Growth Vector #1 – Embedding Payments

Embedding of payments into new commerce and business flows will quickly drive $500BTPV gains over the next 5 yrs and replace eCommerce as the source of TPV growth. Cash, ACH, and other Networks (ex Swift) will lose, MVP, Adyen and others will gain.

Pardon Typos.. still in proof mode

Previous Blogs on Topic 

  1. Payments in the OS – Browser Tokens – May 2016
  2. Payment in the OS – mCom/eCom Converge – Dec 2014
  3. Apple Pay in Browser – Mar 2016
  4. eCom Thoughts – Sept 2015
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TCH – Real Time Payments

TCH’s RTP service is capable of much more than just P2P, particularly given its role in tokenization of all cards. I was rather surprised to hear 5 of 6 top banks would rather work with PayPal than Visa/MA on this.. (And this was a KEY reason I moved to buy Paypal stock 24 mo ago).

Its been 18 mo since my last TCH update. As a quick refresh, the reason everyone cares about the TCH project, is that TCH is the ONLY place that the top 6 bank CEOs get together to collaborate on payments. TCH operates CHIPS (the largest private ACH network in the world), settling around $1.5T of payments PER DAY (think stock market, B2B, V, MA… everything). Within the ACH scheme every member bank has a settlement account and a nightly Net Settlement process is run. 

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Payments 2020 – MVP Continued Domination?

What is the top performing industry group? MVP outperformed FAANG over last 4 yrs by 34 points.. will this trend continue?

I’m back to blogging after a 5 year hiatus… The CEO thing is rather all consuming. Glad to have an exit so I can get back to my fellow payment geeks. 

What to blog about first? Given we are in new decade I thought about writing some grand predictions.  But rather than look forward, we must spend a little time in the past, as the past 10 years have been JUST AMAZING in payments. I’m calling this blog series “payment growth vectors” where I hope to recap what has transpired in payments (history) to provide a trajectory for evaluation of the future course.  

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Apple Card

Short blog on the Apple card and Apple’s history in bringing ApplePay to market

21 Jan 2020

iPhone showing Apple Card and stats.

I love my Apple Card.. both the physical card – with its wonderful “feel” – as well as the virtual card and how it is integrated into the Apple Pay Wallet. These payment jewels are all part of a Services Business growing at 20% CAGR that could be worth $650B by next year (MotleyFool).

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Adios Visa Checkout

17 January – Good news.. the right thing just happened.

branding nascar

This week we finally saw the “official death” of Visa Checkout and Mastercard’s “Masterpass”. Do you remember all those Superbowl commercials with Arizona wide receiver Larry Fitzgerald? Per my April 2018 blog, this “branded button” approach makes no sense at all at a time where Visa/MA are positioned to play a much more critical position as the central token directory. This means we will no longer see the “NASCAR like Checkout” I referenced 5 yrs ago when JPMC launched the much ridiculed ChasePay. Visa’s top 5 brand will no longer have an appended “checkout” on it (which no one used or understood).

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Plaid – Quick Take

My quick read on Visa’s acquisition of Plaid

I’m back to blogging after a successful exit last month. The Plaid acquisition is a great way for me to jump back in. Why read this? A key to understanding payments, banking and data is to balance historical knowledge with a network of people that know what is really happening behind the scenes. As the former head of two direct banks, former Senior Director of Oracle’s advanced technology solution’s practice and Yodlee’s first customer I have an informed perspective on the market for this one. 

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Big Moves in Payments

21 March 2019

Happy First Day of Spring! I don’t know how many people still read this silly blog. I’m in a CEO time warp and just realized I haven’t written anything since NOVEMBER!! This will be a short blog with some random thoughts.

Big moves in Payments this quarter.

  1. Visa, Mastercard, Paypal, Global Payments and others are at ALL TIME HIGHS today.
  2. Worldpay to be acquired by FIS for $43B
  3. First Data to be acquired by Fiserv for $22B (all stock)

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Payments and Rocket Science

My Forbes Article Last Week

What We Can Learn From Rocket Science About Closing The Sales-Marketing Loop

Payments plays a key role in trust, not only during the sale.. but also in providing transparency to merchants on marketing effectiveness. Sales is the ultimate report card on what happened.  Using this data in real time can double marketing effectiveness.

While Commerce Signals has taken me away from my Space Analyst stuff (see link), I’m very proud to know that my old team is landing Elon’s rockets (see Wiki).

Token update – TCH + 2 Big Banks and Paypal

I’ve been writing about this token stuff for over 5 yrs. Wow.. This is an update to my June 2013 blog – Tokens: any volunteers ,  SRC- W3C and Tokens and the Trojan Horse.

