12 Nov 2015

Apple/P2P

• 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…