Apple Card

Short blog on the Apple card and Apple’s history in bringing ApplePay to market

21 Jan 2020

iPhone showing Apple Card and stats.

I love my Apple Card.. both the physical card – with its wonderful “feel” – as well as the virtual card and how it is integrated into the Apple Pay Wallet. These payment jewels are all part of a Services Business growing at 20% CAGR that could be worth $650B by next year (MotleyFool).

The credit for Apple’s model must go to Google and Osama Bedier’s team (Blog on 2012 launch and its death in 2016). While Google was willing to let banks keep all of the interchange (in exchange for data), Apple is taking it all.. Beyond losing share of wallet, top of wallet, customer experience, asset balances and NRFF what are banks upset about?

  • 15 bps + Direct Competition
  • Forced Agreement
  • Branding of ApplePay at Checkout
  • MDES/VTS token integration (Network tokens and not bank TCH tokens)
  • Openness of Wallet “experience”

Apple worked for 2 yrs with 3-5 key banks, Visa and Mastercard before the 2014 launch of Apple Pay. These were not “negotiations”, but rather Apple TELLING everyone what they were going to do. For example, all participating banks MUST enable debit and credit, they must give Apple 15bps for EVERY [credit] transaction. I can tell you with great assurance that banks were about to walk away.. But the fear of missing out and facing complaints from your most valuable customers (iPhone owners) the Banks caved. So today banks are left paying Apple 15bps for use of any card AND facing Apple as a competing card.

Prior to the ApplePay in App and their card launch, GDVs were not meaningful…but that is changing now. Apple’s card adds to the disruptive power of ApplyPay to put banks on edge. Apple did offer to integrate issuer data and alerts into wallet. But given their pre 2014 “leveraged” experience to support launch, the issuers balked and refused to collaborate on data, preferring a dream vision that consumers will launch the bank app to interact with transactions (except for Amex).

While Apple is unmatched in their ability to change consumer behavior , will this card take off beyond purchase financing? Will ApplyPay Wallet displace card apps? My guess.. absolutely. Consumers migrate to great value and great convenience…

Adios Visa Checkout

17 January – Good news.. the right thing just happened.

branding nascar

This week we finally saw the “official death” of Visa Checkout and Mastercard’s “Masterpass”. Do you remember all those Superbowl commercials with Arizona wide receiver Larry Fitzgerald? Per my April 2018 blog, this “branded button” approach makes no sense at all at a time where Visa/MA are positioned to play a much more critical position as the central token directory. This means we will no longer see the “NASCAR like Checkout” I referenced 5 yrs ago when JPMC launched the much ridiculed ChasePay. Visa’s top 5 brand will no longer have an appended “checkout” on it (which no one used or understood).

The competing schemes are complex and warrant a more in depth blog. For example,

  • Google’s inability to leverage VTS led them to create their own custom tokenization process directly with merchant acquirers (encrypted FPAN).
  • TCH is in the middle of a successful pilot of faster payments, with Paypal as the principle pilot participant.
  • ApplePay (in App) has become the dominant payment method (with their own standards and now their own card).

The new SRC/Tokenization scheme is an open standard that all merchants will run toward. I see it enabling Apple like ease of use across all eCommerce, and merchants will run to it. The biggest unknown? Will the networks enable either liability shift OR Card Present rates for use?

ApplePay enjoys card present rates on ALL transactions (at least in the US). It may have been unintentional.. but this dynamic creates great incentives for merchants to continue to steer toward ApplePay.

Plaid – Quick Take

My quick read on Visa’s acquisition of Plaid

I’m back to blogging after a successful exit last month. The Plaid acquisition is a great way for me to jump back in. Why read this? A key to understanding payments, banking and data is to balance historical knowledge with a network of people that know what is really happening behind the scenes. As the former head of two direct banks, former Senior Director of Oracle’s advanced technology solution’s practice and Yodlee’s first customer I have an informed perspective on the market for this one. 

First congratulations to Plaid, going from a 2019 recap with around $40-60M in revenue to a $5B exit is just amazing. 

Visa had to move here, as my numerous blogs outline, the KEY to creating a successful network is enabling 1000s of business to invest. Plaid enables “open innovation” where small companies can build on consistent APIs (see 2013 blog). For the non-techies think about how Apps were created before there was in iPhone App Store or Android marketplace (blog on how bank “apps” were created in 2008). 

Core banking and payments are complex (see Oracle Flexcube Banking Architecture below). Internally, it took my online team 18-24 months to make significant changes. For example, in 2009 Visa issued a “mandatory” requirement for banks to implement to Visa Money Transfer APIs (AFT and OCT).  11 years later, and AFT/OCT has less than 40% adoption in the US. If it was hard within a bank (as head of channels) to implement change, you can be sure it is challenging for a 3rd party to drive it (without a business case). 

