Google/TXVIA

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3 April 2012

http://googlecommerce.blogspot.com/2012/04/google-acquires-txvia.html

Congrats to Google and the TXVIA team. Given that Google is a  client of mine I’m not going to comment on anything specific here.. but clearly this deal significantly expands the reach of Google at the POS. No longer will Google Wallet be dependent on a few thousand NFC phones in market.

The primary reason for my post is that a senior retail executive just rang me to tell me they are concerned about Google’s wallet and card strategy. It seems I was incorrect in dismissing the WSJ article on a Retailer Wallet. There is MUCH more structure here than I realized, and it is not just wallet that the retailers are contemplating.. but ownership of a new payment/incentive network. I would laugh if I didn’t want to cry..

  • Banks are working to form “the next Visa” because they don’t trust the one in market today
  • Retailers are forming their own payment network
  • Banks are worried that Google will be the next PayPal, or Visa
  • Retailers are concerned about Google killing their customer relationship
  • Mobile operators what to own payments.. err… that was last week sorry… now they want to own marketing
  • Retailers are refusing to adopt NFC because everything is a card transaction…
  • …etc. I could go on.. but the chaos just continues

Retailers, I admit I am VERY biased toward Google. The issue in market perception is: through Google’s effort to be a neutral platform for consumers, banks, operators, retailers, … they appear friendly to the competition. For example, they have no desire to be a Bank.. or to be a Paypal.. but if Banks don’t allow for efficient payments (consumers and retailers) they must deliver an alternative.  Google wants to “enable” .. which can mean not picking winners.. but letting the marketplace select them (principle example is Card Linked Offers). This approach is embedded in to Google’s culture of billiant engineers running with a  great idea, and letting the market determine if it will work. Apple on the other hand engineers great customer experiences.. In a very, very controlled fashion. How many “partners” has Apple enabled? How many non-Apple businesses benefit from Apple’s platform? How many other brands does Apple support?

Google has no desire to take over retail.. they want to create fantastic consumer shopping experiences. Yes that means Google’s customers are the same as a Retailer’s customers.. and consumers will use a generic andriod shopping app vs. one your IT team built..

The paranoia is just contagious.. billions of dollars are being wasted because few know how to partner…  In Google’s efforts to be “neutral” they appear to be friendly to all. To retailers they are “too bank friendly”, to banks they are “trying to be a payment network”, to consumers “they are tracking everything I do”..

TXVIA will be a major turning point for Google in payments. This new platform will enable them to support their internal marketplaces in new ways, and give retailers new tools to deliver incentives on their brand. In the Google Press Release, they mentioned TXVIA support for 100M cards. Take a guess how many of these cards have a TXVIA brand on them? NONE..  It is a company that provides a platform to support many business models (like Blackhawk). If Google continues this approach they will win big.  Note, if they do develop a “Google Card”.. it may just be a pilot.. they are not taking over the world with their own plastic.

My top market question is: “what will Blackhawk do now that Google owns your card platform”? TXVIA is the best pre-paid software platform in the market.. hands down.

Digital Wallet Strategies

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Warning.. I ramble a bit in this one.

23 March 2012

Description: Mobile Market BreakdownDoes anyone remember Microsoft Wallet circa 1997 (See Wikipedia)? Digital wallets are certainly not a new phenomena. Today we are struck with eWallet saturation: Google Wallet, ISIS Wallet, Visa Wallet, iTunes accounts, Amazon Accounts, Square, PayPal, …  How many places must store all of my credentials?

For my own benefit I thought I would take a brief look at the history to determine what the future may look like (As the future holds the key for my investment decisions). With respect to Wallets, what are they? What are successes and why? What is the consumer value proposition? What are the risks? What does the future hold?

My last blogs on this topic were in November 2009, Investors Guide to Mobile Money, and in 2011 – Tough Start for Mobile Payments.

What is a Digital Wallet?

My all time favorite YouTube video definition is below (Courtesy of Google)

http://www.youtube.com/watch?v=gKGptWtzeaU

[youtube=http://www.youtube.com/watch?v=gKGptWtzeaU]

Proposed Definition: A consumer owned and controlled account that can store any electronic form of what is normally held in a physical wallet, including: payment, ID, coupons, loyalty, access cards, business cards, receipts, keys, passwords, shopping lists, …etc.

This definition sounds broad enough..

