Category Archives: NFC

Apple and NFC?

Posted on by
9

1 Feb 2012

Apple and NFC? I don’t think so.. my bet is 70% against. Great that Apple can keep us all guessing. Why put a 5th radio in the iPhone? AND hand carriers control of SE. There is just no upside for Apple here. NFC would not enhance their wonderful mobile customer experience…  it may even kill their Apple/App Store/Apple ID/Payment Instrument advantage.

It would be smarter if they would buy Square… payments belong in the cloud… not locked in the phone. All you really need at a POS is an Irrefutable ID. In a Square scenario, Apple could leap frog everyone in customer adoption and enable every iPhone owner to pay with their voice and GPS location ( Apple has payment instruments tied to every iTunes account). The gap in this scenario is merchant adoption, existing merchant processor agreements/hardware, and retailer reconciliation (if multiple processors). Apple, if I were you I would sit down w/ Square, FirstData, TSYS, … and see what could be done. NFC requires coordination of too many parties.. a late follower would be a much better place to be. Your top risk is that consumers will buy phones based on mobile wallet. Your short term strategy? I pay with my iPhone today (see pic). 

Don’t get me wrong, NFC can work.. but the carriers have proven inept at managing a platform business which would incent the participation of many businesses, allowing all to make money. Instead they operate as a toll bridge, but expect to take a portion of the goods in transit. If you operate as a toll bridge you are a dumb pipe… period.  It just does not take much intelligence to run a control business, sure it is complex to build the bridge..  But it even more complex to coordinate the logistics of the world’s commerce. The carriers focus on control is killing the prospects for NFC’s success, as they attempt to act like an orchestrator (requesting a % of goods in transit) but have the ability of a toll collector.

Commerce will find another path… one of least resistance. This is what Apple should do as well. NFC is just a radio… one whos standards are largely controlled by banks, mobile operators and card networks. Why would retailers want to participate here at all?  We should not act to enrich the complexity of payment networks, or wireless ones, but rather form new networks that are retailer and consumer friendly.  Bluetooth, wifi, gps, voice, facial recognition, sms, .. all can do the job NFC does.  We will not see harmony here over the next 20 years, particularly as the only payment instrument in a mobile wallet is a 300bps+ credit card.

Why is Japan successful? because they have a dominant carrier that built a business model..  same in Singapore and Korea… in the rest of world.. chaos will reign until someone delivers retailer and consumer value.

http://www.appleinsider.com/articles/12/01/30/mastercard_acknowledges_it_needs_apple_to_bring_nfc_payments_into_the_mainstream_.html

Related Blogs

 

Update 3 April 2013

My bet on next version of iPhone? Broadcom’s BCM43341 chip 

Broadcom has launched the industry’s first quad-combo chip. The BCM43341 combines NFC, Wi-Fi, Bluetooth and FM radio on one chip and, says Broadcom, “offers OEMs unmatched size, power and cost advantages.”

A second new product is a single card solution that pairs a BCM20793 NFC controller as used in the Google Nexus 4 with an 802.11ac (5G) WiFi radio and is aimed at high end mobile phones and devices.

Does that mean the next iPhone will have NFC? yep.. but not in the way we think about it today.

 

http://tomnoyes.wordpress.com/2011/02/03/isis-platform-ecosystem-or-desert/

http://tomnoyes.wordpress.com/2011/12/05/isis-delay/

http://tomnoyes.wordpress.com/2011/10/26/apples-commerce-future-square/

http://tomnoyes.wordpress.com/2011/01/26/apple-and-nfc/

Building Networks and “Openness”

Posted on by
7

8 Dec 2011

I’ve been reading some off beat stuff lately. One book “Weak Links: Stabilizers of Complex Systems from Proteins to Social Networks” was very thought provoking. As Mark Stefik (PARC Fellow) said ‘Something magical happens when you bring together a group of people from different disciplines with a common purpose.’ The combination of people, experience and approaches often leads to unexpected consequences.

As an engineer I like to solve problems.. I usually learn more from mistakes than I do from successes… but it is the learning that is fun. As an investor and entrepreneur I don’t like making mistakes… my preference in the start up environment is to have the learning cycle counted in minutes and days (vs customers and capital). I was speaking with a US Central Banker last month and the concept of “openness” was discussed. A hypothesis was laid out by the Fed “Mobile payments are not taking off because of a lack of common standards”.  The Fed team is very good, the best way to encourage a good dialog is to lay out something radical; as for this hypothesis I disagreed completely. As stated in my numerous blogs: history has clearly showed that closed systems must form before open ones.  I also told the Fed that the problem in US mobile payment IS NOT lack of standards but lack of a value proposition to consumers and retailers. In other words existing payment instruments solve all of my problems.. mobile payment simply does not add additional value (in isolation) compared with existing products (See Mobile Advertising Battle). In order to stimulate a change in behavior (merchant and consumer) there must be a strong value proposition. Two years ago I discussed the implications for broad payment standards in SEPA: Chicken or the Egg and in March of this year I outlined how SEPA has depressed payment innovation in the EU.

