickly

Summary (I just finished reading a few of the federalist papers last night.. so pardon in advance).

The key for global economic growth is allowing individuals, and companies, to assume risk. The lines between Commerce and Banking SERVICES should blur, and start from the Commerce side as regulated intuitions have an unfair advantage in their protection. New networks provide for free form associations, and will improve in their ability to organize as platforms mature. These networks are capable of higher forms of risk mitigation, but are throttled by bespoke institutions and regulations.  Bitcoin is perhaps the best example of a disruptive force to hit banking. Europe is proving to be a role model in banking regulation, but their innovation in financial regulation has been offset with a local enforcement and complex environment where consumers cannot assume risk.

My message here is for Governments and regulators as much as it is for innovators. We must allow consumers to make decisions for themselves, and avoid regulating every behavior or government centralization and control will tend toward tyranny that is unaccountable and unchangeable.

Payment News for May.. What a Month!

I’m actually starting to change my attitude on Visa. Its not just that Jim McCarthy is down the street from my in North Carolina… but rather Charlie is changing the culture there from one that alienated everyone.. back to a network that wants to add value to all.

15 May 2013

I’m in overload on information this week. Just don’t know what to comment on..

In an effort to conserve energy, let’s just say that there are MANY announcements.. but little real progress…  If you were a retailer.. would you exclusively advertise through Groupon? Through Visa? Through anyone? Of course not you have a price promotion strategy and multiple marketing programs which to accomplish objectives in each.  You would choose your channel based upon the ability to REACH the customer (ie Radio, TV, ?email…). As a retailer you also want loyalty to YOUR BRAND.. not some card, bank or start up…  Most of these entities have NO REACH.. having customers is MUCH different than being an effective CHANNEL TO INFLUENCE them.

With respect to POS.. the world needs change. Both Square, and Paypal have the merchant value proposition about right. Their respective terminals solve a short term cost/complexity issue. Square’s product is much further ahead as it also solves inventory management and marketing problems.  PayPal’s value proposition may be higher as they could manage payment costs more effectively (given consumer paypal account penetration), and many merchants already have a merchant account. Perhaps Paypal is taking my advice from 2 yrs ago.. focus on the merchant side first.. I hear that the paypal card is Don K’s pet project.. but John and Marcus may be finally tiring of the poor performance.

I’m actually starting to change my attitude on Visa. Its not just that Jim McCarthy is down the street from my in North Carolina… but rather Charlie is changing the culture there from one that alienated everyone.. back to a network that wants to add value to all. One example is emerging markets, where Hannes of Fundamo has done some REAL work in creating new VisaNet transaction sets to support emerging market solutions. Unfortunately their offers platform is stunted, as the mix of issuer “permission” and consumer experience makes this unworkable basket level program that I have already discussed many times (See CLO). Visa does not keep transaction history (with exception of debit hosted service of a few DPS banks), thus any offer targeting would be driven off a visit to a single store, or single event. This enables it to be a switching service..  Buy something at Macy’s and BOOM get a 10% back offer from Neiman Marcus. From the PR:

Most importantly, the Visa POS Offers Redemption Platform provides real time ticket reduction as part of the offer redemption during the authorization process, delivering an alternative option to the need for statement credits or paper coupons. This functionality streamlines the checkout process by enabling instant redemption of rewards and has the potential to drive incremental transaction volume. Once the reduced transaction amount has been approved by the card issuer, consumers are immediately notified of their savings via receipt printout and SMS text, or email message. (The Next Web)

Customer Experience? The Visa “POS Offers Redemption Platform” is really a “credit” that COULD be given on the receipt if the retailer’s POS interprets the message, and IF the issuer allows it. Thus the entire platform suffers from targeting, basket level redemption, consumer experience, POS integration, Issuer permission, … (need I go on)? American Express’s focus is completely different. They work with the retailer to help them gain insight into their most valuable customers and work with them to create programs to reach them. Visa can’t do this.. as they don’t own the customers.. nor does Vantive.. NO WONDER JPM wanted to opt out of VisaNet.

Google.. lets wait 2 weeks here (after I/O). I already discussed what was reported on Android Police in November. My guess is that the cost of this program was going to be pretty big… even for Google.. If it was successful. Eating 100-150bps in physical commerce ($2.4T) can be quite a big hit, even if you take only 1% of the market ($240M-$360M in US alone).

