The Directory Battle PART 1 – Battle of the Cloud

Square, Visa, Google, PayPal, Apple, Banks, … have recognized the absurdity of storing your payment instruments in multiple locations. All of us understand the online implications, Amazon’s One Click makes everything so easy for us when you don’t have to enter your payment and ship to information. (V.me is centered around this online experience). Paypal does the same thing on eBay, Apple on iTunes, Rakutan , …etc. But what few understand is the implication for the physical payment world

11 May 2012

This week we had both Finnovate and CTIA going on, and behind the scenes the battle lines are being formed in a forthcoming “BATTLE OF THE CLOUD” wallet. I didn’t include wallet in the quote because Battle of the Cloud sounds so much more ominous. Perhaps I should take a page from George Lucas’ playbook and start with Chapter 4.

I’ve been talking about the directory battle for some time now (see Clearxchange post).  Who keeps the directory of consumer information? As I outlined in Digital Wallet Strategies: “ securing information AND giving Consumers the exclusive ability to control what is shared with whom is a challenge (beyond technology and trust). We thus have many limited “Wallets” that are constructed around specific purposes”.

This week we had Visa’s President tell the CTIA audience that Visa has moved beyond NFC to V.me (see my previous post on Visa Wallet). What is really going on? What is the battle of the cloud?

Square, Visa, Google, PayPal, Apple, Banks, … have recognized the absurdity of storing your payment instruments in multiple locations. All of us understand the online implications, Amazon’s One Click makes everything so easy for us when you don’t have to enter your payment and ship to information. (V.me is centered around this online experience). Paypal does the same thing on eBay, Apple on iTunes, Rakutan , …etc.   But what few understand is the implication for the physical payment world. This is what I was attempting to highlight with PayPal’s new plastic rolled out last week (see PayPal blog, and Target RedCard). If all of your payment information is stored in the cloud, then all that is needed at the POS is authentication of identity (see blog). Remember US  online commerce is $170B/yr, physical commerce is $2.37T (not including FS, Travel/Entertainment).

The implications for cloud based payment at the POS are significant because the entity which leads THE DIRECTORY will have a significant consumer advantage, and will therefore also lead the breakdown of existing networks and subsequent growth of new “specialized” entities. For example, I firmly believe new entities will develop that shift “payment” revenue from merchant borne interchange to incentives (new digital coupons).  Another example is Paypal’s ability to selectively assume settlement risk on some transactions as they route through low cost ACH, or even allow customers to use BillMeLater to selectively convert certain purchase to loans AFTER THE FACT.  In these 2 examples, traditional payments revenue will be significantly disrupted by: lower cost transactions, competitive credit terms (each purchase), and incentives tied to payment type.

But do consumers really want to store all of their information in one place? With one entity given the ability to see all of your spend? For an mCommerce transaction, there is nothing I hate more than having to type in my name, address and card number in that tiny little screen.  Most of these mCommerce solutions (like V.me) are little more than an “autofill” where the merchant checkout page leverages API integration to the cloud service to retrieve user information (see diagram here). If I’m on my phone, my carrier already knows who I am, so seems fairly logical for them to help me with the autofill. This is a reason I’m now a big fan of Payfone. I could also see why it makes sense for Apple and Google. But why Visa? Does it make any sense at all for Visa to hold my Amex card?  Oh.. let me cast a few more stones on ISIS/NFC.. that payment instrument that locked in your phone.. yeah it can’t be used for the online purchase. Perhaps someday someone will write a secure NFC mobile browser plug in to extract data from the SE.. but that opens up a whole new can of worms.