Oracle Flexcube Architecture 12.0 – A great example of Best In Class banking infrastructure

For this reason, I’ve been told there are only 3 US banks that have active integrations with Plaid’s API. The majority of integrations are screen scraping (like Yodlee) or sit on top of existing APIs (like AFT/OCT). I’m not knocking PLAID, as working with banks is just about the hardest thing a start up can do.. And there are few choices for start ups that want to move a ball (beyond scraping). In screen scraping, I ask the consumer for credentials, log in on behalf of them and extract the contents of the HTML. 

In this process, Plaid most likely obtains explicit consumer permissions to use the data. This is perhaps their biggest asset, as most consumer banks usually maintain permission within a defined set of banking services. Thus Plaid’s APIs are used (by Apps or permissioned data users) to querry against this warehouse (or request real time updates from screen scraping). 

This dynamic creates a massive revenue problem. There is no bank direct revenue channel (ie can’t charge banks for screen scaping). The primary beneficiaries are 3rd party app developers and data products. If data products are the key path toward monetization, the banks have the power to cut off access.  Additionally, key revenue services like account verification are moving away from screen scraping and into direct access (ex Early Warning).

Opportunities for Visa

  1. Create an open innovation platform for hundreds of start ups globally
  2. Gain direct consumer permission for use of data
  3. Gain access to debit data to enable new data products
  4. Resell Plaid’s platform to banks (Small to mid)
  5. Establish a new set of services to serve consumers and merchants directly (beyond payments)

Challenges ahead for Visa

  1. Banks are not keen on “open innovation” and want to own the consumer interaction
  2. Visa issuer relations could suffer given Plaid’s “back door” access to transaction data.
  3. Banks are very concerned about consumer data, and have the tools to “cut off” Plaid at any time
  4. Direct to consumer services diminish the “neutrality” of Visa’s payment network
  5. Managing the permissions and privacy/compliance of a massive new consumer data set
  6. Creating a consumer support group

Big Moves in Payments

21 March 2019

Happy First Day of Spring! I don’t know how many people still read this silly blog. I’m in a CEO time warp and just realized I haven’t written anything since NOVEMBER!! This will be a short blog with some random thoughts.

Big moves in Payments this quarter.

  1. Visa, Mastercard, Paypal, Global Payments and others are at ALL TIME HIGHS today.
  2. Worldpay to be acquired by FIS for $43B
  3. First Data to be acquired by Fiserv for $22B (all stock)

What is acquiring?

While investors/Silicon Valley know about Stripe and Adyen, the business of acquiring may be the most overlooked part of payments. As most of you know, the only members of the Visa and Mastercard networks are banks. Issuing banks take care of consumers receiving cards, acquiring banks take care of merchants accepting them.Within the eCommerce world there are gateways (like Adyen, Stripe, Visa/Cybersource, Braintree/Paypal, …et) that provide services to manage card storage, checkout pages, fraud, .. on top of the acquirers.

Per the picture below, the acquirer takes about 50bps from a typical credit transaction and $0.05-0.10 for debit. Picture from US GAO

Acquirers are the closest entity to merchants in the payments world. They have a heavy role in deciding what payments are accepted (example discover card, ChasePay or applePay) how payments are routed, how new payment instruments can be created (example Private Label), and how merchants consumer commercial banking services (ChaseNet, BAMS, Worlpay.. see blog on ChaseNet).

What is the case for Acquirer M&A/Consolidation?

  1. Specialized payment networks (example in Healthcare, Government, eCommerce)
  2. On Us Payments. Both FIS and FISV host core banking for over 5,000 small banks and credit unions
  3. New Global Payment Networks (FIS best positioned here)
  4. Combining issuing and acquiring to create integrated payment platforms (Competing against Adyen, Paypal)
  5. Create a new commerce networks (See blog Transformation of Commercial Networks – Unlocking $2T of Value)


Let me start off with an example. FIS was the payment infrastructure of Citibank’s CGT and Citishare. They ran our technology and allowed us to move money (in real time) across bank accounts globally. FIS provides similar services to government agencies and in healthcare. In the healthcare world they manage the payments between doctors, hospitals and insurance providers ($3.5T market in US). FIS also owns the debit network NYCE, and provides management of core banking services for 3k-5k small banks and credit unions. What is the one entity that they do not serve (substantially)? Yep… merchants.

Worldpay is the largest merchant acquirer (in the world) with a tremendous footprint in “everyday” spend (ie groceries and gas). What new mecrhant value propositions could a combined FIS/WOrldpay deliver? There are so many places.. and the combined group’s new challenge will be deciding where to start. Their best bets should be around “network” and creating a new value equation. This means new services in existing networks or new nodes in existing networks.

Big Picture – Network Transformation

Inefficiency cannot hide. There is a re-alignment of resources guided by consumer behavior, value delivery and information flow. These forces are driving out inefficiencies (both internally and externally). Thus we are in the midst of a massive transformation of networks. Little has changed in Retail, Banking and Commerce in last 150 years beyond Scale Wins. Consumer behavior and new networks are disrupting traditional economies of scale (asset intensive) as well as new information economies of scale.