As a consumer, what would you think of having multiple physical wallets? I personally don’t have that many people I trust. Trust is a very important element to a consumer. Some of the information in my wallet is sensitive, and there is also a financial risk associated with loss of payment information (particularly outside of the US).  What kind of entity would want to assume the risk of holding all of this information?  Which reminds me of a story,

I was in a Board Meeting with a senior partner of a “Top 3” VC discussing consolidated sign on. A start up was proposing to hold all of the login credentials for all of your bank accounts. As the former internet head for both Wachovia and Citi I had some firm views on the topic and asked “who is going to take the risk if credentials are compromised”? I further explained “it is not a technology problem, but a risk problem.. Bank’s will not let someone keep their Customer’s keys if they can’t insure the risk”. As a side note, I also instituted a policy that if a customer discloses their credentials to anyone, they are responsible for any losses that result (sorry Yodlee).

Within a Digital Wallet, securing information AND giving Consumers the exclusive ability to control what is shared with whom is a challenge (beyond technology and trust). We thus have many limited “Wallets” that are constructed around specific purposes, for example Microsoft’s wallet has evolved to LiveID.  From a pure technology perspective, the mobile phone (with NFC) seems to present an opportunity to provide the Consumer with a device that can uniquely handle the security and authorization aspects of a holistic digital wallet. In my view, the challenges faced by the “phone as wallet” are business related. Per my definition above, a wallet should allow consumers to control what goes in and how it is used. Today we see the carriers (ex ISIS) create a platform based upon their control, allowing only cards that have paid a fee to enter into their wallet. I digress…

What makes for a successful wallet?

Customer Trust, Customer Control, Convenience, Ubiquity (opposite of lock in), Intuitiveness, Experience in Use (buying, redeeming, accessing, ..), Security,

If I have a wallet that only accepts 3 cards that are not accepted at any of the top 20 retailers (ie ISIS), it is of little value. Why not let consumers control what goes in? This is where carriers must get to in order for NFC to survive. Even then, NFC phones are far from my recommendation. After all if your payment information is locked in a mobile phone how do you use it when you are at your computer buying something on Amazon? Locking information in a phone is just plain stupid in the age of the cloud.. most agree that individuals should have a their information in a cloud they control. The NFC zealots reading this blog will respond that it NFC doesn’t require a network and is more reliable… my response, the POS and payment terminals are connected.. NFC doesn’t need to hold the card in the SE.. it just needs some sort of identifier.. or in the Square cardcase example no NFC at all just your voice print. After all if there is no auth from the payment network.. the transaction will not happen.. so something is connected in 99%+ of card transactions.

Consumer Value Proposition

Description: C:UserstomDocumentsPersonalblogIPP_3_clusters_labels.jpgMy primary digital wallet is Amazon, with Paypal as a close #2. The buying experiences are just superb, unfortunately neither extend well into the POS. I have a PayPal debit card I use here.. but I have a hard time justifying why I would use a paypal debit card that pulls money from a pre-funded account which is tied to my Bank of America Checking.. why not just use my BAC Debit Card? I don’t think I’m alone here.. The thought that comes to mind: why do I use PayPal at all? Convenience is certainly a key element, but I also really don’t like giving out all of my personal information to every vendor I do business with.  Why does any vendor need to know my name? Is there a business case for anonymity? For Readers in Germany I know your answer… of course there is.

Most Silicon Valley eWallet business cases are being built around data sharing and “closing the loop”. In a network analysis model, every step away from the optimal consumer experience (control, anonymity, ubiquity,..) impacts broad based adoption.  Alternatively, new value propositions (ex incentives, rewards, loyalty, …) can reverse entropy, but only within specific groups/clusters (that realize the value). Thus a highly fragmented world of wallets, each built around specific functions limited to narrow networks, where customers exercise only limited control and hence participate in a limited fashion.

Risks

My last blog on Payment Risk was associated with Square (I still don’t like the swipe, but I have eaten my shoe now that they have surpassed $4B GDV and have developed CardCase… which I love). Microsoft had grand visions for Wallet and Passport, and pulled back for a number of reasons. Globally, most consumers still have problems putting all of their information in one place. The Fed, OCC, FTC, CPFB, Banks have all been circling around the broad proliferation of consumer data.. what are the risks of having your payment instrument stored with 100s of vendors? While at the The Clearing House’s annual event, I was pinged by a JPM Chase exec.. what will be done to secure payment information?  At the policy level, many believe there is a national security risk in the compromise of our payment systems…  It is something all of the Banks are thinking about.

While cloud based storage of information sounds fantastic… there remains a gap in integrated controls, security and authentication. This is where I see both the US and EU taking action on consumer data access and controls much beyond what is now within PCI. Given today’s technology, there is little reason for any merchant to hold your actual credit card number.. yet it is still the case.

What business incentive is there for any entity to hold “unlimited” sensitive consumer information? If the information cannot be accessed without user consent? All of these factors will shape wallet functionality to either something focused within a given domain, or under complete control of the Consumer.