Today’s online merchants are getting a very small taste of the war as they are asked to integrate auto-fill plug ins (Paypal, V.me/CYBS, Payfone, Google, soon to be Apple). Merchants should get on board with all of them, as they do represent a tremendous improvement in customer experience, and you may be able to squeeze some free marketing/implementation money from each of them. However, the cloud battle at the physical POS is still a few years off, as existing card products have a substantial advantage in risk modeling/fraud. This is where Square is taking a lead, as it has the best consumer experience hands down. Low volume merchants really should assess whether they need a specialized POS system, as the parameters for selecting one have shifted from ISO/Processor/Cost/Acct Recon/Book Keeping to Sales, incentives and customer experience.

Battle starts in mCommerce/eCommerce

My guess on timing of V.me is driven by knowledge of Apple’s impending plans to “extend” its iTunes account to payment outside of the Apple ecosystem. Visa sees this network risk and is in an all out war to protect its network, by leveraging its CYBS asset online. The banks have worked on a directory concept for quite some time. The Clearing House (TCH) built a working system called UPICK to solve the problem of consumers giving their RTN/ACCT# out in the open.. assigning a virtual number to the account. A sort of “virtual account number” that could only be translated by TCH.  It never took off, because ACH fraud was low and banks were much more excited about having merchants accept cards as payment.

Retailers are not silent participants to this war.. their champions are Target, Tesco, Amazon, and Rakutan. I hope Amazon will finally dust the plans off of One Click expansion. Other retailers are also aligning to assess creation of shared cloud infrastructure.  Sorry I can’t comment more. Similarly MNOs are also in the cloud game, for example Payfone may be one of the best services in the market..

Who are the players in the Cloud [Payments] War?

The initial battle will be in mobile/online purchases.

  • Banks: V.me, Mastercard,
  • Platforms: Apple, Google, PayPal
  • Retailers: Amazon, Rakutan,
  • MNOs: Payfone, Boku, payforit, billtomobile, …

Most confusing is that there are few alliances.. it is many against many.

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

Nokia, Apple, Android, Value Creation and Distributed Innovation

My firm belief is that we will start a mobile “boom” that will dwarf what we have seen with the WWW. The “Mobile TAM” in marketing alone.will be over $750B.

10 April

Description: http://static.seekingalpha.com/uploads/2011/10/29/48158-131993377233806-Stephen-Rosenman.jpg(Cool title…? You can tell I’m an engineer)

I was catching up on some reading this Easter weekend and saw one of my old MIT Technology reviews lying around. Article was on Nokia’s new CTO Henry Tirri (Dec 2011). Question came to mind: to what extent does technology influence Nokia’s future success? Is Apple’s current success built on technology?  Of course, although any CTO’s job gets harder when their CEO is forming alliances that are 100% potential and 0% market traction…. Oh I forgot Elop also sold your own OS to Accenture so there is “no way back”. (For more background on Nokia/MSFT see this UK Guardian Article).

What factors will influence success in Mobile? Obviously it is not R&D, as Nokia’s 2.9B EUR ($3.8B) budget was roughly twice Apple’s $2B (see global 2012 R&D Spending report from Battale). Most would agree that Nokia lost in connecting the phone to the internet.. No amount of internal R&D could have led Nokia to build an equivalent network.. yet they did not fully realize the value that consumers could unlock … at least not much beyond e-mail. (RIM suffered from a similar myopia.. security vs usability locked into the corporate environment).  Nokia’s R&D engineers thus toiled away with features they could control and build.. That is what engineers do.. Nokia thought the battle was in feature/function.. and hundreds of specialized designs for many global “segments”. However the consumer opportunity that Apple discovered was not in hardware, but rather in delivering new ways to connect consumers to all things digital… particularly networks (internet, home, social, entertainment, …  and eventually office).

Will “Apps” be the key to unlocking the value of mobile?

