Sizing up Paypal’s new competition

16 July 2015


Huge announcement yesterday on “Amazon’s Prime day”. Google rolled out the first glimpses of its new cross organizational product yesterday “a Buy Now Button” just in time for rain on Amazon’s Prime day

This has potential to be both an Amazon killer and a Paypal killer. My frequent readers are going to roll their eyes .. but to recap I’ve been consistently championing the view that the future in profitability for retail, mobile and payments (and Google) is in Commerce Orchestration. See Blogs

The Buy Button is a HUGE effort by Google that represents well over 3 years of work and spans multiple divisions (search, ads, local, payment, shopping express, android, maps, …etc). Sure Google builds cool stuff and then looses focus as its engineers go on to do the next cool thing. But how many efforts within Google have spanned 4 lines of business and took 3+ years to pull off!? This one is a VERY VERY big deal for Google. Lets talk about WHY they are doing it.. and what it is.

Why a Buy Button?

Most product search now starts with Amazon. Amazon has become THE STANDARD source for price and reputation… but it is also the PRIME hook (I’m very loyal). Searching for a product is THE MOST important source of consumer intent advertising and “commerce orchestration” are both dependent on understanding this intent.

Google wants to create a PLATFORM for commerce (per blogs above), its current customers are merchants, and consumers… While Amazon is redesigning RETAIL Google is enabling Merchants to compete (with Amazon). This will bring both merchants and consumers into Google’s world to interact. Google is creating a MARKET to help millions of merchants and consumers (in both virtual and physical world). Where Amazon is creating a new retail model that destroys most existing retailers.

The problem with this Google vision is that retailers (and consumers) are loosing substantial data within this interaction and that you must use all Google components to make this work. My newco Commerce Signals is working to facilitate this same commerce interaction without the Google “lock in” by enabling each entity to own and control their data (federated data) with NO DATA stored centrally. After all what organism in nature exists that knows everything about everything… the “God” structure..!? (hmmm same first two letters.. ).

What is the Buy Now Button?

As you can see from Google’s site, elements are

  • Search with buy button (was offer ad extension)
  • Integrated local store inventory
  • Payment
  • Google Shopping Express (delivery)
  • Android
  • …?

With this utility, a local merchant can upload their inventory and compete with Amazon. The consumer can receive the goods to their house same day (via Shopping Express). This is just brilliant.

How on earth can Paypal compete with this bundle? Particularly as they divest their distribution business (GSI spin off announced today).

Visa Checkout

I’ve been a little bit skeptical on this but have actually come around based on conversations with top 20 retailers and Acquirers. Visa has a carrot that I never knew about. The Visa Preferred Partner (VPP) program. Anecdotally, Visa works with acquirers to guarantee a blended rate across all cards. This can be as much as 30-40bps. VPP has been around for a few years, but this year Visa has evidently made promotion of Visa Checkout a requirement for participation. This incentive, combined with tokenization and new rate tier (card holder present) and a forthcoming liability shift means that total blended eCommerce costs could be as low as 160bps for credit with Bank issuers holding liability for CNP transactions.

WOW. This is a BIG BIG Carrot. I project that 80% of the top 20 US merchants will have Visa Checkout by next year. Why not!? Visa has the added benefit of CYBS assets to move this to market quickly.

Paypal’s headline eCom rate is 375bps.. with no liability shift. You don’t have to be a rocket scientist to do that math.

5 thoughts on “Sizing up Paypal’s new competition”

  1. Great observations Tom.

    What’s interesting about the Google Buy Now Button is that it was announced on the AdWords blog, not the Commerce blog which is where Shopping and Payments initiatives are discussed.

    It’s described pretty cleanly as a way to connect buyer and seller and facilitate payments along the way. This streamlines the buying of products and makes Google Search much more meaningful as an Ad channel.

    I see a really cool opportunity for Google to use the Search bar in an entirely new way – forget hoodies, how about services?

    The Google Search bar can become the entry point to a wide range of “on demand” services. When I search for “pizza at my home between 6-7pm tonight” Google can combine that with everything they know about me to present me with 3 options, I select one and it gets delivered. In fact, at 5:50pm I get a Now notification that my pizza is on the way and I can track it the way I track an Uber arriving.

    Payment “just works”.

    But through a simple search, Google delivered a seamless experience that can be achieved by deep linking to 3rd party service providers. Google’s role simply facilitates the interaction and stays in the key position of being in the “payment flow”.

    I’m not convinced the team is thinking in these terms but they should.

  2. Wait, so merchants don’t get any of the benefit if a PP user uses a bank account ACH instead of a credit or debit card to complete the purchase? Isn’t that PPs biggest advantage at this point that they have some wiggle room if it starts to get competitive?

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