First my bias.. I may be naive.. but as I stated in Tokens and the Trojan Horse

Visa and Mastercard provide a level playing field for Issuers and Merchants (with few exceptions). Per my blog Payments Civil War, V/MA are a fantastic creation that have experienced profound success (and growth). As I outlined in the Changing Economics of Payments, the beauty of the V/MA model is that it creates incentives for millions of businesses to invest billions of dollars. For investors, the attraction of V/MA is that it is scale free.. with minimal effort required to add volume. While there are MANY more logical ways to deliver payments.. there are none with more profitable incentives for investment.

Tokens are an enormously powerful control point for the payment networks. 9 years ago the banks were working to “build a new Visa” within an initiative launched by The Clearing House. The idea was to create a new scheme that “wrapped” account numbers with another number (token) and avoid network routing (see wrapping). The networks smartly came down and issued clear guidance, if you wrap my card number with another number …. It is still a Mastercard/Visa.

TCH has been seeking a partner for tokenization since Paul Gallant led the 27 bank consortium 8 yrs ago.  Can you imagine the sales pitch (as I reviewed in the Trojan horse) “give me all of your customer information, I will lock it up.. and give you one of my keys for you to access it”. Google, Apple and Amazon have all smartly said no. What is the remaining “big” eCommerce Cards on File (COF) home? You guessed it PayPal.

While I’m not 100% sure about this.. it is the only group left AND two of these banks told me this week “Paypal is the only one that can move merchants effectively”. I was shocked … paypal can move merchants more than Google? They responded “Google has the best technology, but they just can’t sell merchant more than adwords”.. wow.

Thus my best guess is that 2 of the top banks are working with Paypal as the processor/gateway  to move “W3C” in the direction of the TCH tokenization service. The head of the W3C WG wrote me on twitter

Quite frankly my head is spinning. W3C is a browser standard.. how can Paypal get their TCH tokens in? I haven’t figured this out yet, but what I do know is that the complexity is enormous. We have 3 different token services

  • Visa VTS/MA MDES (Apple is primary customer)
  • Google (see Blog) – had no choice but to develop a new custom “standard” by which the encrypted FPAN flows to the merchant acquirer
  • TCH – Paypal + ??

And also multiple new eCom standards

To read what is happening you must therefore take a matrix view.  Obviously Google is moving with their own token service and W3C. Paypal seems to be moving with TCH and W3C.  Apple with network tokenization and ApplePay.

My head is spinning. I must say I did buy Paypal stock this week. I’m just floored that top tier issuers are innovating with Paypal.. focus, partnerships and execution are moving them into the bank friendly category.

Google/Mastercard.. The new Oil or Uranium?

Bloomberg published a thorough article today on Secret Google/MA Deal and how the data is used in attribution (I wrote about this in May of 2017 Payment Data and Google Attribution). Attribution is big business. Most marketers still grapple with the old adage “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”. Accurately closing the loop between advertising and incremental sales allows marketers to know what is working and what is not.  As outlined in Bloomberg,

“Beforehand, the company received $5.70 in revenue for every dollar spent on marketing in the ad campaign with Google, according to an iProspect analysis. With the new transaction feature, the return nearly doubled to $10.60”.

The GREAT news is that cards are an instrumental part of helping retailers improve the marketing! The bad news:  inconsistent controls, “leakage” of payment data, concerns over consumer privacy and the raw “power” google and FB have in gaining further “data advantage” over everyone else.  

Summary
  • Attribution and “closing the loop” is a strategic priority for Goog/FB because when you know what’s working, you can optimize spend and double marketing ROI. We have seen the same thing at Commerce Signals as we measure the sales impact of client ads outside of the walled gardens. The economic value created is a tremendous opportunity for banks here.
  • Google has “access” to 70% of US transaction data through Mastercard, 1-2 participating processors, a bank data aggregator, and retailers sending data to Google directly (last week’s blog).  However, there are substantial issues with granting Google/FB ad hoc access to payment data. While there are no doubt agreements associated with access and use, the data owner has given up control and thus placed themselves at unnecssary risk.
  • Commerce Signals provides this same closing the loop service in a way that allows the data owner to maintain full control and protects re-identifcation of private consumer financial information.
  • Trust is the core of both banking and marketing. All parties should be able to report on WHO is using their data and HOW they are using it. This requires transparency (and auditability).
  • Building great consumer experiences take collaboration. Collaboration will be the center of all future payment networks (ex Alipay). Commercial networks are transforming – a process which will unlock $2T in value.  (Small Wins and Transformation of Commercial Networks)
  • Data has been called the “new oil”, I would posit that it is the “new uranium”. While great power can be unleashed by refining it, you must control how it is disseminated and used… or it will everyone will be at risk

Transparency and the 3 Rules of Data

There are 3 basic rules to consider for any party participating in a data exchange

  1. Right to have the data
  2. Right to use the data
  3. Right to share the data

Transparency is critical to creating trust and enabling data. To be clear we have no relationship or business with either Google or Mastercard and I have no knowledge of the precise architecture, my educated guess on the structure is below a purely “hypothetical” design based upon experience.