Wallet Strategies

1) Consumer Friendly.. Single store for all consumer information. Payment, loyalty, reciepts, … The players I see here are Google, Square. (note I acknowledge everyone at PayPal just rolled their eyes and point them to my Disclaimer above). Business case is around customer data access.

2) Marketplace focused. Obvious players here: Starbucks, Rakutan, Amazon, Apple, Paypal, Target Red Card. Objective: Deliver a fantastic customer experience in purchasing within a focused marketplace.

3) Form Factor/Device Focused. Mobile Operators, Card Networks, . Deliver technology and incent buyers/retailers to participate. This is not working out so well, exception is Edy.. may work in markets with dominant carrier.

4) Bank Consortium. We see this more in Europe at the moment, but I believe the US regulatory bodies are pushing banks to work together here.  Much more payment focused, and thus minimal consumer value… Banks/Fed must realize mobile is not about a new form factor, but a new value network.

5) Retail/Transit Consortium.  Transit is already clear leader here in Asia…. Transit actually resembles more of #2.  Where there is only one transit company provider I believe it is.. this Category is defined as one wallet working across multiple retailers.. I look at this as incentives tied to something like a decoupled debit.

6) Commercial. Example outbound payments, payroll distribution, global dividend payments – hyperWALLET.

7) Other???

Future of Wallets

“Limited Wallets” can obviously be very successful: Starbucks, PayPal, Amazon, Apple iTunes, Oyster, Edy, Suica, Octopus, hyperWallet…. But all started around an existing marketplace/system. In order for an independent wallet to thrive it must deliver value within a core network. My approach to evaluating retail payments evolves around a central hypothesis: payments support a commercial system, they are only the last phase of a long marketing, incentive, shopping, selection, and buying process.

Networks are resilient to change, this is both an asset and a hindrance. The value that is delivered within an existing payment network is tied to the commercial system in which it operates. This includes both business agreements AND technology, neither of which are easy to change. As the nature of retail changes (example payments, and incentives across virtual and physical channels) new “value exchange” networks will form. Existing payment networks will certainly attempt to change, but given their distributed ownership, nodal control over rules, and legacy infrastructure it will be “a challenge”.

In the US today, this is what is happening with Google Wallet, Bank initiatives to form “the next Visa” and Large US retailer’s plans to form a new payment network that they control. Today’s wallet initiatives are operating in a very dynamic landscape: retail is changing, technology is changing, new value networks are forming, new marketing platforms are emerging.. The margin is always better in orchestrating the interaction, than in coordinating the transaction. Thus I place my “wallet” bets in the short term with groups that can control the commercial marketplace (ie Apple, Amazon, eBay, Retailers, … ), and with groups that can orchestrate new value propositions (ie. Google, Square, hyperWallet, ..etc).

Have a great weekend… My Asia thoughts are next.

Back from Asia

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Back from AsiaDescription: C:UserstomPictures2012 NZMilfordSound and MtCookmtcook small2.jpg

23 March 2012

Just getting back from 4 weeks in Asia.. During my time there, I met with Capital (institutional investors, PE, Sovereign Wealth Funds, Banks, VCs), Companies (MNOs, Handset Manufacturers, card networks, retail) and Comrades ( my old teams from Citi and Oracle).

While stuck here in SFO (on my last leg home) I’m thinking about how to structure 5-10 blogs (as well as 4 weeks of expenses).  One of the reasons I write this silly blog is the act of writing seems to help me to structure my “raw data”(as well as having a community of great folks like you to give me feedback).  My primary goals are to identify: where investments are being made, business model innovation, and true market opportunities. For obvious reasons I don’t always highlight the gaps (in detail) as this is where I invest or look to get something else moving.

The Asia market is exciting and complex. I have to admit it was much easier staying on top of it when I had 10-20 people in each country competing locally (who could distill what I needed to know). Given my current focus on Early Stage companies, I’m particularly keen to stay abreast of the Asian “start up” economy as well as the local venture community.

What makes Silicon Valley so vibrant?  US Market Size, Human Talent, Companies, Capital, Regulation, Tax, Infrastructure, Legal, … The first item, US Market Size, continues to dominate my approach to Early Stage companies. This US is such a unique place.. $14.6T GDP, $4T in Retail Sales, $705B in Marketing Spend, 608M Credit Cards in the grasp of most of its 311M citizens. A start up could take just 1-2% of the US market (in any given area) and have some kind of sustainable success.. In the ROW… it would take 10-20% of the local market. This “market size” factor heavily influences the approach of local companies (specifically), and innovation (in general), within Asia.