Given all of the chaos in NFC at the moment, I woke up this morning asking myself what is the “right amount” of openness and standards? How do successful networks form and mature? What are successful “open” networks? What is the first “open” standard you think of ? TCP/IP? Linux? Java? RosettaNet? EDI? Open Network? Internet? GSM? US Interstate system? SEPA? The Weak Links book opened my eyes to many new concepts, one was on how affinity influences network creation, and another on how few open networks exist in Nature. Networks form around a function and open networks are not necessarily the most efficient.

Scale-free distribution (completely open networks) is not always the optimal solution to the requirement of cost efficiency. .. in small world networks, building and maintaining links between network elements requires energy…. [in a world with limited resources] a transition will occur toward a star network [pg 75] where one of a very few mega hubs will dominate the whole system. The star network resembles dictatorships in social networks.

The network forms around a function and other entities are attracted to this network (affinity) because of the function of both the central orchestrator and the other participants. Of course we all know this as the definition of Network Effects. Obviously every network must deliver value to at least 2 participants. Networks resist change because of this value exchange within the current network structure, in proportion to their size and activity. Within the EU, SEPA undertook a rewrite of network rules and hoped that existing networks would go away or that a new (stronger) SEPA network would form around its core focus areas (SCT, SDD, SCF, ..). It was a “hope” because the ECB has no enforcement arm. In other words there was a political challenge associated with ECB’s (and EPC specifically) ability to force an EU level change on domestically regulated banking industry.. given that SEPA rules destroyed much value in existing bank networks, the political task was no small effort. We have seen similar attempts (and results) when governments attempt to institute major change in networks (Internet NetNeutrality v. Priority Routing, US Debit Card Interchange, …)

Mobile Payments Standard?

If we take a look at today’s payment networks what are the biggest problems to be solved? I have a perspective, but its certainly biased. How about payment routing and speed? These seem to be common merchant and consumer concerns. Keeping with an internet analogy, can you imagine if there were no DNS servers to route IP traffic? Every router would have to keep the directory for the entire internet not only of the final destination, but also the most effective route to forward traffic. What if the internet were not indexed? No ability to find information (thanks Google for fixing this).  In the payments environment, the central assets of Visa and MA is 1) A Directory and 2) the rule that EVERY participant must route traffic through them (with a new PIN debit exception in US).

Outside of card transaction’s banks maintain their own directory for routing retail and commercial payments; this is called “least cost routing”.  A key bank service I would propose (note: I’m not the originator of this idea) is a universal directory service mapping e-mail, phone and account numbers.  In Australia, the banks have this today run by my friends at Cardlink and completed under project Mambo. In the US, The Clearing House (TCH) has had the UPick service completed for a number of years.. without much interest.

My thought here, is that rather than facilitate a EU mistake in mandating a change in all rules.. decrease the switching costs between networks so that market forces can take hold. I’m not proposing to take the directory public.. but at least give regulated entities equal access. In Australia the driver was to decrease bank switching costs, also note that Australia has no Signature debit.. just as in Canada.  A common directory could also follow rule that non-regulated institutions could not hold account data (or card number).. Just as I don’t have to know my Bank’s IP address.. I could use another identifier (email, mobile, …) for online transactions. The danger for banks is that this would certainly open up the world of least cost routing to non-banks. Payments would become “dumb pipes”.. which is perhaps what it should be.

Mobile payments is certainly not critical government infrastructure. So what is Government’s proper role? Consumer data protection, transparency, regulatory requirements, equal participation/access..  ? I don’t know the answer. I like the idea of the Government creating a model service for R&D purposes.. perhaps based on Fedwire and letting non-banks have access to it… I also like the idea of a common directory.

ISIS

For 2.5 years I’ve been writing about ISIS.. I’ve always have been a huge advocate.. until lately. What has changed? My position, and that of retailers, is that today’s payment networks are heavily tilted in favor of the banks. The opportunity I originally saw for ISIS was constructing a new merchant friendly network that was an “extension” of the current mobile network which the carriers run (The original business case for ISIS is outlined in ISIS: Moving Payments from Rail to Air).

