Another Bank Consortium? Paydiant

PUSH Payments – 27 Bank ‘Consortium’

Summary

• Banks have another “consortium” on payments I have not discussed: Paydiant Push Payments
• Trials have been underway for over 2 years
• Competes with TCH tokens
• Led by BAC, FIS, and other top banks
• Objective: minimize changes to POS, through a new payment terminal which displays QR code.
• Flow: Customer takes picture of Payment Terminal QR Code (which contains MID and TID), Code sent from Consumer Phone to FIS service, translated in to card (currently), Processed in normal Auth flow, then Auth PUSHED to POS terminal.
• Elavon in primary processor for TCH tokens, FIS is focused on Paydiant

Background

On a flight to SFO today and I’m looking at 50 odd emails from last week questioning my blog on Host Card Emulation (HCE). It has certainly caused a stir with the NFC community. As most know, companies like SimplyTap have been able to make this work on the Blackberry platform for some time…. I don’t mention vendors by mistake… but can’t tell you much more here other than it would be worth your time to work with them if you want to evaluate HCE.

How does HCE play in a world of Tokens, QR codes, merchant run networks, NFC, and Push payments? Well quite frankly nothing is happening now, and until a critical mass of Banks, retailers and platforms start to deliver value (beyond payment) nothing will.  I’ve stated many times that existing networks are ill equipped to drive fundamental change. For example banks look at mobile as a chance to cement use of credit card and maintain control over payments (and consumers).

Those that have read my numerous Token articles know that Banks have been working to disintermediate Visa/Mastercard. The theme is “if there is a number stored on the mobile phone, we want that number to be one we own and control.. not a V/MA number.. but ours”. This number is the Token I referred to in Tokens – Volunteer Needed, Directory Battle, and Tokens and Networks,  …etc. Last month Visa, MA and Amex launched their own competing token scheme to ensure Issuers did not end run them. This has put significant dampers on the TCH project, together with the loss of its early bank champions (Paul Gallant now CEO of Verifone).  The TCH project is likely to morph into ACH and perhaps debit tokens, as well as coordinator of standards, with the Card Network consortium winning the battle over Card tokenization. The only significant piece of new information on this is that the TCH bank champions were emphatic that Regulators would FORCE TOKENs in pending rules. Lets see if that happens.

PUSH PAYMENTS

Banks have not put all of their eggs in the TCH basket. There is another Bank Consortium around payments which I have not discussed: PAYDIANT (http://www.paydiant.com/). Paydiant has been working with 27 odd banks around a “Push Payments” pilot (see blog for Push discussion).

Paydiant Flow

• Merchant has specialized Payment Terminal that can generate a Paydiant QR Code. No POS change necessary
• Consumer has Paydiant application or Bank white labeled version

1. Merchant pushes normal card button on ECR
2. ECR sends Payment amount to FIS Card Reader
3. FIS Reader Generates Unique QR code based upon Amount, Merchant ID (MID), Terminal ID (TID)
4. Consumer launches application and takes a picture of the QR Code
5. Application sends QR code to FIS/Processor for transalation and asks consumer to confirm amount/payment instrument selection
6. Consumer confirms transaction
7. FIS sends transaction through normal payment Auth flow.
8. FIS receives Auth
9. FIS Sends Auth to pending MID/TID
10. Merhant Payment Terminal receives Authorization and communicates to ECR
11. Transaction is completed

I think of this as a reverse Starbucks. Consumer reads a QR code instead of the other way around. In a perfect world this is a great example of push payments. Only supporting issuers can participate, and they can set rules for interchange, fraud or anything else they want to with Merchant. Banks can also completely circumvent Visa and Mastercard as actual card number did not have to be used.

This solution, while very attractive, does have a few problems. In my own personal experience

#1 Connectivity. Over half of participating merchants had to install wi-fi hot spots as consumers did not have data connectivity in stores. This makes for a very bad (and slow) consumer experience.

#2 Glare. I couldn’t take picture of the terminal without holding another hand up to block glare. Of course we could solve this with Bluetooth LE, or some other factor.. but today it is a problem.

#3 Learning curve. Taking a picture of a QR code is not something most of us do..  Cashiers are not in a place to help

#4 Why? This entire solution is cool.. but why? It is MUCH EASIER to just pay with my card. Just as in Card Linked Offers, there are very few advertisers or other offer content to make this attractive.  FIS seeks to offer LevelUp like loyalty services, but currently in its infancy.

Bank Chaos

The reason I’m telling this story is  to show you the chaos going around mobile payments. Just because the technology works doesn’t make this a great idea. However, I do like this particular initiative very much, as it is the BEGINNING of a new network and a NEW APPROACH to payments that could reinforce Bank roles in authentication.  The flow makes sense to me.. we just have a few problems with the phone to Payment Terminal interface.  Imagine if I could couple this with a SQUARE voice experience and Apple’s new fingerprint technology.

Paydiant was quite sure they were going to win the MCX business. The solution’s complete dependence on processors and issuers made this quite unattractive, and hence Gemalo’s win (see blog).

I have a number of friends in the payment s industry, and each bank seems to be involved in multiple intitiatives:

1. Tokens
2. CLOs
3. NFC
4. Paydiant
5. Apple/Google Wallets
6. MCX
7. EMV/Reissuance
8. Visa/MA/Amex Scheme
9. …etc

It is a crazy time. Small companies and mobile investors need to be aware of this Chaos, and understand the diffusion of focus.