Paypal and HCE? Really?

Just read David Marcus’ blog on Beacons, HCE and Alerts. I agree with him on just about everything… except Paypal’s opportunity in the physical world.

emvco token

Why do Banks love tokens?  HCE – Now the preferred contactless approach addressed this in Feb. HCE aligns to everything that Banks and Networks do today:

  • Manage Risk and Fraud
  • Manage Consumer Authentication
  • Intelligence with bank and network
  • Trust is in the network. Networks ARE the TSMs (or rather TSPs)
  • Banks leverage 4 years of investment in TCH token scheme (ex Token Service Provider)
  • Banks expand mobile app capability with payment
  • Banks are in complete control of who can use their cards where
  • No more TSM, Payment is in the OS, No more dedicated NFC chipsets, and the MNO lock is gone.

Now imagine Paypal’s role here

In this world.. Banks make nothing (for ACH funded transactions) and merchants get stuck with 210-180bps for everything.. this is the “Blended rate” deal. Is there any wonder why merchants aren’t running to enable contactless?

As I wrote in my blog.. at least Google has a value proposition charging the merchant a maximum of 160bps and paying Banks the full rate of interchange (see Google/TXVIA, and Tokens, Rules, Wrapping and Acquiring).

Google/TXVIA is actually the only production physical POS “token” solution in the market. Osama Bedier made this happen through the TXVIA acquisition…. a brilliant move. It works today.. and I’m still struck by the insanity surrounding Banks and Network plans to kill it. It makes no sense at all!! The only production token platform, providing value to everyone.. yet the Banks HATE IT.. why? They don’t want google to see transaction data. You can only imagine the odds against Paypal as they work to serve their own interest.

paypal token rev

To be a successful payment provider you must have a solid business case to AT LEAST 2 of the parties: Consumer, Bank, Merchant. Visa and MasterCard built theirs around consumer and Bank, Starbucks on Consumer and Merchant. Oystercard on Consumer and Merchant.  PayPal….? Consumer and ??? Well it is NOT delivering revenue to the Bank.. and given its cost it is NOT delivering value to the merchant. The reason PayPal succeeded in its early days was it solved a real problem: card acceptance online. It has no chance of competing in the much more hotly contested POS world … particularly without any value proposition.

Yes Paypal will be a payment option in the new Apple Payments scheme (it fought very hard for this win). As I stated previously Payments have moved into the Operating System and Payal DOESN’T HAVE ONE. But this is not a win at all.. they still must convince both consumer and merchant to use Paypal… it is just an option.


FYI… see the new card present standard on tokenization EMVCo Tokenization, Mar 2014.

2 thoughts on “Paypal and HCE? Really?”

  1. PayPal Wallet and Google Wallet are a lot more similar than you are presenting. PayPal passes 60% of txs to card networks, so banks get paid most of the time. Google Wallet is working on adding ACH as an option so their mix will likely end up the same. And I would check your sources on pricing. Google marks up interchange (so debit is less than credit) and PayPal has a flat rate that is comparable to the blended debit/credit rate the retailer currently has.
    I agree operating system integration is key, but that will only matter for phone shopping with phone apps. Consumers are using their browsers on desktop, laptop and even tablet. Browser integration has been around for a while and has not been able to supplant PayPal.
    And in physical stores you don’t need OS integration to pay NFC/HCE or BLE. PayPal will have the major wallet that works across platforms.

    1. Something very very major has changed in approach to payments.. “LET THE CONSUMER DECIDE HOW THEY WANT TO PAY”. A neutral platform can’t force a consumer toward a merchant, or a bank, or toward a payment method. Apple, Google, Amazon, do not want to create ACH funding channels.. nor do want to compete with Visa and MA.. they want to solve a commerce problem, create great consumer experiences… and add value. THERE ARE NO PAYMENT PROBLEMS.. it works.. it is the easy last step that everyone cares about.

      With respect to rates… 60% of transactions… for retail 60%-70% of card transactions are debit. Debit card present rates range from $0.21 to 160bps.. … This is why the MCX retailers and First Data laugh at Paypal.. why on earth would any merchant in the world allow a new payment product that wraps the card already in the consumer’s wallet at a higher fee!!? Google can’t even win and wraps it at a discount.

      Neither Paypal/HCE, nor Paypal in Apple’s new wallet will solve the merchant acceptance (value) problem…

      Google ACH efforts are focused on P2P.. not merchant payment..

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