Following the hypothesis for products originating in Asia: they must capture a very substantial share of the local market to become sustainable. Existing domestic institutions are better placed to both make the capital investment… and “shepherd” the product launch. This dynamic has existed for 100s of years, a form of “organized” innovation by a market leader. These market leaders are also organized into networks of suppliers as we see it in Japan/Keiretsu, Korean/Chaebol, … As you can imagine, large companies typically don’t innovate much beyond their core products. After all their managers must seek a place in the organization if the initiative doesn’t work out.  Today’s WSJ had a fantastic article that further detailed how this “innovation dynamic” created a destructive force in Japan’s consumer electronics industry.

WSJ Today: How Japan Blew Its Lead in Electronics

Previously I also wrote on Europe’s attempts to “standardize” payments infrastructure actually ended up killing all innovation in the area (note… Europe is NOT one market when it comes to banking and payments).

http://tomnoyes.wordpress.com/2011/03/08/payments-innovation-in-eurpoe/

Investors – Start in the US.. then expand

Thus most VCs correctly direct start ups to focus on the US for initial product launches (for now….). The key exception: China.   Most of you know my blogs are generally focused in 3 networked businesses: Banking/Payments, Advertising, and Mobile.  Starpoint’s general investment thesis is that the mobile phone will be key to linking all three of these networks… to become the point of confluence between the physical and virtual world (commerce, advertising, social, payment, …).  I have so many stories on China that I wouldn’t know where to start..  The 30 second summary:  You can’t compete without Guanxi , the opportunity is insane, the regulators are tough, US VCs can’t “experiment” in China and local partners are hard pressed to see what value you have to offer them in a domestic market.

Asia Blogs

Here are my thoughts on future blogs

  • China Market Dynamics.. Payments and Commerce
  • DoCoMo and the Japan NFC consortium
  • NFC bets in Asia – Transit Focus
  • Handsets – Future of commodity hardware?
  • SingTel’s Amobee Bet
  • US Start Ups: Penetrating Asia (picking resellers)
  • Emerging Markets – Payments/Regulatory Update
  • …?

Card Linked Offers Update

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,,,,,,,,

27 March 2012

We see in the press that Google/MA have gone beta with Card Linked Offers, and Bank of America is  about to go live with “BankAmeriDeals”. I last gave an overview of this space back in November in my Card Linked Offers post. For those that haven’t seen it, there is also a must read blog by Reed Hoffman in Forbes on the subject: The Card is the new App Platform.

Here is my blog from 3+ yrs ago – Googlization of Financial Services – outlining data flow. My purpose is mentioning this blog is not to show how smart I am (as an alternate view is already firmly established), but rather to highlight how much my view on the opportunity has changed over the last 3.5 years. As I tell all of the 12 start ups in the CLO space.. if Visa couldn’t get this to work what makes you think that it will be easy for anyone else.

There is a CORE business problem I didn’t realize back then.. merchants don’t like cards and are VERY reluctant to create ANY unique content (offers) where card redemption is REQUIRED.  Further constraining the “capabilities” of CLO is lack of item detail information within the purchase transaction. IBM is the POS for 80% of the worlds to 30 retailers. Take a look at the 4690 overview here, notice what incentive solution is integrated? This was a 5 yr project for Zavers…

A story to illustrate my point on retailer reluctance. As most of you know POS manufactures like IBM, Micros, NCR, Aloha are implementing POS integration solutions similar to what Zavers has done. Most of the CLO companies above are paying the POS manufactures to write an “adapter” that will work within their POS and communicate basket detail information. (ISIS is rumored to have a 200 page Spec for this POS integration as well).  There is a very big difference between having integration capability, and a RETAILERS agreeing to use it (ie share data).  There must be a business value proposition for retailers to move… and I can tell you with a great deal of certainty.. Retailers don’t like the BANK card platform.

I emphasize BANK for a reason.. I was with the CMOs of 3 large retailers a few months ago. When asked what their payment preferences where, they answered without hesitation: Store Card. This is their most profitable product used by their most loyal customers (think private label). Do you think for a moment that a Retailer would deliver “incentives” to customers that are not in this group..  Remember, these PVL loyal customers also hold a number of other bank cards, and there is not much in the way of customer matching between data sets. I think you get my point.