WMT’s Pre-paid success.. and impending MCX efforts are making the banks itchy. Somewhat ironic, as banks really don’t want WMT’s mass consumer customers in their branches.. while WMT loves them in their stores. Think the banks really don’t like having their “banking lite” services productized and sitting on a retail shelf to buy. They don’t want consumers to think of them as a product which can be bought.. and switched. Of course some banks have seen the light (Amex, Discover, GreenDot, BankCorp, Meta, …). Competition, transparency, and product selection are core elements of efficient markets. Of course it makes sense to ask your regulator from protection against consumer choice. But this is certainly not to benefit the consumer.

Bitcoin? where to begin.. ? Unlike most currencies, bitcoin does not rely on a central issuer, like a central bank or government. Instead, bitcoin uses atransaction log across a peer-to-peer computer network to record transactions, verify them and prevent double spending. It is a VERY INNOVATIVE mathematical crypto innovation (that is used extensively in illegal activities). Bitcoin stands in dramatic contrast to all of the data sharing, bank controlled, transparent stuff above. Its success demonstrates that there is a tremendous need for anonymity in payments.  There is no centralized authority here.. which is what alarms governments..  Thus there will be very strict controls on how coins can be converted into currency. Thus Amazon’s coins can only be used to purchase games/apps.  For those investing in this space, you should thoroughly research eGold.

Payment is still a red hot market.. expect significant M&A activity over next 12 months.

Visa – Golden Goose is Now on the Menu

The golden goose that was Visa is now on the menu.

Note that my Views on Visa have changed substantially.. Charlie just joined 4 months prior.. and that Visa’s issues (described here) were driven by his predecessor.

March 2013

Todays WSJ article


I’m working on a much more detailed assessment with an analyst team.. this one is short.  I just can’t believe the market hasn’t reacted to what is going on.

1)      EU banks setting up own network (per article above) .

2)      US banks setting up own network

3)      JPM setting up own network

4)      EU banks selling Visa brand to Visa Inc … and may have no cards

I just can’t believe there is no market reaction, or how this could be positive for Visa.. and their 26x+ P/E trailing earnings

Their world is shattering into on us least cost routing. Visa is currently a “star” system and it is evolving to a multi switch “cluster” system where large hubs (Banks like JPM) act as a “star” network to their own cluster/community. From a pure network theory perspective this is much more efficient. (See multipath routing). My view is that MCX would take this a step further by allowing any node point to point access to consumer.  tn_colliding_galaxies

From WSJ

The financial groups that own the European business are exploring a plan to set up their own payments business that would compete against Visa and MasterCard to process credit- and debit-card transactions, according to people familiar with the matter

I believe banks are operating brilliantly here. Banks central execution challenge is to rework the acquiring relationships.. a much bigger challenge in US than in rest of world. In the US it was resolved by allowing JPM to “license” visa net (probably a very low fixed fee for optics). JPM will take every transaction off Visa it can (where Chase Paymentech owns the acquiring relationship). This may be only a 2-3% revenue hit.. but now that the other issuers are clamoring for same deal THIS WEEK, they will either get what they want or shift business to Mastercard. Giving the top US issuers “on us” capability akin to JPM may also only result in a 4% rev hit (cumulative).. but if on us starts to become ON WE then we are talking about 20% cumulative. On we means that the on us banks clear their own, and then also collaborate to clear between themselves in their own consortium.  If you take away US Debit card we could see another 10-12% revenue hit..

Back in 2007 Visa prepared for IPO by mandating all transactions route (or report to) VisaNet (American Banker). This of course made sense, from AB in 2005

On Tuesday the association told members that it would require the use of Visanet for any transaction made with a card that bears its logo and is not authorized using a personal identification number. The primary effect of the rule is to remove an exception that Visa had extended for “on-us” transactions, in which the same bank is the card issuer and the merchant acquirer. Prior to the change, the association had permitted in-house processing….

“Processing every Visa transaction is important … to ensure that Visa is in a position to stand behind all Visa-brand transactions,” Mr. Steele said in an interview Tuesday.