Keeping with my theme of openness and standards how is ISIS creating a platform for other to invest in? What value is an ISIS mobile payment to a retailer? Yesterday’s blog talked about the complex supply chain necessary to deliver on NFC. Don’t get me wrong, there is nothing wrong about NFC technology.. it is a very well defined specification. But it is complex.. if it was a NEW WAY of doing payments (or better yet commerce) perhaps it should have started a little less ambitiously. The team seems as if it prudently sought to reduce risk, but it also gave up on a central element to its value proposition. My analogy for today is that ISIS project is like Vanderbilt’s skipping steam and going straight for high speed mag lev in 1880…. While the entire country was growing at a 10x pace and he had no right of way..

Big projects are tough in normal times.. but mobile is changing at an unbelievably fast pace. Small focused projects are certainly lower risk when innovating at the cutting edge. Everything is changing.. how could anyone architect an open system in such a fast changing environment? It would seem that technical standards like TCP/IP or GSM were successful because of their ubiquity and distributed control. They could be used by all to create different networks with different value propositions.. which incented millions of companies and consumers to invest.  I just don’t see how MNOs can create a business platform based on NFC. Their best shot may be to work with someone like Sequent Software to create an architecture for 1000s of applications to access secure element data.. instead of the one single CSAM wallet coming out in Pilot Dec 2012.

Your thoughts are appreciated

Previous Blogs (Nokia NFC Ecosystem, ISIS Ecosystem or Desert, Banks will win in Payments.. but WHICH ones?)

Nexus S – Verizon’s Plan B

Posted on by
9

6 December 2011

Today’s WSJ article that Verizon plans to block Google’s wallet on its new Samsung Galaxy Nexus .  While the mainstream press sees this as a slam on Google… I see this as Verizon constructing a fallback strategy. Why on Earth would Verizon want to allow the Nexus S on its network at all? It is a 2 year old Google designed phone which embeds a “non-standard” NFC architecture (embedded SE) which is controlled by Google (and cannot be controlled in a UICC based architecture).

As I stated yesterday, the ISIS is experiencing delays in its “go to” architecture. The rumor is that the current ISIS timeline is pilot in December of 2012 and production in mid 2013. I see this move by Verizon as accomplishing 3 things..

1)      The Google Nexus S is the only production NFC phone in the market (actively using NFC.. 50M blackberry’s have it.. but element is cold and lonely). It could allow Verizon and the ISIS team to reconfigure their CSAM wallet platform to this “non standard” architecture to accelerate time to market for a test.  The desired ISIS architecture is SWP/UICC based…  Note that if this is indeed Verizon’s plan, they will need Google participation as Google owns the SE keys in the Nexus S AND they have not published the APIs for the NXP element access

2)      Gives Verizon a phone in the market to pilot with Google. In other words they can play in the Google camp without a formal commitment. Verizon can play ISIS and Google off of one another to see which horse will win. This is very smart.

3) Gives Verizon access to NFC/Android much beyond payment. As Google has clearly articulated in Android Beam, NFC will be the tool for machine-machine communication. How you share pictures, videos, music and apps with another phone. VZ’s current NFC plans revolve all around ISIS and payment (and very closed), Google sees NFC as another radio to do many, many different things. As this week’s Comscore report shows.. Android’s 46%+  market share is a key driver of VZ’s success. VZ needs this handset not just for wallet.. but for access to all the other cool new Google toys that will come out supporting NFC. The question the analysts should be asking VZ is how their SWP/UICC architecture plays in the Google model. How will VZ allow many apps to access the NFC radio AND the secure data? There is only one software company that can help here and that is Sequent.. The other option is a multi SE architecture (see my previous blog, note blog was wrong on Apple), which RIM will likely support. In either of these scenarios, complexity reigns.. the only real option is to let Google drive the definition and the apps. Perhaps this is why VZ has thrown in the towl to Google’s Nexus architecture (hardware).. but not yet on software (wallet)

Don’t believe everything you read.  Verizon’s decision to commit to selling the Galaxy Nexus  is an indication of major strategic planning.

Related article on the ISIS Platform: Ecosystem or Desert?

ISIS Delay..

Posted on by
11

ISIS Delay

My last blog on this subject was only 2 months ago.. Headline was “ISIS has 12 months”.  Rumor this week is that ISIS has 12 months to go TO PILOT (Dec 2012). The driver seems to be the UICC chip that supports the SWP SE (Gemalto’s fault??).  Note that my previous nine party chart did not even consider the UICC.. so here is a revision.. (added UICC, MNO, and POS register)…

How would you like to run an industry consortium that had to coordinate a release and a new technology across 12 different companies!?? Oh.. a few other minor considerations as well:  no compelling customer value proposition and against Google? My favorite question to ask anyone from ISIS is what will the application do for me that my Citi sticker won’t do now?