As I stated previously, all offers businesses are highly dependent on targeting. Targeting is dependent on customer data, relevant content, effective distribution (SMS, e-mail, an App), campaign management (A/B testing, offer type, target audience, …). Campaign management is very dependent on feedback.  There are very few companies that can effectively TARGET and DISTRIBUTE.  The current group of CLOs is partnering with the banks to solve the targeting problem (example Catera/Citi, Cardlytics/BAC, …). This is further EXASERBATING the poor Retail adoption. Why? Here is what a CMO told me:

“Tom, lets say a consumer just shops at Nordstrom.. the card network and bank see that I just completed the transaction and now market to them … the advert is “go to Macy’s and save 20% on your next purchase”… Given that they can only offer basket level incentives this is how it must work… Tom do you know what will happen? The customer will return what they just bought and go to Macy’s and get it. How is this good for Retail?”

From an Ad Targeting/Distribution perspective, Mobile Operators certainly have an eye on this ball (mobile phone). But only a few companies like Placecast can actually deliver it for them. MNOs are truly messed up in this marketing space (within the US). If you had the CEOs of Verizon, ATT and ISIS in a room and asked “who owns mobile advertising”?.. ISIS would say nothing if both of the other CEOs were in the room.. They want it.. but no one will give it to them as they can’t execute with what they have in this space.  Verizon would say “many partners”… Their preference would be to sell the platform akin to their $550M search sale to Microsoft in 2009. So VZ wants a $1B+ Ad platform sale… who would compete for that business? I digress.. but what is in place today looks much more like a rev share… Internationally there are carriers with their act together: Telefonica and SingTel (just bought Admobi).

Let me end this CLO diatribe with a customer experience view. Let’s assume I have 12 CLO players.. each partnered with a different bank/network. Also assume that all are heavily dependent on e-mail distribution. I have 6 different cards.. and will be getting at least 6 e-mails per week with basket level discounts. Now assuming that I can keep track of which offer was tied to which card.. and use the card. I’m still left at the POS with a receipt that shows none of these basket level discounts (as they are “credited” to my account after purchase).

Without POS integration AND Retail data sharing this will not work.. the customer experience is terrible, as is the campaign’s restriction on basket level discounts. The ubiquity of cards is attractive.. as is bank data on Consumer “Store preferences”…. But both work to the detriment of retailers. What consumers will see in CLO for some time is the generic 10-20% off your next purchase that will also be available in direct mail campaigns… Let’s just hope that someone can work the double redemption problem…

My read on this for Google is a little different. Google is positioning itself as a neutral platform.. it can do Retailer Friendly.. Bank Friendly… MNO Friendly.. Manufacturer Friendly…  Each will have different adoption dynamics. Google’s objectives are likely: gain insight, be the central platform for marketing spend, be the most effective distributor of content, … . This offer beta would certainly seem to be a “bone” thrown to banks.. hey… here it is … good luck trying to make it work.

WSJ Article – A Retailer Wallet?

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3 March

Today’s WSJ Article – Retailers Join Payment Chase

What do Retailers want in mobile? Well they certainly DO NOT want a wallet which they can’t control and is restricted to a containing credit cards, at a cost of 350 bps cost (sorry ISIS). One retailer told it to me this way

“Mobile Operators know how to run dumb pipes, not create business platforms for marketing… their current wallet initiatives are akin to a toll bridge, NFC is their toll booth where they stop me before reaching my customer..  to cross their NFC bridge I have to wait in line and when I arrive at the gate they don’t want $0.50 they want 3.5% of what I’m carrying in my truck, and a copy of the shipping manifest (the customers names I’m going to see in my delivery). This model doesn’t work for me. “

Retail is under assault. Globally retailers have had their gross margins compress from 4.2% in 2006 to 2.4% in 2011. They view mobile as a principle tool that has led to this margin compression. When I go into talk to the majors and say ‘lets talk about mobile’ .. their response is usually something like “yes.. how do we stop it.. can we put disruptors in our store”? Of course there is much shock value here… particularly for Silicon Valley types where everything mobile is good. Read my previous post for more perspective here.

Few people know that ISIS is charging Bank issuers for the privilege of having their cards in the wallet. The only way issuers can make the up front investment is to have a product that pays for itself quickly. That product is a credit card. This means that the ISIS wallet is 100% credit..  for a retailer that has a transaction mix of 30% cash, 40% debit and 30% credit this means adding a payment type that is a 100% mix of its most expensive type. Retailers ask: will this ISIS wallet drive increased spend? Why on earth would I want to do this? For Consumers this means you have to pay with cards that are “privileged” and not the card you want to pay with.  A major advantage for Google is that it lets Consumer decide what is in its wallet. In the Google model, Issuers face no cost in getting their card in the wallet,  Stores can add their own private label or loyalty card.. and anyone can market..  Consumers are in control. Google Wallet is not just about payment.. but about advertising, loyalty and incentives. This point is missed in the mainstream press.