…Some processors, most notably First Data Corp., have used the “on-us” construction to skip Visanet for card transactions in which it represented both the issuer and the merchant acquirer. When First Data announced in 2002 that it planned to conduct as many as 15% of its payment card transactions that way, Visa sued and called for a moratorium on the practice. The case is still unresolved.

Visa Inc. has fouled the well in managing bank relationships. You can’t exist as a star network by alienating all your nodes you must have an anchor (gravity). The golden goose that was Visa is now on the menu.

In Europe, the banks already have “on us” least cost routing.. Europe has also made many attempts at a EU plastic payment network. The dynamics there are very, very complex as the central governing bodies (EPC) have limited ability to make local law or enforce/influence local regulations.  But the dynamics here are changing. My guess is that EU bank efforts have less to do about improving payment profitability and more about new product and local control.  Europe would love to have what China has today in China Union Pay..   (SEPA Card)

See links below for more EU background

  • http://www.ecb.int/paym/sepa/pdf/2012-03-23_Eurosystem_reaction_to_EC_Green_Paper.pdf
  • http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp131.pdf
  • http://www.europeanpaymentscouncil.eu/content.cfm?page=sepa_vision_for_cards
  • http://www.tsys.com/thoughtLeadership/ngenuityInAction/current_issue/Spring09EuropeanCardHarmonisation.cfm

All this talk of stars, clusters and destruction makes me think of Black Holes… hope we are not close to that event horizon…

Controlling Wallets – Battle of the Cloud Part 3

The networks are now in the midst of defining new rules to ensure they can “influence” wallets. Banks have legitimate concerns surrounding ability support consumers and adjust their risk models. But the real business drivers here control and customer data.


14 MAR 2013

Short blog today.. patent law changes tomorrow and need to get something filed.

Efforts to “control” have unintended consequences.. like holding onto your Jello by squeezing it..

The networks are now in the midst of defining new rules to ensure they can “control” wallets. I wrote about this a few months ago in Don’t Wrap Me – October 2012 and Battle of the Cloud – Part 2. The threat to banks from “plastic aggregation” at POS from solutions like Amex/Serve, PayPal/Discover, Square/Visa, MCX, Google is real. Make no mistake, Banks have legitimate concerns surrounding ability support consumers and adjust their risk models. But the real business driver here is to “influence” mobile payment solutions that do not align to their business objectives. Key areas for bank concerns:

  • Top of wallet card (how does card become default payment instrument)
  • Credit card ability to deliver other services (like offers, alerts, …)
  • Ability for issuer to strike unique pricing agreements w/ key merchants
  • Brand
  •  …etc

Each network is in midst of creating rules which will ensure it has control and can see merchant/consumer transaction.

The buzz this week is surrounding Mastercard’s new Staged Digital Wallet Operator Annual Network Access Fee (MA detail reference not avail).

  • What is it? Well since I don’t have the Dec 20 rule in front of me I have to go off my notes.
  • Applies to wallets that facilitate POS commerce between merchants and consumer (not ecommerce)
  • Who is responsible? It is largely a new processor responsibility. They are responsible for identifying wallet transactions
  • New transactions sets? Yes. Currently aggregators can be the merchant of record, but new rules require the MID of purchase and a new WID (WALLET ID) to be transmitted.
  • New fees? Yep.. looks like around 35bps on LAST YEARS volume
  • Timing? Goes live June 2013. Processor technology complete by April 2013

This is a brilliant move by Mastercard… but there may be some unintended consequences as issuers will have control over how it is applied.  MA’s objective?  “influence”  PayPal/Discover, Amex/Serve and Square/Visa, MCX…  NOTE eCommerce is NOT the focus (Apple/Amazon). However MA seems to be tying themselves in knots trying to differentiate a ecommerce aggregator (Amazon) from plastic aggregator (ex. PayPal/Discover).

These changes are already having “material” consequences. In eBay’s 2013 10k Page 19

MasterCard has recently announced a new Staged Digital Wallet Operator Annual Network Access Fee which would apply to many of PayPal’s transactions if the buyer uses a MasterCard to fund their payment, and will be collected starting in June 2013. PayPal’s payment card processors have the right to pass any increases in interchange fees and assessments on to PayPal as well as increase their own fees for processing. Changes in interchange fees and assessments could increase PayPal’s operating costs and reduce its profit margins.

