Debit, Routing, Tokens and Liability Shift

Durbin, debit, authentication, COF, PAN, DPAN, wallet, provisioning

Short arcane post. Dual routing of debit in ecom is much more complex than I thought. A puzzle and my head is spinning. Hang with me here as I don’t want to write a novel. This only applies to debit in the US.

The key take away? Competing PIN networks have new headwinds in tokenized PANs. Tokenization with a liability shift will protect Visa debit.

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Part 3 – Internet 2.5 – The Next “Wave” is Here

Payments are transforming the internet as the common trust function: Embedded Payments, Embedded Finance and Wallets

Happy After Thanksgiving! Hope everyone was able to enjoy a wonderful time with family and friends. Today is the 3rd installment of the series, a long blog. 
The next big network wave is here. Call it web 2.5 or 3.0, but the integration of payments into “everything” is a major event. Payments are the “trust layer” that TRANSFORM anonymous nodes providing uncertain service into known, defined and guaranteed service providers. Effective communities require value exchange and “trust”. The payment trust function enables networks to evolve from “cost free” discovery and information sharing, into transactional resource/service exchange: from read-write to read-write-execute. Sure we could call the wave “trust” but the only ubiquitous “trust network” is payments so I prefer to keep payment wave as the naming convention.

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Random Thoughts – Modularity and Trust

Trust in a transaction. In another one of my favorite books  (Design Rules: modularity) there exists the concept of trust between physical components of an integrated system. This book stands in contrast to Nobel Economists’ work in defining the “Firm” and organizational boundaries in Transaction Cost Economics (TCE). But the technical theory of modularity is amazingly consistent with the concepts of “boundaries” in TCE. In modularity, there are 4 core rules for separating technical components:

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Part 2 – The Power of Bank Networks

Last year I made a provocative statement “Visa and Mastercard have NEVER lost share in a market where they have gained a foothold”. Today I will work to give a basis as to why.  V/MA continue to succeed despite the efforts of regulators and Nobel winning economists. Why?

The Bull Case for V/MA (24 pages). 

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Part 1 – US Payments Environment covered the complexity of the US payment environment and the challenges faced by top banks in modernizing their systems (where all systems live forever). There are many types of payments: bill payments, A2A, P2P, wires.. Today the focus is on how banks intermediate commerce. Banks MUST have networks as every bank can’t connect to every consumer/merchant. Effective Bank networks (aka rails) are NOT a commodity service, but one that allows the banks to leverage their unique ability to assume risk.

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Merchants Tokenize – eCom Wallet Challenges

Banks want the ability to provision cards to approved wallets but they don’t have this position in eCom. PayPal, Amazon, ApplePay, have all worked directly with the consumer to have them register their card. This horse has left the gate. 

UPDATE – Nov 29 2022 – Note that I have conflated the relationship between SRC and 3DS 2.0. 3DS 2.0 is the authentication protocol used by SRC. 3DS 2.0 has been widely adopted as a mandatory replacement to 3DS 1.0. Part of the driver for adoption was the EU SCA mandate. SRC has NOT been widely adopted as it is a fairly broken consumer experience at the moment. 

I’m at M2020 today and it has been a “back to normal” fantastic event. Let me put my “merchant hat” on for a story from their perspective.

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Apple Launches High Yield Savings

Apple DOES NOT want to be a bank. They want to create great consumer experiences and a $0 fee proposition for consumers

Apple and Goldman Sachs announced the forthcoming launch of high yield deposit account focused on increasing the value of Apple Card’s Daily Cash rewards. Operating as a kind of rewards sweep account, customers that register for the new account will have “their Daily Cash [move] into a new high-yield Savings account from Goldman Sachs”. 

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