Payments and the Observer Effect

Most of you techie’s out there had a physics class at some point and can recall the Observer Effect in Quantum Physics: the act of observation can change the measured results. Observation in payments has become the second largest driver of margin

Most of you techie’s out there had a physics class at some point and can recall the Observer Effect in Quantum Physics: the act of observation can change the measured results. Observation in payments has become the second largest driver of margin and has enabled many new specialists…. so I thought I’d outline some broad thoughts and tell a few stories. 

Why is observation important? Payment behavior is truth marked data of what a consumer actually did (offline). While I may search for Ferrari’s, or visit dealership (mobile location) what I actually bought is much more important in predicting behavior and evaluating risk.  Purchase data is the most valuable data for that reason (and issuing banks had a lock on it.. Until about 5 yrs ago). The lock has been broken and payment data has become the “missing link” to unite heterogeneous data sets. 

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PayPal’s New Mobile Bank

As predicted.. This is less of a “super app” than a MUCH NEEDED rebundling of services. This is a consumer branding effort.

Quick thoughts on today’s announcement

  1. Techcrunch
  2. PayPal Blog

This is a solid product.. Not a “super app” but perhaps the best mobile first bank in the US (and beyond). What is NEW? 

    • Mobile UI to integrate all those heterogeneous apps (and acquisitions)
    • High yield savings account (0.4% APR) powered by synchrony
    • Integration of Honey offers/rebates/loyalty programs
    • Better Direct Deposit/Bill Pay integration (ex faster clearing/availability of direct deposits)
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PayPal – ?Super App?

Paypal has clearly won in the massive shift to eCom/mCom during the pandemic. A time where 10 yrs worth of consumer behavior change was compressed into 18 months (behaviors which will stick long-term). However, the future growth story must ride on something else AND Paypal must prove it can generate improving margins within that growth

PayPal has been my #1 holding for last 5 yrs, and it has been on a fantastic ride… especially so over the last 18 months! (see MVP – Continued Domination for more). 

Paypal announced 2Q21 earnings 2 weeks ago (7.28). TPV growth was 40% with eBay, 48% without out, while sales grew at a 32% clip without eBay versus 19% with. Earnings? Not so much as margin erosion has hit the business. One core driver of margin has investors particularly concerned: “Take rate” (net merchant revenue less cost to clear payments) fell from 2.21% in the fourth quarter of 2020 to 2.11% in the first quarter and 2.01% in the second quarter. 

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Square in Crypto/DeFi

#1 Today DeFi and Crypto in Commerce (POS and eCom) are in need of a “core” that can manage either compliance and connections to existing financial services, or operate in critical mass with minimal interaction to banks (ex – custody, exchange, platform, consortium-diem).

From Bloomberg yesterday 16 July

https://www.bloomberg.com/news/articles/2021-07-15/square-building-new-bitcoin-inspired-financial-services-business

Why is this a great thing for Square and DeFi?

#1 Today DeFi and Crypto in Commerce (POS and eCom) are in need of a “core” that can manage either compliance and connections to existing financial services, or operate in critical mass with minimal interaction to banks (ex – custody, exchange, platform, consortium-diem).

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Case for CBDC – Market Efficiency

Given that I’m building a new Company focused on Crypto acceptance in physical assets (stealth – pilot in 3 weeks), I thought I would share some perspective on the drivers of Crypto, CBDC and Decentralized Finance (DeFi).

There are about 50,000 people that read this blog.. Glad you enjoy it.. I’m most surprised anyone can stand my writing style for that long (sorry for all the typos – no editor). 

As most of you know I love to read the arcane (ex favorite book is Weak Linksrelated blog) and I love economists. Today I’m reading some of Thomas Phillippon’s research (NYU’s economist and author of The Great Reversal: How America Gave Up on Free Markets). Many of you will recall I covered Dr. Phillppon’s work in my 2015 blog Changing Economics of Payments. My summary of Phillippon’s work:

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ApplePay Accept (Mobeewave) in October

My track record on Apple is pretty good.. having broke the Apple Pay news in 2014 and Last August I announced the Apple/Mobeewave acquisition. Apple is great at keeping secrets… perhaps the best tech company in the world in this regard. My latest forecast? Apple will enable payment acceptance in the US this October with Elavon as payment processing partner.

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Retail Banking’s “Blockbuster” Moment?

Sandy Weill’s financial supermarket vision is coming to an inglorious end…. The Blockbusters of Banking…

Last week, in his annual shareholder letter (page 28), Jamie Dimon stated “Banks have enormous competitive threats — from virtually every angle,” he said. “Fintech and Big Tech are here… big time!”

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Short Blog – BNPL Recap

BNPL specialists have found a way to help merchants serve consumers that were unserved, achieve sales growth and improve consumer experience.

101 Blog… probably not for the BNPL experts. Recap at bottom. 

While CDBC may impact debit networks in a 5 yr view, I thought I would write a short blog on BNPL’s impact to credit networks in near term (See Insider’s BNPL market Analysis and MRC’s overview of solution providers)

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Digital Dollar – Biggest Threat to V/MA (and USD Hegemony)

Over the last 20 yrs, most countries have implemented an RTGS system. A CBDC is a generational leap: Money itself becomes an immutable digital object that is assigned and can’t be destroyed or created without the specific direction of the Central Bank.

I doubt if this blog will be beneficial for the crypto and CDBC experts. But for my friends, I’ve linked several very detailed articles and reports… which I’ve tried to summarize.

With respect to payments, let me start with the quote of the week

“Tom look at the pace of change in China as a model. 15 yrs ago they were cash. 7 yrs ago they were China Union Pay, Now they are Alipay/WeChat Pay.. 3 tremendous changes in 10 yrs.  I believe change will happen much faster than anyone could imagine.”

– Top 5 US Retailer

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Walmart – Banking and FinTech

Imagine a world where bank accounts don’t matter. You select services that solve your problems when you have them. Walmart (and Amazon) are unbundling banking.

As always pardon the typos

It seems like only yesterday that 30 members of Congress wrote the acting chairman of the FDIC to stop Walmart Bank.

“Wal-Mart’s plan, to have its bank process hundreds of billions in transactions for its own stores, could threaten the stability of the nation’s payments system,”

30 Members of US Congress, March 2006

Of course, we all know that Walmart pursued a different course to deliver services. Partnerships (MGI, Moneygram, Paypal, …) and banking in a box (literally an isle with prepaid cards). Most analysts discount or “write off” Walmart’s achievements in financial services.  Given Walmart doesn’t break out financial performance of Money Center, analysts are left with the tea leaves of MGI and GDOT reports. There is little doubt that comparing Money Center financial metrics to tier 1 banks would leave most unimpressed. However, Walmart has created a portfolio of banking services that supports their overall retail strategy and creates overwhelming loyalty amongst their core customer base.  

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