Also see the long discussion by Amex’s Dan Shulman


UNIDENTIFIED AUDIENCE MEMBER: Thanks. I have a question for  Dan Schulman.  MasterCard recently revealed that they’re introducing this digital wallet that I’ll read it’s called the staged digital wallet operator annual network access fee. It’s one of his famous acronyms.  I was going to ask has Amex contemplated a digital wallet fee as well? And generally do you think the optics of digital support merchant discount rates, are they going higher or lower in a card not present world?

DAN SCHULMAN : So I think you’re seeing a lot of different players whether it be traditional or non-traditional start to think through the digital wallet strategy. And we’ve said this and it’s still absolutely true, this is the very early innings of this play out with digital wallets right now. We’re beginning to get some very nice traction in the back half of the year. It’s kind of on our digital platform right now.  We have looked very hard at the different fee structures that are out there. We’ve looked at the embedded infrastructure that we have. As Ken mentioned we have a kind of fixed infrastructure that we can leverage. We have a lot of assets that we can leverage that are very different than other players out there right now.

So I wouldn’t expect that fee structures are necessarily going to mimic each other because each of us come to the market with different assets and different profiles. If you look at some of the kind of newer players that have come into reloadable prepaid, they’ve got very different infrastructures and therefore have to have very different fee structures if you look at a  NetSpend  or a  Green Dot  they charge on their, kind of what they are beginning to try and call wallets, they’re charging monthly fees that can be $4.95

A new WID  has multiple uses. It enables MA issuers to enhance their risk models and “decline” both individual transactions from a wallet, as well as decline wallet providers that are not “certified”.  Amex already has similar rules in place, their summary view seems to be that Serve can wrap everyone else’s card… but no one can wrap theirs (for physical commerce).

Banks love the original NFC model where cards had to be “provisioned” into a wallet. Banks were in complete control of which wallets to “authorize” and completely hid the card number (purchase data) from the wallet provider.  This perfect world broke down quickly as the first NFC wallets had space for only one card emulation application (see Forces against NFC) so there were 2 options: allow only one card type, or enable a single card to represent multiple cards (See Blog). Now that NFC in payment is dead just about everywhere (except Asia), banks are looking to enable this “provisioning” control within the network level. MA is just the first visible instance, as I outlined in NEW ACH SYSTEM the Banks are also doing the equivalent to ACH debit through tokens probably 18mo- 2 yrs away.

And we wonder why mobile payments aren’t taking off.

Retailers look at this change and see complete imbalance… Networks which will change rules in weeks to satisfy banks. V/MA you may want to consider a new transaction set which would force issuers to define price of a specific card for that specific merchant (interchange), and acquirers their fees (MDR)… then share that information with other retailers.  Then allow retailers to decline based on price… (as opposed to accept all cards). That would certainly level things out…

I do think there are many ways to get around this.. but  I will not be putting them in this blog ($$).  All surround who owns the customer… and 5 “LAWS OF Commerce”:

  • Commerce will always find the path of least resistance
  • Consumers are NOT owned, but rather migrate where there is value
  • Value can be delivered by price, product and also through great consumer experience
  • Most Retailers face life selling commodity goods at a higher price… experience is all they have left
  • Banks have never held a sustained role in controlling commerce, they influence and support it.

In all of this bank control.. where is there value? What does a JPM Sapphire Card actually do that is differently than a platinum Amex or a sub-prime Capital One? Brand, points, loyalty… these are qualitative attributes.. but what if there were REAL value differences? Where is the customer relationship. Note that Retail Banking is going through many FUNDAMENTAL changes (see blog)

Tim Geithner visited a friend of mine prior to his departure. My input question to him was what if core “Bank accounts” morphed from Net Interest Margin (NIM) profitability to “Trust Accounts” where the key to profitability was consumer data? (See blog Payment Enabled CRM)

With respect to squeezing Jello… as the banks angle for control EVERYONE else is looking toward least cost routing (see Blog). The payments system is not a set of 5 pipes.. Just as the internet backbone is not run on a single piece of fiber. Changing all of the rules for everyone and stopping the leaks is hard work…

payments pyramidI would love to set up a Wiki site where we could list the features differences and customers of all of these digital wallets.

.. back to my patent app .. oh and corporate taxes due tomorrow too. Yuck.