In the press last month, we saw the analysis by Flurry that Amazon is kicking Google’s rear in App store revenue (89%), and that Google itself makes 5x more on IOS than Android.  Other recent research from groups like ABI Research reported that mobile app revenue was $8.5B with 39% due to in app purchases (Gartner says $15B). Personally I find both these numbers a little hard to believe, given Google’s Android revenue is $550M and Apple announced back in July that it paid developers $2.5B (cumulatively over life of AppStore). Best guess for Apple’s FY11 Appstore sales is somewhere around $1.6B (see my July Blog)

Total App Store ECOSYSTEM revenue from these Big 3 is therefore approximately

$1.6B + $1.42 (Amazon’s 89% of Apple’s) + $0.55B = $3.57B

Could it be possible that these big 3 contributed less than 50% of global App Revenue? Not likely (sorry Gartner/ABI). As an investor, I’m not keen on Apps as a long lived mobile environment outside of entertainment (subject of another blog). Suffice to say my view is that “apps” are only a temporary technology metaphor for connecting clusters, goods and data. Although not a fan of “apps” I am very grateful that the App environment exists, as it is driving much innovation within a “developer community” (per Platform).  Having thousands of brilliant engineers from around the world work to deliver value benefits us all.  Which brings me to the topic of distributed innovation.

Open/Distributed Innovation

Open Source is a model most of us are well familiar with. (further reading… I ran across a very nicely done paper from 2 MIT students: Implication of Open Innovation and Open source to Mobile Device Manufacturers).  Given that mobile, advertising and payments are all networked businesses… it seems  business models supporting distributed innovation will advance at a faster pace than those where only a single entity controls the entire product or supply chain.  For example, Amazon, Samsung, Motorola, LG, HTC, Verizon, ATT, Vodafone, .. all make much larger investments in the Android platform (than in IOS). (I would love to see an analysis of combined capital investment in android platform)

However, this distributed innovation hypothesis is NOT playing itself out (ie Apple). Apple’s 1Q12 showed iPhone revenue alone was $24.4B, which is bigger than all of MSFT revenue combined.  Analysts have shown that Apple now garners 75% of mobile handset profits, with only 9% of handset market share.  So while Samsung alone has outsold Apple in Units this quarter (41M vs. 32.6M), and Android just topped 50% market share (vs Apple’s 30.2%).. Apple’s handset business PROFITABILITY dwarfs that of all of the competition (COMBINED).

So… What are the factors of competition today? Can someone else change the game?

Most would agree that Apple has won through a focus on design and customer satisfaction. Nothing looks as good, or works as reliably as an iPhone. It brings a consumer’s digital life together; it is also the channel by which we stay connected when we are not at home. Description: C:UserstomDocumentsPersonalblogmobile_os_satisfaction.gifApple’s unique ability to control design and manufacturing quality has obviously provided many benefits (which customers have proven willing to pay a premium for).

The big downside in distributed innovation is complexity, there is a need for a “channel master” or chaos reigns. Many Android users witness this chaos when an app won’t work on a new hardware/OS combination.. Distributed innovation is not something that established businesses are good at. It has proven most successful in product PLATFORMS where the pace of change in each component is changing at a rate where no one company can make the capital investment to remain competitive (ex. Moore’s Law, PC architecture through present day). Intel played a very important role in this process, as it worked outside the scope of the CPU in areas such as: Intel Architecture Lab (IAL, developed common standards like PCI),  stimulated external innovation (developer training, testing, Intel Capital), industry marketing, patent/licensing. Intel defined what the PLATFORM was.. something that is common sense to us today.. but rest assured it was not given to them, rather it was something that they stepped into and took leadership of.

As we look for where the form of mobile competition may change, it would seem to be outside: hardware, software and network bandwith. With respect to hardware, features have recently begun to surpass “good enough” . Samsung’s Galaxy Nexus is an excellent example of how focused hardware innovation has enabled them to surpass the iPhone’s capabilities. If hardware is good enough, and not the primary factor of competition, it must be software, services or data that will drive competition in the next phase…

If platform is decided on software only.. then software platform with most open standard and most users (ANDROID) should dominate as any connected devices (handsets and everything else) have lower cost and more ability to “specialize”, particularly if intelligence is in the network (not the device).  But software is currently not the point of competition either… If not DEVICE software.. then what?