  • Provision over the air? (Who cares)
  • Turn on/off the card/element? (Who cares I don’t pay for fraudulent charges)
  • Offers? (Who cares.. Citi can tie merchant offers directly to card use.. Clovr Media/Linkable)

There are MANY future functions like eReciepts and Item level coupons.. but these are VERY far off because they require retailer participation.

ISIS is proving that the NFC supply chain is not workable… at least not without a very substantial customer value proposition. A December 2012 delay to a PILOT may well be the death knell for ISIS… how can carriers invest $200M in a team that won’t see production until mid-late 2013?   There is no shortage of parties complaining about Google’s approach.. but by taking control of the spec, the architecture, the handset and “TSM” they have eliminated the complexity and have been able to get something to market… and are improving from there based upon REAL customer feedback. So while ISIS will struggle to get a pilot running by late next year, Google is signing up new retailers every week, improving its applications and gaining market experience.

As I outlined previously, carriers started from a basis of control with the NFC Forum’s technical specification. Obviously, the handset has proven to be a platform of digital/physical convergence.   We all see enormous opportunities to re-wire physical commerce with the handset at the core. But today the handset’s “commerce” success is driven by its open nature (apps and connectivity). It is a platform where anyone can build anything within a given set of loose rules (tighter in Apple’s case). In order to attract retailers, advertisers, issuers.. the MNOs had to continue this “open” approach.. but instead have taken one of control. This control approach may have been unintentional as not many organizations have successfully built business platforms (favorite book on topic is Platform Leadership). MNO’s control approach could have also been driven by the desire to securely maintain customer information. Whatever the reason, companies will likely develop approaches (See Square Card Case) that keep information out of the secure element and place it in the cloud. As I related in the Square article.. the success of NFC is far from given.. All that is really needed at the POS is a “key” that key could be a single number/identifier delivered by NFC, your voice or your IRIS.  Keeping all customer information on the phone is rather stupid. One MNO told me this week.. its on the phone in case it doesn’t have connectivity. Well guess what.. stores have the connectivity.. that’s how Visa’s system works.. Stores are not dependent upon the Phone’s connectivity.. but rather their own.

It’s never easy for a Fortune 100 organization to admit that they made the wrong bet.  Globally, there is also a very strong inter-carrier commitment to “carrier controlled NFC” work. All it will take is one major carrier to change course and join Google’s camp to bring down a global house of cards that is NFC.  My guess is that carrier controlled NFC find long term traction in public transit and ticketing perhaps even in government identification. .. but this is 3+ years out before any substantial (>20%) adoption.

Customers.. you want ISIS mobile payments functionality? Go get a sticker.

MNOs.. do you want ANY part of mCommerce? You better move quickly to partner with someone that can get all of this done. Their dance card may fill up quickly. If you don’t move beyond the “control” approach.. you will be relegated to dump pipes.. as thousands of businesses work to get around your controls..   Given the Carrier IQ blow up this week, you have no ground for claiming you would manage privacy better than Facebook or Google.

Apple’s Commerce Future = Square?

Posted on by
14

25 October 2011

My top question for October has been “What is Apple up to” in payments/commerce? It matters to me because investments and strategies have to line up. Is there new risk? Should I be running from NFC? Where do I place my bets?

Data Points (From previous blogs)

  • Apple/iPhone is staying away from NFC…Apple has something brewing that revolves around its iTunes account base.
  • Chase is working with both Apple and Square
  • Square just secured a billion dollar valuation on $3-6M in Rev from one of the best VCs (IMHO) KPCB.. SO they must have some big idea…
  • WSJ Article reports Jamie Dimon is talking to Dorsey on Payment.. what possibly could Jamie be so enthused about?
  • Keith Rabois said he would never have gotten involved in Square if it was just about a doggle and payments..
  • Visa is on board.. so they must have a plan to drive card volume. Visa invested at a time when new mobile  PCI standards were “in flight”
  • The Square doggle is mag stripe only.. (doesn’t work outside US)
  • They are pushing the doggle like mad, expanding distribution to WMT stores this week.
  • My previous blog outlines how Square has shifted into V3 of a business strategy that is about commerce (not payment). V1 was “Payments for Craigslist community”, V2 Small Merchants alienated by terms of today’s Acquirers, V3 Commerce
  • Square card case shows TODAY’s product for working in physical retail. To make this work efficiently (and at scale..) many people have to be “registered” with Square as Payers (to open a Tab). Visa Wallet, and Apple iTunes would seem to be logical extensions to expand this registration rapidly. See Card Case demo Square’s site http://www.youtube.com/watch?v=la0zz-pPEl4
  • As I stated previously, there is no need for NFC… anything that NFC can accomplish can also be accomplished with a single key exchange.. whether that key is biometrics, a loyalty card or your GPS location
  • In this blog 2 years ago (wow I’ve been writing about Square for that long!?), outlines how a commerce process of the future may look like the local country store of the past. I know who you are when you walk in.. ask “would pay like you did last time or put it on your account?”.