Least Cost Routing – Part 1

25 Feb

I did a google search on least cost routing and found very little written about payments (much  telecommunications). LCR seems like a rich blog area.. however today is just a tickler for a future part 2 (I’m slammed). LCR in payments is similar to telecommunications.. how do I route information through an optimized route that considers speed, cost and risk (a pmts only consideration)…

My jaw dropped as a start up CEO sent me this link below. This is a brilliant business patent… It also provides a very interesting “future view” on Bank’s plans with respect to Tokens and Routing http://www.google.com/patents/US20120265680 . Author of Patent is a good friend Dickson Chu, and former product manager of PayPal. Tokenized least cost routing.. Dickson seems to have designed LCR for the bank side… from his PayPal experience…

…  eligible payment transactions are routed, using the payments interface processor, to an internal payment transaction processing path of the first party. In such cases eligible transactions are settled without routing the transaction to external card processing networks. Alternative payment processing paths are identified for non-eligible payment transactions. In addition, transaction costs of such alternative payment processing paths are determined. Non-eligible payment transactions are routed, using the payments interface processor, to a payment processing path other than the internal payment transaction processing path.

From a bank perspective this is brilliant… enabling cross border, cross network clearing and settlement.  My top question: how can banks get tokens adopted by consumers, merchants and processors in the first place? My guess: Banks will work to influence consumers directly through a new brand and capability. Similar to the V.me, and google wallet API, banks will work to push consumer tokens into mobile wallets. In other words there will be  a button in online banking where you push your payment account into selective wallets.. as opposed to consumers entering the card information directly into the merchant’s platform. Remember this model is 100% analagous to how cards were “provisioned” into NFC wallets.. but we are replacing encrypted card emulation with a unique token and a common interbank token directory. This model continues current card “merchant anonymity  by abstracting from merchant consumer identity.

There would seem to be significant implications to the Visa/MA relationships if this one works out…





Payment Tokenization

Banks don’t really want consumers to choose… not really… they will make their favored option seamless and ensure friction with everything else. This is normal business behavior, but payments are a networked business. Banks SHOULD be neutral here.. they DO NOT direct commerce but support it.

From blog yesterday I had several friends ring me. Turns out the card networks and individual banks are SEPARATELY pushing Token ideaS..  unfortunately none of the token schemes has individual adoption, no less interoperability.

Per my blog yesterday, ACH debit tokens can work, particularly if the consumer doesn’t have to enter them. Also in ACH, banks are in a position to influence acceptance.  Consumers could even go to the online bank to permission the payment instrument in the first place. This is the model of V.me and Google wallet (w/ the new Saveto API). In this model the consumer never enters anything.. the BANK enters the customer information in the wallet. Of course banks DO NOT want consumers to use ACH.. there is no revenue here.

Therefore Banks don’t really want consumers to choose… not really… they will make their favored option seamless and ensure friction with everything else.  This is normal business behavior, but payments are a networked business which supports Commerce. Banks SHOULD be neutral here.. they DO NOT direct commerce but support it. Their partnering approach is thus completely broken…

Thus the conundrum. The network where banks have the most influence is ACH, yet they don’t want to encourage ACH use as there is no revenue. We have a world where consumers can enter information directly, or ask their bank to enter it for them (V.me and Google).

One bank even seems to be creating a scheme that blends both ACH tokens AND Credit card tokens… in the hopes of being the “master directory” of payment information in a consumer’s wallet. Their dependency: consumer, merchant and wallet participation (ie. when pigs fly).

Why would any merchant want to give up card information and exchange it for tokens? Well there could be some incentive with reduced CNP rates.. and fraud liability shift… but isn’t that 16 digit card number already a token? Any approach must start out by being invisible to consumers (like V.me.. yes I am saying something nice about Visa).

I was talking to the KC Fed a few months ago.. brainstorming a little.. like what if you opened up Fed Wire to non-banks (ie regulated MSBs). That would really throw a wrench in all these future token plans… well I guess there would be one little problem… fraud.. but if an entity could crack the authentication/authorization nut this would be a great approach.

vme enrollment

Reputation – Commerce Implications

9 January 2013

I’m sitting in NYC waiting on my plane..  thinking about reputation, not only explaining the importance of a “good one” to my 12 and 8 yr old boys, but also thinking about its broader importance in commerce. Where do I have reputations today?

