Quick Blog on Apple, P2P and Clusters

12 Nov 2015


  • Most of you have seen today’s WSJ today on Apple P2P. 
  • Apple has 4 options here: FIS/Vocalink/Paynet, Mastercard, Visa, ClearxChange/Early Warning. News here is that Apple asked the BANKS for help. Banks responded that they would like for Apple to be first non-bank customer for ClearXChange (the 4 yr old bank owned P2P utility formed initially between BAC and WFC with ownership now spanning all top 6 banks). ClearX has a new owner as of Money2020: Early Warning Services, the #1 bank risk and fraud utility in the world. It is not often I compliment everyone.. but this makes sense.. for Apple, For Banks, for Consumers. The same service I use at Bank of America online to pay anyone (ex email or phone number) would be within the Apple platform. The challenge of P2P is risk management. As one of the first customers of Cashedge pop money (2005), the advantage POP had in operating the service was ACH risk management. Now the banks have that in EWS… times 100!
  • P2P in general.. what an awful space… littered with the corpses of failures. It never makes sense as a standalone service. P2P can increase the value and stickiness of existing networks (ex Facebook/Whats App, Google, Apple, …) but it is a loss leader. Google has been doing free P2P for over a year.. my guess is less than $500M in volume (at a 25bps loss).  The ULTIMATE GOAL (of free P2P) is the data associated with connecting social networks, commerce and payment networks. Early days see spot successes for specific needs. For example Venmo is almost a “banking lite” for college campuses.. it has a critical mass there, but doesn’t do well in the ROW (rest of world).  Consumer behavior is VERY VERY sensitive to pricing on P2P.. even $0.10 will make consumers jump to something else. So why would the banks want this service? The ClearXchange model is probably the best answer. The big owning banks are at either the initiating (ODFI) or the receiving (RDFI) of 70%+ of all transactions. They created an “on we” utility where payments to each other would be free, and payments outside of this group would cost for either RDFI or ODFI.    So the small banks incur the costs of ClearX.. and the large owning banks make the money..
  • Apple is apparently quite upset with Visa/MA eliminating their 15bps (through VDEP/MDES) and may be hoping to eventually enable a new V/MA competitor. They have indeed said this. However P2P will not be the place to start here. Remember Banks make money in the V/MA networks. It is one of the few models where thousands of businesses invest billions of dollars to make work. Yes there are 100 other ways to do payments, but there is no other model that has proven effective in getting an industry to INVEST IN. For example, Bitcoin is better at P2P everything (anonymity, risk, authentication, validation/acceptance), but no one has developed a scale-able way to make money from managing bitcoin… or creating the acceptance infrastructure to support it. Given Apple’s market position and global presence wouldn’t that be cool..!? Governments would go absolutely nuts.. global bitcoin platform with no way to track interaction. I see this in 5 yrs…


Chase + ________

  • Rumors today are that Chase is creating a new acquiring model to drive mobile volume through their network: MCX, Starbucks, LevelUp (in their investor filings), …?Paypal?  In all these situations Chase is agressively pricing on us transactions with strong incentive (ie 0bps) for chasepay acceptance.  The channel conflict here is just silly. For example Chase refuses to allow its cards to be used in AndroidPay, yet Chase customers can purchase in Play store in a CNP transaction. So card is stored with Google for online in “wallet” but can’t be used at POS. Or Apple P2P..
  • I see a new eCommerce Acquiring effort as well. My guess (pure conjecture) is that a combination of Paypal and Chase Paymentech won Uber clearing both Paypal and Chase transactions at a SIGNIFICANT discount. I would love to know WHO is doing the routing/gateway.. (hope Braintree kept it). If this is indeed the model, Chase can aggressively help Paypal/Braintree acquire new eCom business. Strange part is positioning ChasePay vs Paypal button. Perhaps this was only a one off Uber thing.
  • Chase is really going strong with a new branding effort for both network and mobile payments. Problem is that they are so hard to work with… “they are creating a F(*&^ing island” is the bank competitor response.  Amex and Paypal both succeeded in creating 3 party models based upon value and focus. Chase want to pivot from a 4 party network to a 3 party network based upon consumer connection. This may be a little more challenging.

Network Battle

  • All this reminds me of my blog from 2.5 yrs ago. Battle of the Cloud – Part 4: Network War Clusters are forming. Banks are forgetting the value of open-ness in the hope of gaining control.. at the same time that payments are becoming ubiquitous (Payment in the OS) and a loss leader for mobile orchestration.
  • Google, Apple, Retailers (ie MCX) all touch consumers more often and deliver more value than any bank. Banks must learn to partner and assume a secondary role in SUPPORTING commerce if they are to succeed (see partnering). In this sense I think the Clearx/Bank partnership with Apple is a FANTASTIC MODEL.
  • Network fragmentation and clustering is creating new opportunities for gateways, concentrators and switches. Not just in payments but in telecom. Take a look at Google’s new Project FI https://fi.google.com/about/ . Inefficient networks are being remade .. from Taxis to hotels to payments to point of sales. Imagine a point of sale where the merchant can find the best way to settle with a consumer.. this is the payment corollary to Google’s project FI in wireless connection. POYNT is the best company poised to execute here. See my Internet 3.0 Blog.. a little long but my personal favorite (can I have a personal favorite?).
  • The Challenge with all of these clusters are the rules in which they operate and the costs of switching between them. This is the problem bitcoin has. One of the reasons merchants created MCX was to create a network where they have a say on rules of operation.
  • Funny thing on bank issuer strategy.. payment data is leaking out all over the place.. Merchants have a right to use payment information for purposes of loyalty.. it is one of the reasons we have 24 characters of your name on the mag stripe. Half of the payment environment works for the merchant, the other half for the issuer..  data is like Jello. The more tightly you hold onto yours.. the more quickly it will squirt out somewhere else. Weird places like Bank Aggregators (Yodlee, Mint, …)
  • Transaction Data Flows - Compete View

All I have for now



One thought on “Quick Blog on Apple, P2P and Clusters”

  1. Absolutely superb; as ever. The best commentary/blog by far I have come across from an economics/investor perspective. Thank you.

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