Stage 4 – Shift from Integrated Platform to Value Orchestration

Keeping with the assumptions above:  hardware becomes “good enough”, platform/software become “ubiquitous”, patents are widely shared (ok this is a joke.. checking if you were sleeping), and the mobile phone transforms into the networked device “bridging” the virtual and physical world then value (and profitability) will shift from platforms executing transactions to entities coordinating interactions.  This interaction of entities is what I refer to as Value Orchestration, certainly not a concept I developed. A January 2001 Harvard Business Review Article: Where Value Lives in a Networked World put it this way:

In more general terms, modern high-speed networks push back-end intelligence and front-end intelligence in two different directions, toward opposite ends of the network. Back-end intelligence becomes embedded into a shared infrastructure at the core of the network (cloud), while front-end intelligence fragments into many different forms at the periphery of the network, where the users are. And since value follows intelligence, the two ends of the network become the major sources of potential profits. The middle of the network gets hollowed out; it becomes a dumb conduit, with little potential for value creation. Moreover, as value diverges, so do companies and competition. …. In a connected world, intelligence becomes fluid and modular. Small units of intelligence float freely like molecules in the ether, coalescing into temporary bundles whenever and wherever necessary to solve problems.

This orchestration hypothesis seems to have proven itself in PCs as margin shifted away from the integrated manufacture to component “performance” differentiation (ex. peripheral price/performance) then again to software finally transforming again to orchestrators and “connected” businesses that orchestrate network value (like Amazon, Facebook and Google)…. as hardware evolves into a commodity like business.

The long term investor risk for Apple is that it will not be able to shift to a value orchestration role, and its handset business (while excellent) will no longer garner 75% of industry profits. Where will the high margin businesses develop? If we take a network view, opportunities to create value exist in interaction between clusters (ex. Retailer to consumer, Facebook community to Retailer) and within a cluster (ex Supply chain, healthcare , …etc.).  Within this cluster matrix, l like to take a Clayton Christensen view: “what problems are there that the mobile phone can solve”? which each “opportunity” assigned 5 key measures:

1) TAM (Consumers, $ Volume, Growth, …)

2) Disruptive innovation measure – price/performance (ex. Mobile targeted advertising vs. Coupons)

3) Information Control. Who owns it, how is it obtained, accuracy, privacy,  (impacts pricing power)

4) Key Alliances and stakeholders

5) Execution risk (ex. Compete with Facebook vs. Building a mobile application for a retailer)

Much of Value orchestration is dependent on data. Consumer data is highly fragmented in the physical world, do consumers/clusters want it consolidated? What are the benefits? Where is it stored (node or cloud)?  The HRB quote above painted a picture where “small units of intelligence float freely like molecules in the ether, coalescing into temporary bundles whenever and wherever necessary to solve problems”. Perhaps it is my time as a senior director within Oracle that has ruined my views on data.. but if it floats freely …how on earth can anyone organize it? Doesn’t someone need a directory? for at least one side? How can intelligence be “self assembling” in business?

My firm belief is that we will start a mobile “boom” that will dwarf what we have seen with either the internet, PCs or the industrial revolution. How big? Will at the top of my list for calculating the basis of a “New Mobile” TAM is marketiDescription: C:UserstomDocumentsPersonalblogUS Marketing Spend.JPGng.. With the US alone accounting for over $750B .. how much of that spend is targeted?

Because mobile is at the intersection of both virtual and physical, the network is larger.. it touches every consumer, every business and every “cluster”…  it is therefore many orders of magnitude more complex.  In this dynamic environment, small companies are much better positioned to deliver “focused”, simple orchestrated solutions between clusters.

Examples of Cluster ochestration:

  • Machine-machine interaction (mobile to open hotel room door)
  • Person-Person interaction (health history, alergies to Doctor)
  • Consumer-Retailer interaction (ex Mobile marketing in brick and mortar retail)

As intelligence develops, it will aggregate (ex Google/Facebook). I covered this topic back my December post Building 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”.  Given that each node and cluster is resource constained.. they maintain connections to a finite number of “efficient” orchestrators/networks. Early networks build very substantial momentum..