  • Commercial: Bank, Credit Bureaus, Card Issuers, Local Merchants, Employers, Customers, Suppliers, Amazon, Linkedin, eBay, Blog, Google, …
  • Community: Friends, Neighbors, Schools, Church, Organizations,
  • Personal: Hospital, Government, Police, Government, Friends, Colleagues

Throughout history reputations were 100% dependent on relationships. These personal networks were the primary conduit of reputation information.  Financial services have benefited greatly, over the last century, from improvements made to reputation portability and standardization.

In this modern era, eBay offers many lessons in relevance of reputation, demonstrating what great things can happen when tools exist to manage it.  There are also many negative lessons here. For example in 2004, eBay launched into China. Prior to launch eBay’s risk organization wanted to keep the China community separate from the US. Community separation was a logical recommendation given that reputations take time to build, and dependent on community context. In the US buyers and sellers work for years to build trust and “confidence”. Reputations forged by self-dealing, or other fraudulent practices, were ferreted out. Unfortunately Meg didn’t want this community separation… she wanted one big community.  Within weeks Meg saw the downside of operating these 2 together, as fraud shot through the roof..  thus separating the communities and opening the doors for other competitors (See this Stanford University Case Study).

Reputation has a very strong societal and community context.  I told my sons that a Chef with a great reputation in New York or Paris means something completely different than a great Chef in a community of cannibals (… well it made them laugh). Markets hold people and money accountable, and the ability to measure and convey a commerce reputation is critical for network growth and efficacy. Banks have long held a central intermediary role in commerce as both a “reputation authority” and a manager of the corresponding risk. For example, letters of credit (LOC) are an instrument extended to a supplier receiving an order from an unknown buyer. After all, receiving an order for 100,000 widgets from a known buyer carries a far different weight that one from one that is unknown. Thus an LOC reduces the risk to the supplier by allowing money to be held by a 3rd party bank while the order if fulfilled.

Another excellent reputation example is in serving the poor at the base of the pyramid. In 1976, Muhammad Yunus created the concept which led to Grameen Bank, a success which resulted in the 2006 Nobel Peace prize (see Wikipedia). Muhammad recognized that lending must be tied to a reputation which is critical to maintain: that within the local community. The Grameen model lends money to a community group, whose individual members are mutually responsible for the loan. This is a fantastic model. What further opportunities could exist if participating individuals could expand their reputation outside of the community?

Modern markets have demonstrated that improving the portability of reputation expands the capital attracted to that market. For example financial markets expanded by specialists operating in a securitized model where risks could be aligned to capital. In retail banking, local markets evolved from local banks to national. Each bank could make rational decisions on where to participate and specialize in this market.

In business-business commerce reputation is a critical factor in the success of JIT inventory, virtual supply chains and vendor managed inventory. Few companies would be willing to let an unknown participant into their network. In the online world, eBay and Alibaba have done a tremendous job building communities around reputation. Wouldn’t it be nice if you could take your reputation with you? For example if Prosper or Zopa could get through regulatory hurdles (see here on their issues), lending could be done in an ad hoc community of investors without a banking license.  Commerce would be done based upon your community reputation (eBay/Amazon), and risk would be managed through non financial data from retailers, facebook, MNOs, …

Unfortunately few of the holders of your reputation are incented to share it (in a positive sense). Few people know that there are roughly 4 times the number of negative credit bureaus as there are positive. In other words, every bank and supplier are willing to share their negative customer information (ie didn’t pay their bill), very few are willing to share their positive customer information. In most OECD 20 countries, positive bureaus are not the result of commercial initiative, but rather a legal or regulatory one (Wikipedia Equifax).

In the US we have more of an aggregation problem.. how do we manage multiple reputations. In emerging markets the problem is much different: How do you build any kind of reputation? One of the first problems to crack is identity. How do you assign an ID that sticks? We see many government initiatives around National ID, but this takes time. Is there another number or ID that we could use in the interim? It certainly seems that a cell phone number makes the most sense given its global penetration of 5.3B consumers (75%+ of the worlds population). Could emerging market carriers enable an opt in “reputation” consumer service?

I’d love to see a few companies work toward this end.

In the US, I’d love to see a consumer service that just measures my reputation in all of these places (beyond banking).

Sorry for not finishing this blog cleanly…