Effective networks are wonders of business and social interaction that largely re-inforce an existing pattern, product, or social structure. Networks are resilient to as they create value to all those connected… and this value expands as the network grows (network effects). The reinforcing nature of networks has proven effective in insulating participants from being impacted by change and keeping disruptive forces at bay.  Profitable companies are seldomly drawn to models that circumvent them or operate at a different margin/scale (ex innovators dilemma). New networks have reshaped how every entity can both consume and create services; thus resetting the forces that shape the design of a company (ie outsourcing/specialists).

Value in a network is created at the intersection thus value of the network = f( number and type of participants, # of services ) which roughly correlates to the number of intersections. Most of today’s networks focus narrowly on solving a specific problem for a group of similarly situated participants (ex Mastercard, eBay, AT&T, NYSE, …) and creating substantive standards for the participants to follow. The most valuable company in the world (Google) has created an open democratic network of heterogeneous nodes and services that have connected consumers and businesses in new ways. Thus demonstrating that there is more value created in connecting heterogeneous participants than peers. There are 1000s of companies with better data than Google, but with none with overarching network or rules for data exchange (ie principally focused on privacy and control concerns,  not the “how” of  technology transfers of data).  This is the problem my company is focused on.

Traditionally, business networks are UNICORNS. After all, competitors rarely agree on any standard to interact unless there is clear business incentives that lift all (big players) equally (think NASDAQ/Visa), or to the best of their ability. In this traditional world, economies of scale (assets and information) have kept profitability with large participants who themselves have their own networks of suppliers and standards. We are about to see many more Unicorns, as new business networks form that have far greater value (ie Google) from intersections of dis-similar nodes.

This is what FIS and FISV just bet on.


Payments and Rocket Science

My Forbes Article Last Week

What We Can Learn From Rocket Science About Closing The Sales-Marketing Loop

Payments plays a key role in trust, not only during the sale.. but also in providing transparency to merchants on marketing effectiveness. Sales is the ultimate report card on what happened.  Using this data in real time can double marketing effectiveness.

While Commerce Signals has taken me away from my Space Analyst stuff (see link), I’m very proud to know that my old team is landing Elon’s rockets (see Wiki).

Paypal is on a TEAR.. iZettle and hyperWALLET

Note: I’m not subjective on this one as I’m both an investor and former BOD member of hyperWallet. Of course I’m biased on all of my others too.. but just don’t have much of a financial stake.

Paypal has been on a tear in 2018, and is the leading payment stock performer in last 12 months – up over 60%. Continue reading “Paypal is on a TEAR.. iZettle and hyperWALLET”

Tokens and the Trojan Horse

I can’t believe I’ve been writing about this stuff for almost 10 yrs. If any of you have suffered through my 20 blogs (on tokens) I certainly don’t want to rehash anything.. just bring everyone up to speed on what I see as major issues on the horizon for V/MA, Issuers and Merchants.trojan-horse-small

Headline: Visa and Mastercard have made it easy for millions of businesses and billions of consumers to work together consistently. V/MA are a thing of beauty, creating incentives for multiple parties to invest in payments (and grow network). Continue reading “Tokens and the Trojan Horse”

PayPal surpasses Amex in Market Cap

WSJ Friday – Paypal Passes Amex in Market Cap

Paypal’s stock has been on an absolute tear this year up over 70% and pushing their market cap over $80B, with 55x P/E (compared to Visa’ 40x and Mastercard’s 36x)paypal-stock

eCommerce and payments are both hot sectors…. PayPal combines both. Most would tell you that the “real progress” for PayPal’s stock started July of last year with the V/MA peace treaties (blog).

Paypal’s biggest advantage is focus… they are 100% focused on payments. This gives them advantage in both innovation and execution, particularly when they are not dependent on getting the “permission” of anyone else. Venmo’s massive success is a great example of speed and finding a niche that no one else saw.

I tell Dan that I see 2 primary vectors for further growth: long tail (small retailers) and international (particularly small merchant acquiring). Wirecard sees the later as well given they just purchased Citi’s acquiring business in Asia.

Paypal’s competitive environment, the bundling of payments, and tech (new authentication/payment in OS ) creates a very challenging environment for growth. Their ability to focus and execute is what will differentiate them as a new tech standard is meaningless if no one uses it. Example is Apple Pay in store continues to be a flop.. where as apple pay in-app is a crushing success.

What most impresses me this week? Paypal’s partnerships (see Dan present on this topic – CNBC). Parnterships are a HUGE driver of volume (look at eBay’s impact). Consumers just want the easiest/default payment approach.

Congrats to Bill, Dan and team.. making this progress while REMAKING a technical infrastructure in a highly competitive environment is tough!

In a post entitled “What to expect from Money in 2020” posted on October 5, 2017, I stated that Bank of America had “pulled out of their relationship with Cardlytics”. Cardlytics has informed me that this is false and that there is no change in the relationships with Bank of America or Citi. I
apologize and regret this error.

I look forward to getting another update on the CLO space from both banks this quarter.  It sure is nice that someone reads page 3 of a blog on Money 2020 to notice this stuff. I’m always open to correcting errors or omissions.