Summary

Wow.. this went on too long..  They say a blog over 2 min of reading is a looser.. hey.. you get what you pay for.

Given the mobile device’s unique ability to serve as a point of convergence between the virtual and physical world, a Stage 4 evolution will take place where handsets are cheap and ubiquitous and networks are high speed dumb pipes (both low margin businesses). This Stage may be the leverage point where Apple’s competitors gain differentiation. Perhaps if they had some cash.. and a few bright people they could respond. 🙂

There are certainly many scenarios where stage 4 could evolve from. Orchestration requires both back end “cloud” infrastructure and localized intelligence. Both entail a complex interaction of: data, distribution, platform, cluster relationships, business intelligence, control, regulation, trust, … to deliver value. Companies like Google, IBM, Oracle, Facebook…   should be able to succeed in the central function.  If any of them agree with this blog.. they should actively endeavor to build “interfaces” and standards by which small companies can deliver the localized intelligence.. much the way Facebook has started giving some access to data.

Sorry for size

Comments appreciated.

Digital Wallet Strategies

Today’s wallet initiatives are operating in a very dynamic landscape: retail is changing, technology is changing, new value networks are forming, new marketing platforms are emerging.. The margin is always better in orchestrating the interaction, than in coordinating the transaction. Thus I place my “wallet” bets in the short term with groups that can control the commercial marketplace (ie Apple, Amazon, eBay, Retailers, … ), and with groups that can orchestrate new value propositions (ie. Google, Square, hyperWallet, ..etc).

Warning.. I ramble a bit in this one.

23 March 2012

Description: Mobile Market BreakdownDoes anyone remember Microsoft Wallet circa 1997 (See Wikipedia)? Digital wallets are certainly not a new phenomena. Today we are struck with eWallet saturation: Google Wallet, ISIS Wallet, Visa Wallet, iTunes accounts, Amazon Accounts, Square, PayPal, …  How many places must store all of my credentials?

For my own benefit I thought I would take a brief look at the history to determine what the future may look like (As the future holds the key for my investment decisions). With respect to Wallets, what are they? What are successes and why? What is the consumer value proposition? What are the risks? What does the future hold?

My last blogs on this topic were in November 2009, Investors Guide to Mobile Money, and in 2011 – Tough Start for Mobile Payments.

What is a Digital Wallet?

My all time favorite YouTube video definition is below (Courtesy of Google)

http://www.youtube.com/watch?v=gKGptWtzeaU

[youtube=http://www.youtube.com/watch?v=gKGptWtzeaU]

Proposed Definition: A consumer owned and controlled account that can store any electronic form of what is normally held in a physical wallet, including: payment, ID, coupons, loyalty, access cards, business cards, receipts, keys, passwords, shopping lists, …etc.

This definition sounds broad enough..

As a consumer, what would you think of having multiple physical wallets? I personally don’t have that many people I trust. Trust is a very important element to a consumer. Some of the information in my wallet is sensitive, and there is also a financial risk associated with loss of payment information (particularly outside of the US).  What kind of entity would want to assume the risk of holding all of this information?  Which reminds me of a story,

I was in a Board Meeting with a senior partner of a “Top 3” VC discussing consolidated sign on. A start up was proposing to hold all of the login credentials for all of your bank accounts. As the former internet head for both Wachovia and Citi I had some firm views on the topic and asked “who is going to take the risk if credentials are compromised”? I further explained “it is not a technology problem, but a risk problem.. Bank’s will not let someone keep their Customer’s keys if they can’t insure the risk”. As a side note, I also instituted a policy that if a customer discloses their credentials to anyone, they are responsible for any losses that result (sorry Yodlee).

