2015 End of Summer Payments Update

15 September 2015

Well kids are back in school and Europe is tan. 6 weeks left till Money 2020.. and I just completed our Series A here at Commerce Signals.. wow what a summer!!

This blog is a little bit more of an inventory of things going on.. mixed with some views and general rumblings.

EMV. Its going to happen in October and the big merchants are ready. Two top processors told me that small merchants are in big trouble, particularly as the issuers will be pushing back all fraud to non-EMV merchants VERY aggressively. Think of it this way. EMV does NOTHING to help the small merchant.. currently no business bares cost of fraud in card acceptance. In October merchants must change to accept EMV or they will have the risk of fraud on their business. ISOs to the rescue? This will be a great opportunity for Poynt, Square and other merchant friendly POS/Payment providers.

Acquirers. First Data is moving toward IPO. This is a very tough business.. but as I’ve said before my bets are around companies that can be merchant friendly.. Acquirers are the entity that own the merchant relationship in a 4 party network.. so it is theirs to lose. Nothing has really taken off (incrementally here), Clovr, Card Spring, First Data’s Palantir. Why?? Acquirers have largely been put into a pricing box at the top 500 merchants with a well defined service (not much room for incremental services), and have had their reputation impugned through the ISO channels at the low end (5-7% cost of acceptance). For any Acquiring CEO reading this blog.. my action for you today is to take a look at the invoice you send to a merchant. 2-4 pages of fees that are indecipherable.. When merchants don’t trust you they don’t buy more from you. This is why I would not invest in this space without a clear understanding of the disruption.

Private Label. Rumor is that both Amex and Paypal are looking at M&A here. Makes sense for Amex particularly given need for transaction volume, 3 party model and their state of the art infrastructure. Merchants love Amex customers.. and Amex does the best job in the industry of proving the value that they bring (justifying their hefty cost).

MCX. They are set with payment infrastructure from FIS and First Data. The payment capability is there, and it takes time to build a highly scalable payments company. I just don’t see the need for stand alone app. My guess is that there will be an MCX payment instrument that sits in Apple/Google wallet… just silly to compete on “presentment”. Is the alliance fracturing? I think all participants would love to have a payment instrument that they could own and control. The issue is that there is no agreement on anything beyond payment. Mobile is too important a channel to delegate to a consortium. Also, these are fierce competitors.. The real challenge? Creating a great consumer experience, quite frankly their product team was one of the worst I’ve ever met in any company. No wonder they were considering paydiant.. one of the only options out of the DIY.

Poynt and Square. This seems to fit right in to the flow..  I love both of these companies. Why? As described above the payment industry has been VERY unkind to retailers. Poynt and Square give retailers a greatly simplified hardware, software, and acquiring solution. As a small merchant moving from 5-7% acquiring to 2.75% is a rather simple value proposition. I believe Poynt has several significant advantages over Square: 1) Square has a 6month+ certification process on Apple devices. Whenever it changes anything in its app… it has to go through recertification by Apple. Poynt is the ANDROID of Point of Sale solutions 2) By staying off of Apple AND adding a separate stand alone processor for non-payment applications, Poynt can deploy more applications more quickly and act as a platform for other services. 3) Poynt has a powerful data solution that puts merchants back in control of their data, 4) Ergonomics/Design. Just beautiful. Chip/DIP, Chip Contactless, QR, BLE, customer facing touch screen (not a swivel stand) all work seamlessly without having to pick up the terminal and try to stick your card into a slot. Well done Osama and team.

Paypal? Not much of a stock pop.. I’m very high on the Dan and Bill. But their core asset (eCommerce risk management) is being rendered moot by great mobile auth. When Microsoft (OnePay), Google (Wallet), Visa (Checkout), Apple (ApplePay) all moving into eCommerce they also risk loosing consumers. One of my biggest beefs is their treatment of Venmo volume in TPV (it is 0bps). Rumors are also that they will lose Uber within next 6 months.. and worked a special deal to keep them with take rate below 90bps (perhaps a driver of their margin drop). Merchants are a natural ally here, but Don K really mucked things up with their POS try. It will take 2 years to get things in shape here.