The WSJ article is off on a few points.. Retailers are not focused on the mobile payment side at all (..well perhaps agreeing not to allow bad ideas to get started is agreeing on a wallet strategy.. but in a negative sense).

What are Retailers looking for?

  • Mobile as a tool for enriching the customer marketing, shopping and purchasing experience.
  • Ability to deliver above to ALL Consumers.. not just ones with the latest phones
  • Retailer friendly protection of sensitive consumer information
  • Lowest cost payment (Google is the only entity that allows customer and retailer to store ANY card.. example paypal does not support store private label)
  • Integration with loyalty and marketing programs

A consortium of highly competitive Retailers face that same challenges that a consortium of highly competitive Mobile Operators do.. Neither will work unless they can deliver value.  Individual companies do not excel in designing business platforms that benefit others, and are therefore very myopic.  Consumer’s are very reluctant to use a retailer’s own app while they shop or checkout… For example if I was shopping in Target,  why would I use Target’s iPhone app for price comparison? will I get the same results as Amazon’s?

What should you expect from Retailers?

  • A defensive play.  Retailers are well positioned to slow adoption of technologies that don’t make sense for them. There is a high degree of collaboration among retailers here .. most of it resulting from their success in pushing back on interchange in various markets (recently Durbin in the US).
  • Something that makes financial sense for them.. FAST. Given their margins.. they have no flexibility in making investments that don’t have a solid plan. Just as the MNOs look to card interchange.. Retailers also look to 3rd parties like CPGs (think trade spend and coupons) to fund consumer facing initiatives.
  • Cost reduction is usually more of a focus than sales creation.. this is particularly true when competitors get together in a consortium. I’m not going to say much more here.. but I think you get my point. For example, if I enabled ACH payment on my loyalty card.. I would take interchange from $0.21 debit down to $0.04…  Target has done this with their Red Card.. a FANTASTIC product. http://tomnoyes.wordpress.com/2010/12/06/redcard/
  • Customer control. Retailers want to own the consumer shopping process… or at least feel like they own it.  Quite frankly Google has built the platform to enable this, but Retailers are concerned about data.

There is a tenuous balance to make mobile work in retail. This balance is between: Consumer, Retailer, Bank, Manufacturers, Mobile Operators, Advertisers, ..  “Platform effectiveness” or “Consoritum effectiveness” has a strong correlation to: data, reach (distribution), relevancy, effectiveness and control. Just as MNOs are not balanced, neither are Retailers.. Consumers will migrate to where value is delivered. In Retail, selling a commodity good at a higher price is not a winning business model.. I consider myself fortunate to work with many of these groups, what is most ironic is that each group views a consumer as 100% owned by them.  My position is that NO ONE owns the consumer… that consumers are driven by value and will change their behavior when value is delivered.

In my view, a neutral party ( like Google, Apple and MSFT) are much better positioned to bring participants together. Neutral Parties are akin to public highways with optional services.. They are not picking sides.. or forcing you to stop at the toll booth and hand over a percentage of your merchandise to complete a  “commerce” process.

—- Addendum

BTW I admit that I’m a fan of Google. It is my baseline because nothing else is in the US market (POS Payment with phone).. and Retailers love them. It is the only company I know of that has Retailers calling them to request a visit.. why? Google delivers sales.

Great example of collaboration is Google Local Product Search (http://www.google.com/intl/en_us/products/local.html).  Stores can choose to share store level product inventory. Think of how sensitive this data is.. what you are selling in which store (0r just a binary in/out of stock). Retailers love this function and enthusiastically share this data with Google because it improves the way consumers choose a physical retailer from an online search. It drives sales. Payment is only the last transaction in a long research, marketing, shopping, selection process.

Your feedback appreciated.

Worlds Largest mPayments Partnership?

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http://rfpconnect.com/news/2012/2/27/vodafone-and-visa-announce-world-s-largest-mobile-payments-partnership

This stuff gets harder to interpret every day. My guess is that Vodafone is integrating the “Visa Wallet + Prepaid” products into what Vodafone has built. This enables banks to accelerate adoption, and to “partner” w/ Vodafone for the defacto stored value account within a given market. This obviously simplifies the regulatory issues. Not a bad plan.. but how can you decipher this from the PR? By integrating the Visa Wallet (ex CYBS) they can also extend beyond POS … So key question to ask here.. WHERE is the stored value card held? In the phone alone?

Comments appreciated

Monitise/Visa Announcement – P2P transfers?