Within a Digital Wallet, securing information AND giving Consumers the exclusive ability to control what is shared with whom is a challenge (beyond technology and trust). We thus have many limited “Wallets” that are constructed around specific purposes, for example Microsoft’s wallet has evolved to LiveID.  From a pure technology perspective, the mobile phone (with NFC) seems to present an opportunity to provide the Consumer with a device that can uniquely handle the security and authorization aspects of a holistic digital wallet. In my view, the challenges faced by the “phone as wallet” are business related. Per my definition above, a wallet should allow consumers to control what goes in and how it is used. Today we see the carriers (ex ISIS) create a platform based upon their control, allowing only cards that have paid a fee to enter into their wallet. I digress…

What makes for a successful wallet?

Customer Trust, Customer Control, Convenience, Ubiquity (opposite of lock in), Intuitiveness, Experience in Use (buying, redeeming, accessing, ..), Security,

If I have a wallet that only accepts 3 cards that are not accepted at any of the top 20 retailers (ie ISIS), it is of little value. Why not let consumers control what goes in? This is where carriers must get to in order for NFC to survive. Even then, NFC phones are far from my recommendation. After all if your payment information is locked in a mobile phone how do you use it when you are at your computer buying something on Amazon? Locking information in a phone is just plain stupid in the age of the cloud.. most agree that individuals should have a their information in a cloud they control. The NFC zealots reading this blog will respond that it NFC doesn’t require a network and is more reliable… my response, the POS and payment terminals are connected.. NFC doesn’t need to hold the card in the SE.. it just needs some sort of identifier.. or in the Square cardcase example no NFC at all just your voice print. After all if there is no auth from the payment network.. the transaction will not happen.. so something is connected in 99%+ of card transactions.

Consumer Value Proposition

Description: C:UserstomDocumentsPersonalblogIPP_3_clusters_labels.jpgMy primary digital wallet is Amazon, with Paypal as a close #2. The buying experiences are just superb, unfortunately neither extend well into the POS. I have a PayPal debit card I use here.. but I have a hard time justifying why I would use a paypal debit card that pulls money from a pre-funded account which is tied to my Bank of America Checking.. why not just use my BAC Debit Card? I don’t think I’m alone here.. The thought that comes to mind: why do I use PayPal at all? Convenience is certainly a key element, but I also really don’t like giving out all of my personal information to every vendor I do business with.  Why does any vendor need to know my name? Is there a business case for anonymity? For Readers in Germany I know your answer… of course there is.

Most Silicon Valley eWallet business cases are being built around data sharing and “closing the loop”. In a network analysis model, every step away from the optimal consumer experience (control, anonymity, ubiquity,..) impacts broad based adoption.  Alternatively, new value propositions (ex incentives, rewards, loyalty, …) can reverse entropy, but only within specific groups/clusters (that realize the value). Thus a highly fragmented world of wallets, each built around specific functions limited to narrow networks, where customers exercise only limited control and hence participate in a limited fashion.

Risks

My last blog on Payment Risk was associated with Square (I still don’t like the swipe, but I have eaten my shoe now that they have surpassed $4B GDV and have developed CardCase… which I love). Microsoft had grand visions for Wallet and Passport, and pulled back for a number of reasons. Globally, most consumers still have problems putting all of their information in one place. The Fed, OCC, FTC, CPFB, Banks have all been circling around the broad proliferation of consumer data.. what are the risks of having your payment instrument stored with 100s of vendors? While at the The Clearing House’s annual event, I was pinged by a JPM Chase exec.. what will be done to secure payment information?  At the policy level, many believe there is a national security risk in the compromise of our payment systems…  It is something all of the Banks are thinking about.

While cloud based storage of information sounds fantastic… there remains a gap in integrated controls, security and authentication. This is where I see both the US and EU taking action on consumer data access and controls much beyond what is now within PCI. Given today’s technology, there is little reason for any merchant to hold your actual credit card number.. yet it is still the case.