Visa/MA.. They are my biggest holdings.. no change in my views here. VDEP and MDES have positioned both with new power to tokenize and own the rules on mobile. I expect to see a new CNP rate for tokens within next 9 months.

Google. Big news 9/10 (See Blog). Google wallet now on all phones KitKat 4.4 and above (50-60M in US). I love it.. This is the PLATFORM FOR PAYMENT INNOVATION. The user experience is not on par with Apple (or even Samsung Pay).. but Android users are more technical (only 6% of iPhone owners have ever used ApplePay). There are some BIG pluses over Apple, I love that it shows the ereciept and location of purchase for instance (most issuers). Very surprised that Google is still looking for bi-lateral deals from issuers (in order of $10M with no bps). This is why we don’t see many issuers at launch.  What is funny is that there is a “free path” to issuers as well. If they don’t want their card art.. issuers can still just “turn it on” via the V/MA intranet tokenization route (register BINs). Funny that the big hold out is JPM.. given its data play.

Apple. I wouldn’t be surprised to see an ApplePay product announcement in October at Money 2020. Note that my track record is near perfect here so I don’t want to mess up 2 years of predictions. I know that Apple has ApplePay working in Safari, don’t know if they will roll this out our not. I also know that Apple went back to issuers asking for an “Amex like experience with eReciepts”. The issuers said “sure we can do that.. lets first tear up that 15 bps contract and talk about what you will pay me”. My sources say that beacons are a part of the next launch.. they could be just feeding me *&^*(&.  My guess on new release? 1) New Developer Support Program and rollout of Private Label/ Synchrony, ADS and Citi. 2) Improved “eReciept” process (like Amex) in order to compete with Google. 3) ApplePay in Safari (60% chance.. it is working but don’t know if they want to push yet before new token CNP rate tier). 4) Beacons at POS. Improve retail experience with beacons (40%.. again working in lab but don’t know of readiness).

The big Apple news that everyone is talking about is their plans to finance phones directly (end running carrier subsidy dependencies). As I’ve stated before, Apple’s phone is already capable of enabling a virtualized SIM. This is the one step needed before Apple enables consumers to “switch” to the lowest cost network every month.. or every day. This obviously has big implications for Gemalto as well. Google is 2-3 years behind, but is making more progress in enabling wi-fi as network option.

Innovation. Chain getting investment from NASDAQ, Visa, Citi.. is big news. I remain very positive on use of bitcoin as a disruption to Payments (see blog structural changes to payments). I also live industry specific solutions where payments are combined with something else to solve a problem. hyperWALLET for global payroll, justpushpay for construction, WEX for fleet/gas. I also love payments and data (hence commerceSignals), in this Klarna and Sofi are just tremendous ideas.

Going South

Samsung Pay. No change in my views here. What is sad is that they didn’t know that their entire application is incompatible with Android M (until they read my blog). Working with a competing app on their own phones with no registration.. just sad.

Card Linked offers. Guys don’t believe the press.. all of these things are dying. Even the most successful (cardlytics). Citibank is rumored to have called EDO to come pick up the pallet of their equipment (after 300M+ spent).  The good news is that their transactional data is in better shape for use.

Gemalto. Stock is at a 5 year low.. I told you guys to be short here. NO MCX, No GSMA NFC SWP… now Apple is pushing the SIM out of the phone altogether (or soon will).

Monitise. I want to end on a humorous note. This company did a great job at enabling online banking 8 years ago.. enabling “check your balance” functionality via a quick integration to the ATM switch. They pivoted in 2006/8 to support development on an array of handsets (Nokia, RIM, Apple, Samsung, …) with their only competition being mFoundry (acquired by FIS). But the phone complexity went away with 2 mobile OS (Android and iOS) and the rapid shift of mobile from the periphery to the center of the customer relationship. No bank will outsource the CENTER.. mobile development was a specialized skill.. now it is mainstream. As if this were not sad enough, they hired a US network exec with no EU experience, no mobile experience and no network of issuers (that liked her). Then she pushed out the founder.. only to quit last week.  Wow .. I hope the BBC can make a Silicon Valley (HBO) equiv.. only make it more of a Shakespearian tragedy.

