Google’s “Bank” Plans

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Summary – Google is not becoming a bank, but rather enabling:

  1. New integrated tools that will provide the BEST mobile bank experience
  2. Instant account opening
  3. Consumer incentives that will unlock the power of data (w/ consumer’s consent)
  4. New predictive analytics, recommendations, alerts, reminders, coupons, offers and engagement

Public PR

Over last 6 months or so we have seen several Press Releases relating to Google’s bank partnerships:

“We had confirmed earlier that we are exploring how we can partner with banks and credit unions in the U.S. to offer digital bank accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools, while keeping their money in an FDIC or NCUA-insured account,” stated the release.

Smart, according to Google, because it will provide its checking accountholders with money management tips to optimize and manage the funds in those accounts – funds linked to payments and identity credentials that consumers can use to buy things, pay bills and send money to others in and outside the Google ecosystem.

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Libra – Case Study in How to Build a Trust Network

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Given yesterday’s blog on Open Banking, Open Payments and Trust Networks I can’t resist writing on what I believe was the greatest, most innovative, trust network in the last 20 years: Libra.  David Marcus’ design of Libra is brilliant, and will stand as THE REFERENCE MODEL for creating a trust network (apart from a market). 

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Open Banking, Open Payments and Trust Networks

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A blog to my bank friends. Sorry for typos.. feedback appreciated!

Thought for the day

Open systems garner greater participation, but margins are held either by orchestrator or proprietary components that offer unique performance or capabilities. Payments and Banking are trust networks, trust requires not only enforceable and auditable assessment of counterparty operations, but a shared business case for investment.  

Trust networks revolve around a shared and enforceable definition of roles, standards, counterparty identity, trust and risk. Trust network attributes and operating model drive scale and participant investment. In all cases, networks require participation of both consumer and merchant. A trust network of known participants operating within a defined set of operations and economics stands in stark contrast to the open, anonymous and distributed internet (see Transformation of Commercial Networks). 

Today we will take a look at Open Banking and Open Payments. If you are looking for the summary, here it is: 

  1. The “golden geese are safe”.  Data clearly shows network effects taking hold for Visa and Mastercard, as card issuance, acceptance and frequency of use all drive GDV growth in the mid 20s (see blog). As one top US bank CEO said of V/MA “there is no scheme we can define together that will result in improved economics… why on earth would we want to spend our time assessing one”? 
  2. Open is a terrible business model, but a fantastic technical one. Tip toe into any “open” effort as a form of intelligence gathering. Standardizing messages will enable merchants (and banks) to deliver new forms of payments within embedded processes and systems. 
  3. There can be no shared investment without a well defined and enforceable operating model. 

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EPI – Quick Take

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16 banks in Europe just announced the European Payment Initiative (EPI) to tackle retail payments.

In November 2019 the Eurosystem relaunched its retail payments strategy, calling for increased collaboration between European stakeholders to provide payment services that meet the needs of European customers and strengthen the autonomy of the European retail payments market

European Central Bank, PR July 2 2020

What are the drivers? The ECB asked banks to do it… thats just about it.

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Finicity, Plaid, Tokens and Network of Networks

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Summary

  • Primary driver of finicity/Plaid deals is not open banking, but in support of the “network of networks” strategy.
  • The owner of the consumer directory, will rule payments. Tokens are the central battle field for trust networks (and payment network) consolidation as well as new services. 
  • MA lost out on the Plaid purchase, but is likely to end up far better off for it. 
  • The Visa/Plaid deal is likely to fall through as the retain consumer credentials for 5yr (claimed by class action).
  • V/MA will likely own the payment token directory 
    • Visa is leading – 1B tokens issued by Visa (acquisition of BellID/Rambus)
    • Mastercard Track  successfully leads the market in global B2B Least Cost Routing
  • V/MA have substantial hurdles in expanding the directory beyond payments
    • Few direct consumer or merchant relationships
    • Bank and Apple/Google leadership in Customer Identity/Trust
    • Trust is the core of bank risk management (and Bank margin)
    • Network effects decrease transaction costs for established services and increase value (acceptance). However they have the reverse effect on new services.
    • Value/Margin is migrating to the ends of the network and many new networks are forming. 
    • The energy to manage participation in multiple networks is dropping (with Mobile). Enabling specialized networks that cater more finely to precise needs of each node. 
    • V/MA will see substantial growth in core payment volume with continued network effects and the breakdown of Payment silos.

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PayPal Threats – 2020

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I’m a big fan of PayPal, but as they approach 100x earnings I’m on the look out for risks. While PayPal is BEST positioned as the ONLY company to solely focus on eCommerce payments AND A UNIQUE ability to “own the rules”as a 3 party network, they are not without significant risk. 2020 has 2 major threats that can hit them very very quickly.

#1 Apple Pay in Browser

I’ve been writing about this for 5 years and it is finally here. While I was certainly off in my projected 2016 timing, I was not off in the user experience. Take 2 minutes to do the following

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EU probe of Apple Pay

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17 Jun 2020

Short Blog today. Before jumping in.. I’ve been working on 2 significant blog series

  1. Consolidation in Financial Services. Given convergence of several forces, we are in the midst of a consolidation of networks, and services. The pandemic has placed new strains on sub scale players, which will provide the basis for significant M&A. My involvement in the deal flow has slowed the writing down.  
  2. Big Tech, Neo Banks and Financial Services. Looking to give the “inside baseball” look at what is really happening.

I’ve got over 100 pages of material… hope to get it out in bite size chunks in a few weeks.

EU and Apple Pay

From today’s WSJ and also on Forbes, the EU announced 2 investigations:

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Payments in the Pandemic – Paypal

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First off, best wishes to you and your family during these challenging times. I had intended to get this out last week, but found the need to invest in family. My family is doing fine, I’m fortunate to have all of my children, grandchildren and parents within 10 miles of Davidson North Carolina. We are like the rest of you, navigating needs for family support and volunteering in our community.. All of which has changed up our schedules. My hope is that we all find some way to create good out of this terrible event. 

In this Blog

  1. Massive disruption in Commerce has created fundamental changes in payments and consumer behavior. 
    • Discretionary and T+E spend is dropping 40-80%. Visa and Mastercard have both revised growth from mid teens to low single digits. Paypal has maintained low end guidance. 
    • eCommerce is clear winner right now, estimate that Paypal’s core eCommerce TPV could be 40-60% above average 
    • Consumer behavior changes driven by the pandemic will rapidly accelerate the move away from physical retail (See 1 April WSJ).
  2. Paypal is very well positioned to capture new volume both short term and long term growth.

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