Mastercard sees transaction data, but has no consumer information tied to it. In other words they only have the Primary Account Number (PAN) and no nothing else about you. Within 4 party networks only issuers have consumer information. V/MA schemes are designed to protect consumer anonymity through to the POS. However, there are agents that can map a consumer to a PAN, either through seeing things like online transactions (where you put your name and PAN to order goods), credit card bureaus, …etc. These entities can help holders of PANs map to an anonymized ID.  These anonymized IDs in payments are also held by advertisers. Each party has a “unique” anonymized ID and can’t coordinate with each other without the “key pair translator”

DATA “COLLABORATION” WITH WALLED GARDENS

Google and FB. The issues in making payment data work with Google and FB are the data rules set by Google and FB: they do not let data leave their control (ex media exposure files).  Thus data must go INTO GOOGLE. The 3-4 yrs of delay in MA/Google operation would likely be surrounding where the Google Data and MA data would collectively reside. Google is in a place to financially take risk on this, and my guess is that payment partners (like MA) have agreed to a “white room” where their payment data resides which can be accessed in a controlled/structured manner by Google.

Consumer information leaving Mastercard:  Contractually none as they probably maintain “ownership” of the neutral white room (perhaps a separate legal entity). There are also likely controls placed upon the structure of analysis (example cohorts must be greater than 50 matched consumer records) within an operating agreement.

Issues: Google has ad hoc access to payment data within a set of rules. My rule #3 (right to “share” the data) may be broken here as permissions must be granted by either:  the consumer, merchant, or issuer (depending on data).  Standard questions anyone should ask on this architecture:

  • Who created the operating agreement?
  • Who granted the permissions?
  • Who is managing the controls?
  • What auditability is granted to the impacted parties?
  • Who bears the risk of breach?

Banks and Merchants (the advertisers) must be able to clearly communicate: who used their data for what purpose? For example, while there may be aggregated data controls, what if Google asked the same question for a group of 50 buyers of Joe’s sporting goods, and then changed the cohort by 1 person (Tom). They would know what I bought during the time period.

Federated Data = Controlled Use

At Commerce Signals we do not have any payment data inhouse. We recognized that for data to be controlled it must stay within the premises of the owner, it can only be released if you understand both WHO is requesting the data and HOW it will be used. All data exchanges are tracked and operate within defined terms and agreements. If agreements stop, so does the data flow.  We ask our financial partners a question that like this:

For this group of 1M consumers. What was the total spend of this group during the period before the advertisement and what was the total spend of this group during the media period

Consumer level information leaving financial partner: None. Just the aggregate spend of the group of the 1M. As a neutral party we hold no consumer level payment data, or ad exposure data. We provide all parties with transparent view of both USE and permissions. The only way to make TRUST operaterative in networks is to have a neutral party.

In our Joe’s sporting goods example (above), Commerce Signals monitors ID velocity, and takes actions based upon the direction of the data owner. We work as  the neutral traffic cop that enforces rules of all parties. We enable quality data to play with transparency. For example, we recognize that ID partners must be able to have clarity into how their information was used (example PAN to ID mapping). While ID agents may permission a mapping for the purpose of aggregate measurement, they may choose to defer on others. Enabling ID partners to permission use improves the market for deterministic ID providers (vs probabilistic). Tracking use also allows Commerce Signals to manage opt outs across multiple partners and ID providers consistently.

Data has been called the “new oil”. I would say it is rather the “new uranium”. While great power can be unleashed by refining it, you must control how it is disseminated and used… or everyone will be at risk. This is our business at Commerce Signals.

Industry recommendations:

  • Quality data can only play where there is transparency and control.
  • Retailers should view measurement and optimization as a core IN HOUSE responsibility. Card Networks and merchant processors are great partners to accomplish this with no work on your side. You can enable the same optimization described in the Bloomberg article across all of your marketing.
  • Google and FB must recognize that payment data is of greater sensitivity than ad exposure data. While 3rd party data partners have been curtailed, 1st party data is greatly accelerating. I believe consumers will be shocked to find out that their real time purchase information is made available to Google and FB. While there is an immediate media effectiveness impact in turning this on, there are better ways to accomplish it.   
  • Retailers should recognize the double edge sword of data sharing with Google. While it does improve marketing results, and they can write very big checks, it also leaks consumer preferences. 
  • We are at a Data Tipping Point (blog) where all parties must be accountable for HOW data plays with WHOM for WHAT use.  Create a mission control for all of your data interactions. Who is using your data today?  It is your data, and it must operate under your rules (more here)
  • Banks… must work to ensure transparency of data use, and that the actors participating abide by the rules (see my Bank Recommendations)