6 thoughts on “2015 End of Summer Payments Update”

  1. Tom,

    Great ‘End of Summer’ summary. Concise points on many of these notable companies and services.

    EMV will be like watching a train wreck in slow motion – with fraudsters hitting these non prepared businesses and everyone online. Great call outs on MCX – hadn’t thought of it as an internal wallet component. The stand alone app doesn’t make sense as you note. In fact, I saw a start up in SF last week that had developed a much better experience and they had heard from these guys. So, they can’t be feeling confident.

    Congratulations on the Series A and Commerce Signals!



    1. Jamie D…. you have the name of my favorite banker on the planet, so I will write with the assumption that he asked this question.

      Two years ago Chase was the best Payments bank in the world. Best team, best market position, best strategy. They have completely lost their continuity, thus people must be at the top of the list. Payments is a brokering business.. which means you must play with both consumers and merchants. Gordon Smith was quite confident that he would win MCX 2 years ago I told him that the nature of payments has changed. It is now a LOSS LEADER (example google providing shipping for free and taking loss on payment). I asked Gordon “when was the last time you brought a consumer to a merchant”? Merchants use chase because of their efficacy and low cost in payment management. They don’t look to chase for solutions.. they beat you up on price because you deliver a commodity service.

      To deliver a differentiated service you must be an easy bank to work with, you must enable COMMERCE. Today Chase is the hardest bank to work with on the planet, this extends from payments, to ventures, the partnerships. Start ups and the entire valley love Jamie, but run away from the rest of the team. Chase destroyed 2 companies (Payfone and gopago) buy writing term sheets and backing out of deals. It takes 2 years to get through chase procurement.. But by far the worst aspect of of Chase’s performance is their in ability to partner and listen. Your team acts more like the “Borg from Star Trek” (think Babylonians), they don’t listen and want everyone else to adapt to your strategy. Worse they “throw sand” in everyone else’s gears (example Chase was behind Visa’s cease and desist w/ Google). Being a “broker” and enabler means working to fit yourself into OTHER PARTNER’s strategy.. NOT MAKING THEM A COMPONENT OF YOURS. Google actually has this same problem. Here are my recommendations:
      1) build a team that knows payments and knows how to partner. Their comp is not tied to building empires but on transaction volume and satisfactions. My funniest story on how bad the situation is in this blog here. Bank Groupon and How to Structure Bank Assets for Collaboration
      2) Continue focus on operational excellence in payments. You have a great core. These are the services YOU OWN
      3) Build a team focused on how you can help others, enable collaboration. Consumers are NOT OWNED BY CHASE. How can you work with 1000 start ups and Fortune 100 merchants to create great consumer experiences (this is what I’m focused on). You are doing this with Paypal.. but with Amazon you actually pitched them a “Chase wallet button” to compete with Amazon One Click (and CPT was a partner for off Amazon)
      4) Data. Len is a great guy. I know his co-founder Michael well. You will not succeed in Data unless you can put on the clothes of a merchant and act like an partner. Amex is far ahead here and this is hard for me to say. Your team works well in payments operations.. not in VALUE DELIVERY. Data is about value creation and your data must be combined with at least one other source to deliver value
      4) Change the culture and the industry. Payments is not a business unto itself.. it is a commerce function. Chase’s assets extend beyond payment clearing. You have the opportunity to enable market and TRUST. These are far more valuable positions than low margin settlement. You do not have the leadership in place to function like this. Everything JD touches is on track when he is involved.. but atrophies in his departure. TCH is a clear example. If I had to pick one trait to change: collaboration.

      1. Jamie Dimon had this to say recently on Meet the Press when discussing logjams in Washington DC; “A democracy is a compromise by its nature. It’s not a dictatorship. So anyone who says, ‘my way or the highway on one issue,’ isn’t necessarily thinking about the United States of America,” Business clearly isn’t a democracy and not a perfect analogy to compare of public traded company to the good old USA, but found that quote ironic given the track record of collaboration at Chase.

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