Apple/Square – the Anti NFC?

All indications are that Apple has a new “location registration” type of service.. Allowing users to determine “Who” they want to make aware of their presence. I’m sure most of you familiar with Square’s card case can see the immediate link: if you walk into a “registered” store you have given “permission” to be aware of your presence the store will be able to market to you during your shopping experience AND when you go to register it will know who you are based on Voice (Square example), picture, GPS, or some other proximity indicator. Assuming your payment is on file (iTunes/Square) and the retailer is “connected” (to same cloud as consumer): the entire marketing, shopping and checkout process is done without ANY select, scan, tap, swipe or anything … throughout your entire shopping experience. For example, you could be watching targeted iPhone ad videos while shopping with discounts automatically applied at checkout.

Hey I could be wrong … and should have just kept my mouth shut while I go patent this.. but I think this is already in flight.. so my goal is to inform investment decisions. My confidence level?

Square is building this? 60-70%

Apple is participating? 30-40%

This would make Square’s Wal-Mart distribution efforts look brilliant. Give away millions of free doggles to get consumers to sign up.. then leverage this network as the basis for future in store payment network.

Is this really a Killer App?

My response centers around this question: How would retailers (and existing value chain) react?

  • Where is the value to the retailer? In store marketing is not valuable without knowing intent to shop or buy.. or brand preferences..
  • What do Square, Visa, Apple know about physical advertising and retail?
  • What incremental sales with this drive? New customers? Basket Size?
  • Will I lose business if I don’t do this?
  • This use case solves a “payment” problem and an “instore awareness” problem.. What is the benefit to the merchant? Speed? Reduced Interchange?
  • If Chase and Visa are driving this.. retailers will not be jumping over themselves to be first on board
  • IBM has an 80% share registers in top 20 retailers.. Are they going to give up the POS to Square?

On the positive side.. this is certainly MUCH cheaper than NFC.. Merchants: Why should you buy NFC terminals at all? This highlights again why the MNOs insistence in following a “control” model for delivering value through NFC will be such a failure (see related blog). Data should not live on the phone.. but the cloud.

Investment Implications?

  • Be cautious in over estimating the uptake of NFC. It is not a panacea for payment. It is a great tool for machine/tag to machine communication (ticketing, door opening security, RFID reader, music sharing, …).
  • Verifone’s vision of new terminals everywhere should be balanced with a view of no more payment terminals at all.
  • There are some very big bets going on here.. Apple, Kleiner, Visa, Chase.  If you are not aligned to one of the big players you could get stepped on quickly
  • Many opportunities to add value within this “future” scenario.. SAP, Oracle, and other retail experts are well positioned to help retailers
  • Visa and Chase’s involvement make retailers participation less certain… therefore increasing retailer interest in other “retailer friendly” value propositions.
  • My favorite one.. in store bandwidth. Stores are sink holes for radio signals..  Verizon and AT&T could gain control over this entire value chain by selling connectivity solutions (ie microcells) into stores. They can control the content in the phones to a much higher degree.. for example blocking any non-retail friendly site while a customer shops.
  • Government Regs.. We need to start managing who has access to location information in a much more “regulated” fashion.  I’m more concerned about my location information than I am about my payment info. Why? I know I won’t be held liable for my fraudulent card data.. while a bunch of physical thieves could rob me blind if they know where I shop and when I’m gone from my house.  There is an assumption that customers will let this happen. My recommendation is for Square and Apple to spend a little time in Germany..
  • Visa Offers could have a new outlet in store.. unfortunately.. they don’t know how to “sell” offers to retailers..

Make no mistake.. I like this model and think it is brilliant. But others are much better positioned to execute on it.  Starting a network business is hard.. cracking the nut on a retailer value proposition.. harder.