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http://corporate.visa.com/media-center/press-releases/press1176.jsp

From PR:

… [The Visa] mobile services that allow financial institutions in the US to offer their account holders the ability to monitor account history and balances, transfer funds between accounts

Oh the joys of allowing Visa to push credit transactions on the debit network… if only banks would allow it.  As I outlined in previous blogs below, Visa has no traction with the OCT transaction set in the US. Internationally, the opposite is true as emerging market banks have taken on to OCT (receiving funds via Visa debit network), but will not SEND. .  Visa’s VMT service is thus stuck.. it can’t serve as a remittance service because sending country banks (US/EU) do not participate.  Note from this week’s MA earnings call that Mastercard has partnered with Western Union to address this issue.. a much better approach for cash in.

If you ask Visa for a VMT test account, you are likely to get Bank of the West or some other small bank, with Visa’s promise “it is mandatory and all banks will comply”. It won’t happen.. there are problems with this mandate.. it is after all a debit network (see VMT blog).

What is this announcement.. really??  Visa has put a notification event service on their DPS switch where registered issuers and consumers can receive alerts.. nice of Visa to throw Monitise a bone after they completely messed up their corporate strategy by promising them to make them the “go to market” solution for mobile payments. Monitise is now the “go to” solution for issuers looking for a 3rd party service to check your balance.. or get an alert.

Also… if there were 2 banks that supported VMT I’m sure I could transfer funds with the service as well. Visa… please give us the list of banks that support it.. a demo.. we are all dying to see your progress.

Apple and NFC?

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1 Feb 2012

Apple and NFC? I don’t think so.. my bet is 70% against. Great that Apple can keep us all guessing. Why put a 5th radio in the iPhone? AND hand carriers control of SE. There is just no upside for Apple here. NFC would not enhance their wonderful mobile customer experience…  it may even kill their Apple/App Store/Apple ID/Payment Instrument advantage.

It would be smarter if they would buy Square… payments belong in the cloud… not locked in the phone. All you really need at a POS is an Irrefutable ID. In a Square scenario, Apple could leap frog everyone in customer adoption and enable every iPhone owner to pay with their voice and GPS location ( Apple has payment instruments tied to every iTunes account). The gap in this scenario is merchant adoption, existing merchant processor agreements/hardware, and retailer reconciliation (if multiple processors). Apple, if I were you I would sit down w/ Square, FirstData, TSYS, … and see what could be done. NFC requires coordination of too many parties.. a late follower would be a much better place to be. Your top risk is that consumers will buy phones based on mobile wallet. Your short term strategy? I pay with my iPhone today (see pic). 

Don’t get me wrong, NFC can work.. but the carriers have proven inept at managing a platform business which would incent the participation of many businesses, allowing all to make money. Instead they operate as a toll bridge, but expect to take a portion of the goods in transit. If you operate as a toll bridge you are a dumb pipe… period.  It just does not take much intelligence to run a control business, sure it is complex to build the bridge..  But it even more complex to coordinate the logistics of the world’s commerce. The carriers focus on control is killing the prospects for NFC’s success, as they attempt to act like an orchestrator (requesting a % of goods in transit) but have the ability of a toll collector.

Commerce will find another path… one of least resistance. This is what Apple should do as well. NFC is just a radio… one whos standards are largely controlled by banks, mobile operators and card networks. Why would retailers want to participate here at all?  We should not act to enrich the complexity of payment networks, or wireless ones, but rather form new networks that are retailer and consumer friendly.  Bluetooth, wifi, gps, voice, facial recognition, sms, .. all can do the job NFC does.  We will not see harmony here over the next 20 years, particularly as the only payment instrument in a mobile wallet is a 300bps+ credit card.

Why is Japan successful? because they have a dominant carrier that built a business model..  same in Singapore and Korea… in the rest of world.. chaos will reign until someone delivers retailer and consumer value.

http://www.appleinsider.com/articles/12/01/30/mastercard_acknowledges_it_needs_apple_to_bring_nfc_payments_into_the_mainstream_.html

Related Blogs

 

Update 3 April 2013

My bet on next version of iPhone? Broadcom’s BCM43341 chip 

Broadcom has launched the industry’s first quad-combo chip. The BCM43341 combines NFC, Wi-Fi, Bluetooth and FM radio on one chip and, says Broadcom, “offers OEMs unmatched size, power and cost advantages.”

A second new product is a single card solution that pairs a BCM20793 NFC controller as used in the Google Nexus 4 with an 802.11ac (5G) WiFi radio and is aimed at high end mobile phones and devices.

Does that mean the next iPhone will have NFC? yep.. but not in the way we think about it today.