If this is true.. I could be flipping to a fan of Square.. errr… Apple?? I finally see Kleiner’s investment approach at work. As one of their partners said to me “Tom, if we get a great team in place.. they will figure it out… Google had no idea of how it would make money when it started.. they turned out OK “

CEO of Tempo Interview

Posted on by
Reply

Great Interview w/ CEO of Tempo on how Durbin killed margins in Debit.. and killed Tempo

http://pymnts.com/Tempo-CEO-Opens-Up-about-Decision-to-Shut-Down-after-Durbin/

Just as I wrote in March (Sepa and EU payment innovation), when governments intervene to set prices.. “innovation” can be impacted.  John says Tempo is the “poster child” of government regs gone awry.  On the flip side.. third party payor processes are also disconnected from market forces (payments, health care, education, pension, …).  Bank of America’s response ($5 debit card fee) is the right response for america’s banks to take toward Durbin, customers that directly incur the costs for services they use can make more informed decisions (and change behavior) to optimize their own value equation.

In the US, bank debit cards will be evolving to what we see in Canada and Australia. It remains to be seen if we will see fall off in Debit transaction growth in favor of “free” credit card transactions.

Banks and Visa/MA certainly see things like mobile payments driving convenience of using credit.. while the “pain” of using debit increases…

NFC – ISIS has 12 months…

Posted on by
4

2 Oct 2011

Loads of new press out related to NFC

–          ABI research estimates $100B GDV by 2015 (yeah.. and pigs fly)

–          EMVCo 47 page report on technical standards for contactless payments

–          Visa’s new mandate to retailers.. EMV (+ NFC) by 2015 or merchants bear the fraud loss

–          ISIS Handset Support

–          Launch of Google Wallet

–          PayPal dissing NFC (today)

Having been the first to break the news on ISIS in 2009 (Although I was wrong on Visa involvement… it was Discover), perhaps I should be the first to predict its demise.. UNLESS something big changes.  The problems with mobile money is 5% technology, 95% business model. Take a look at my diagram below… 11 parties that need to execute on a clear value proposition… No wonder MNOs like Verizon are hedging their bets, creating alternate payment solutions (see my Payfone blog).

What company can invest in something it can’t control? That has a value proposition that is unproven? That requires collaboration with competitors? That customers may not want or pay for? Please someone give me an example…

Payments  (in isolation) adds very little value to an overall commerce value proposition. Did you buy your big screen because they took Visa? No.. you chose your big screen TV because it was the right model for you and you expected the merchant to offer you payment alternatives. Most of you reading this would probably have accepted 2-3 options..  The most important value proposition for any commerce network is targeted to the retailer.

ISIS started off with a great retailer value play (see my previous pro forma financials), the Barclays/Discover instrument would have been a winner.. credit the involvement of WalMart with the strategy of ISIS here.. as WMT was key in ISIS’ participation and Abbott’s hiring (former GE Money Exec… GE services WMT’s pre-paid cards). But the card networks found a way to put the screws on… and destroyed a very innovative product.. and their merchant value proposition along with it. To compensate for the ISIS 50 bps “carrot”, Visa has constructed an EMV stick (see above) to force merchants to accept EMV.. (and in essence NFC). Retailers are frequently assumed to be a bunch of back water idiots.. as a former banker I admit my mistakes…  this simplified view of retail could not be further from the truth..  Retailers are on the cutting edge of competition. Competition drives data based decisions, customer centricity, daily focus on margins (as they are razor thin) and a toughness matched only in professional sports.  Retailers know customers like few others..  Few names generate a more intense visceral reactions among retailers than Visa and Mastercard. Today’s card networks are no friends of retail. It was no single factor.. but rather decades of choices all made to favor one group: issuers.

In this environment.. which retailers do you think are anxious to assist Visa and MA with a new generation of payments that is more expensive than what they have already? Specifically, NFC is a credit card transaction.. carrying a 300-350bps rate. Although there is nothing to prohibit NFC based debit card.. there are no banks (other than Discover/Barclays) that have stepped into this debit space. Visa and MA see NFC as the next great driver of CREDIT card transaction growth. Thus, Visa’s EMV moves are meant to accelerate this. Currently MNOs (and ISIS) are being taken for a ride by the banks as a tool to drive this.

Google was brilliant to include a pre-paid card in their wallet to balance the options for consumers, ISIS will likely do the same.  But the conundrum faced by ISIS is that there is no revenue for the ecosystem above without credit card fees and no merchant value proposition WITH them. The answer of course is for NFC to develop a new revenue model and value proposition (see my Googlization post), but building an Ad network is no easy undertaking.. and it even more complex for ISIS since their owners are each undertaking the development of separate ad network initiatives (VZ has equity stakes in Cellfire, mphoria, and a 200 person team).

Now add this dynamic to the complexity of executing against a business model (any business model) across 9+ parties and you see the NFC business enigma. As I stated in Nov 2009, MNOs know how to be successful in payments. ATT ran the most successful private label card of all time.. they have tremendous (non monetary) tools to incent consumer behavior (ex think free unlimited data).  Unfortunately they don’t have experience in working with retailers.. or in orchestrating commerce interaction. ISIS will execute on the charter given to them.. but that does not mean it will be successful.  Having a functioning NFC wallet does not mean that anyone will use it. Particularly if it is disconnected from everything else that I do use (mail, maps, search, Android Marketplace, …).  This is where Google excels. Not only does Google have the best engineers on the planet, they have the best retailer relationships AND customer relationships.

Remember NFC was a construct of the NFC Forum, a group formed in 2004 to design a new protocol that could be controlled by MNOs and Handset MFGs. Again.. it was designed for CONTROL….  ISIS is proving that it has fantastic facilities for control of the secure element, particularly in the US where post-paid handsets are subsidized. What ISIS fails in is a consumer and retailer value proposition.  If they do not find a way to work with other participants, the window of opportunity for NFC will fade. I give ISIS 12 months…

What are the alternatives to NFC? I told a start up CEO this week that NFC is but one alternative to identifying someone at a POS. I could use a card, GPS location, biometric, .. just about any form factor to achieve the same thing (as an example look at Square’s Card Case, or VZ/Payfone). Also.. we all know that locking card information inside the phone is just plain stupid.. It’s how Microsoft worked before the internet existed.. today we are in the world of cloud computing where information lives on the cloud.. (See my previous blog)

Messages for ISIS

  1. Improve your retail value proposition
  2. Get the carriers aligned on the “SUPER” Value proposition… or you will have a wallet that functions.. but no one wants. Take a look at Enstream in Canada for a use case here. Zoompass was the precursor to ISIS….
  3. Move beyond control focus to VALUE focus. Build partnerships which will help you orchestrate commerce. Of course this is not in your charter.. and very, very hard for competitors to do… so this will be a driver in your demise.
  4. You will not get the data on every transaction occurring on the phone.. so give it up now. Both ATT and VZ are ISPs as well as backbone providers, do you keep every piece of data flowing through the internet? Your plan here is FUBAR…

Message for Retailers

  1. NFC terminals will only drive expense growth until there is a consumer value proposition. The only entity that is coming close here is Google. Google does not care about transaction revenue.. they care about value creation.. this is a retailer friendly structure.
  2. Delay your EMV/NFC plans.. The big issuers will not be reissuing cards.. so even if Visa follows through on the liability shift it will only be for cards that could have been validated.. So your risk is of fake EMV cards.. Perhaps if you see an EMV card you just ask for a customers ID..  sound rather simple…?
  3. Ask very simple questions and get clear answers: how will this deliver incremental sales? What kinds of customers will be using this?

My prediction? ISIS and MNO initiatives will be successful in Transit. Retailers will migrate to a new commerce network that steers clear of Visa and MA.

Why Visa, Apple and Chase are Square

Posted on by
Reply

Visa formalizes mobile swipe security.. ” Visa’s guidelines lay out some of the more important security measures that should be taken, including encrypting all account data at the card-reader level and in transmission between the acceptance device and the processor.” just like the Verifone CEO said.. 

Why did they do this on same day as announcing Square investment. All of these non-compliant doggles. What is Square’s Plan?

http://www.visaeurope.com/en/newsroom/news/articles/2011/visa_europe_releases_mobile_ac.aspx

http://www.businessinsider.com/visa-square-investment-2011-4 

Why is Visa, Chase and Apple all aligning on Square?

1)       Apple does not have NFC in iPhone 5

2)       Chase is taking a portfolio approach. This one is a bet against NFC..  They also have plenty of bets in NFC

3)       Visa knows it cannot control NFC and is taking a 3 pronged card focused approach to mobile marketing independent of NFC. Too much to say in this short Blog

Google wins in NFC! No NFC for Apple’s iPhone 5

Posted on by
1

14 March 2011

From UK’s Independent

No NFC for iPhone 5. Too many architecture considerations.. (previous post iPhone Twist) So while their patents clearly indicate NFC is in their plans.. they have not been able to coordinate all of the design into their iPhone 5 program (from hardware through software and apps).

 Brian White of Ticonderoga Securities  and I have both been predicting NFC, but we are obviously wrong.  The coordination necessary to bring about this change is tremendous. Vertical integration has its advantages in quality and control, but centralized control also prohibits distributed decision making. This is where closed platforms fail (Apple).