 

http://tomnoyes.wordpress.com/2011/02/03/isis-platform-ecosystem-or-desert/

http://tomnoyes.wordpress.com/2011/12/05/isis-delay/

http://tomnoyes.wordpress.com/2011/10/26/apples-commerce-future-square/

http://tomnoyes.wordpress.com/2011/01/26/apple-and-nfc/

MasterCard follows Visa’s lead on EMV Push

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31 January 2012

http://www.mastercard.us/mchip-emv.html

Yesterday MA followed lead and announced plans to support US rollout of EMV. Many of you are probably wondering what this all means in light of mandates and deadlines. The politics and business drivers behind this push are quite complex, but it is important to note that neither large US issuers nor retailers are enthused about this push for one primary reason: there is no business case for the change (on either side). Historically, networks do not change without sound financial incentives ( or there is some sort of regulatory mandate).

A Bank makes money by managing risk. Within the payments space large banks have invested billions of dollars in custom fraud infrastructure. The effect (if not the goal) of bank investment in custom fraud infrastructure is to push fraud into the weakest link (or bank) in the network. Smaller banks must seek partners like FIS, FirstData and the Networks to help them keep up. The EMV standard is used by card issuers in just about every market globally, except the US. EMV is effective in addressing certain kinds of fraud such as counterfeit and skimming. Within an EMV environment, international issuers and acquires thus could relax in maintaining related fraud controls IF cards existing in an EMV only environment.  However international travelers to the US and US travelers abroad lead to fraud “leakage”. US issuers did not suffer, due to their fraud infrastructure, but the other banks have.

Thus the “true” benefits of EMV cannot occur until there is 100% adoption at POS (10M in US), complete elimination of the mag stripe in the plastic that we all carry (approximately 1.5 billion in US). This is the conundrum facing any new technology here:  New Plastic must completely replace the old. In other words there is no “Incremental” fraud savings to an incremental rollout, nor is there a business case for either issuer or retailer to implement. Take this on top of the fact the EMV is 20 year old technology and we have a very challenging environment.

What are the benefits in retail? Both Visa and MA have established a carrot and stick approach. Given only the issuer can reduce interchange, the carrot is reduced PCI compliance costs and some terminal subsidy. The stick is a liability shift for to the merchant  if a consumer presents an EMV capable card and the merchant terminal does not accept it.  Given that the big issuers have no plans to reissue cards, the merchant risk is fraudulent EMV cards (starting in Oct 2015 for Visa). Perhaps if retailers see an EMV card, they should request an ID.  For issuers, the compliance dates are longer and the stick which Visa and MA have constructed is weaker given that US issuers already bear costs of card present fraud.

So what are Visa and Mastercard trying to accomplish? From a political standpoint they must address the international issuer concerns and be viewed as supportive of the EMV standard. But more importantly Visa and MA want to cement their control of the network, particularly in two areas: mobile and US debit cards. In mobile, Visa and Mastercard are aggressively trying to make mobile POS payments a “premium” service used exclusively by credit cards. A key to success in mobile is POS readiness to support contactless payment. The EMV mandate certainly helps provide another incentive to merchants. With respect to the Debit, the Durbin Amendment has impacted the incentives for US banks to continue support of Signature Debit. In the US, PIN Debit enjoys a slightly higher growth rate (15.6% vs 14.3%), consumer preference (48% vs 34%), lower fraud rate (2009: Signature $1.12B, $181M PIN debit card),  and obvious merchant preferences (96% of PIN fraud losses assumed by issuers, vs 56% in Signature). PIN debit transactions do not need to be routed through Visa and MA, and PIN only cards do not require their logo. EMV debit cards may be a tool for Visa to maintain a US debit business (MA US debit penetration is low).

What to expect?

Note that in virtually every geography, EMV was a regulatory driven initiative. In the US this is not the case, as the large banks have proven capable of managing fraud. Large issuers are thus reluctant to undertake any mass reissuance of cards, and US regulators are reluctant to have US Banks pay for a system that will primarily benefit issuers outside of the US. My guess is that we will start to see a trickle of new cards being issued on EMV starting in 2014 or so.

Retailers will have a similar adoption dynamic as they assess cards being used at their stores, and what future payment networks may offer not only in terms of compliance and interchange, but also in delivering customers through incentives and advertising.  I’m certain that the retail “first movers” in NFC must be pulling their hair out as they discover that their new NFC payment terminals are not equipped to accept the mandated EMV card. These retail CEOs will discover that the “stutter” in reterminalization was intentional and it will be a cost they will bear twice in 2 years.

In this dynamic environment, there will be high demand for companies that can help retailers develop a plan and navigate this chaotic environment. Oddly enough, start ups like Square and Payfone may have a tremendous advantage in simplifying the checkout process. In other words, EMV could actually provide the impetus for new payment networks to gain a foothold.