Just take a look at the NFC patent portfolios of some of the companies aligned to Google/Andoid (previous post). The Android platform is much more loosely controlled, which provides for distributed innovation and investment.

Make no doubt that NFC will come to iPhone, it just didn’t make the iPhone 5. This is good news for device fidelity.. and great news for Google. Apple may not be able to recover from this one. The iPhone provides tremendous consumer value as a handset and media player. But NFC will be the driving force behind many new value propositions, and investments are being made today.

More to come tomorrow.

NFC Update – Zenius/InsideSecure

Posted on by
Reply

7 March 2011 

Previous Blog: OpenNFC 

I met with the Inside and Zenius folks last week, and am impressed with both teams. Their mutual objective is to make development of NFC applications “easier”. Both have developed a chipset independent framework (common API layer) which creates a layer of abstraction between an NFC application (ex wallet) and the underlying hardware. Both have also developed example applications that leverage this API layer (wallet, ticketing, loyalty, … ). My summary thoughts on the 2 teams are I like them both. Inside has expertise from hardware through software delivery. Zenius’ expertise extends from POS to Handset across multiple hardware architectures.

Comparison

Zenius

  • NFC API framework
  • Chipset independent (proven)
  • Vendor independent
  • Handset Applications
  • POS Applications
  • MNO experience

Inside

  • NFC API Framework
  • Marketed as Chipset independent (no proven)
  • Handset NFC Applications (5 of them)
  • Discourages Multi SE environment
  • Discourages Application Development (Use on of its 5 Applications)

What I struggled with was Inside’s insistence that there should only be 5 NFC applications. In other words, its NFC middleware layer was only for its own internal use to ensure that its applications work across all (competitor) NFC chipsets. The implication is that there will only be 5 NFC applications… for eternity. For example, ISIS selected the C-SAM wallet that sits on top of a custom built NFC stack.  In the Inside model, ISIS would need to jettison both CSAM and its custom middleware.  (Yeah, I had the same reaction).

Zenius has a much more mature model, driven from their legacy working within Verifone and VivoTech. The Zenius guys had to make their applications work across multiple hardware solutions, and hence developed a framework that is now productized. They have also developed 5 standard application, that are “reference implementations” of their APIs, you can use them in a white label fashion, customize them.. or take them apart to see how they leveraged the API layer. This is a better approach hands down.

Inside’s approach seems a little unrealistic, and could be perceived as a “land grab”.  What do I like about Inside’s OpenNFC? The middleware and their end-end experience. In the end they are driven by chipset volume.. my guess is that they would be willing to give away OpenNFC if it would drive their chip sales. Problem is that giving it away may only commoditize their core product, hence they would be tempted to ensure that their product “works best” with OpenNFC. This is one reason that middleware vendors (MQ, Tibco, WebMethods, ..etc) developed separate from software companies.

Given that developing native NFC applications is difficult, the experience largely sits within companies like: Inside, NXP, Verifone, VivoTech, Device Fidelity, Tyfone.. .  People within these organizations all know each other.. after all it is a very small community. I asked them how many of their colleagues are at Apple. The answer across the board is that they don’t know of anyone.  This tells me that Apple is probably more than a few months away from launching an NFC wallet, or that they are dependent on a vendor (?Gemalto) for all development.

Since ISIS has already completed development of its own NFC wallet (not on iPhone), what are Apple’s plans?  I’m told that Apple wants a wallet tied to their 200M Apple accounts, this could be mere speculation, but it seems logical. I’m also told that Apple has their own NFC wallet. If Apple does indeed have an NFC application, it is something they have procured (licensed and modified) from Gemalto.  This is not a bad thing, particularly if Apple is more focused on hardware architecture, and plans for managing secure elements (SEs). The first wallet will undergo significant testing, through a new hardware and software stack. They must have something they control (not ISIS) and that is tested (Gemalto) to reduce complexity. Apple will likely need additional applications, but they must start somewhere.

All of this just spells further trouble for ISIS, who was hoping to focus more on POS issues now that they have a working wallet application. If RIM and Apple are successful in keeping control of the NFC wallet, ISIS can only hope to be another “card” in the wallet… one that speaks Discover ZIP initially. Quite a different value proposition than what they started with 6 months ago.  

For Apple, this allows them to strike a strategic relationship with a card issuer (like Chase) who will likely invest in both marketing and POS infrastructure. I’m sure that Apple’s plan is to also integrate iAd… although it can’t possibly make it for 2011 (my guess).