What business incentive is there for any entity to hold “unlimited” sensitive consumer information? If the information cannot be accessed without user consent? All of these factors will shape wallet functionality to either something focused within a given domain, or under complete control of the Consumer.

Wallet Strategies

1) Consumer Friendly.. Single store for all consumer information. Payment, loyalty, reciepts, … The players I see here are Google, Square. (note I acknowledge everyone at PayPal just rolled their eyes and point them to my Disclaimer above). Business case is around customer data access.

2) Marketplace focused. Obvious players here: Starbucks, Rakutan, Amazon, Apple, Paypal, Target Red Card. Objective: Deliver a fantastic customer experience in purchasing within a focused marketplace.

3) Form Factor/Device Focused. Mobile Operators, Card Networks, . Deliver technology and incent buyers/retailers to participate. This is not working out so well, exception is Edy.. may work in markets with dominant carrier.

4) Bank Consortium. We see this more in Europe at the moment, but I believe the US regulatory bodies are pushing banks to work together here.  Much more payment focused, and thus minimal consumer value… Banks/Fed must realize mobile is not about a new form factor, but a new value network.

5) Retail/Transit Consortium.  Transit is already clear leader here in Asia…. Transit actually resembles more of #2.  Where there is only one transit company provider I believe it is.. this Category is defined as one wallet working across multiple retailers.. I look at this as incentives tied to something like a decoupled debit.

6) Commercial. Example outbound payments, payroll distribution, global dividend payments – hyperWALLET.

7) Other???

Future of Wallets

“Limited Wallets” can obviously be very successful: Starbucks, PayPal, Amazon, Apple iTunes, Oyster, Edy, Suica, Octopus, hyperWallet…. But all started around an existing marketplace/system. In order for an independent wallet to thrive it must deliver value within a core network. My approach to evaluating retail payments evolves around a central hypothesis: payments support a commercial system, they are only the last phase of a long marketing, incentive, shopping, selection, and buying process.

Networks are resilient to change, this is both an asset and a hindrance. The value that is delivered within an existing payment network is tied to the commercial system in which it operates. This includes both business agreements AND technology, neither of which are easy to change. As the nature of retail changes (example payments, and incentives across virtual and physical channels) new “value exchange” networks will form. Existing payment networks will certainly attempt to change, but given their distributed ownership, nodal control over rules, and legacy infrastructure it will be “a challenge”.

In the US today, this is what is happening with Google Wallet, Bank initiatives to form “the next Visa” and Large US retailer’s plans to form a new payment network that they control. Today’s wallet initiatives are operating in a very dynamic landscape: retail is changing, technology is changing, new value networks are forming, new marketing platforms are emerging.. The margin is always better in orchestrating the interaction, than in coordinating the transaction. Thus I place my “wallet” bets in the short term with groups that can control the commercial marketplace (ie Apple, Amazon, eBay, Retailers, … ), and with groups that can orchestrate new value propositions (ie. Google, Square, hyperWallet, ..etc).

Have a great weekend… My Asia thoughts are next.

Apple and NFC?

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.

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/

Customer Centered Design … Why is it SO Hard?

I have now learned that I don’t know what the customer wants or needs.. and the direct customer interaction is VERY beneficial to all involved.. from product to engineering to the call center. Communicating to the customer (if done correctly) is a great thing.. great customers love you and they want to know what you are working on.. find ways to share it with them. If customers perceive they are getting value they want to HELP you. It is imperative to build facilities to get this feedback.

7 Nov 2011

I woke up this AM thinking about consumer value. Why is it that so few existing companies can deliver disruptive consumer value propositions? Execute innovation? It seems as if big companies are more interested in imitating what their competitors are doing … as opposed to focusing on customer (to deliver value). Steve Jobs was one of the few big business CEOs that focused on Customer. He knew that creating a fantastic customer experience was essential in anything to be “sold” to consumers, whether that was Apple or Pixar . Everything flowed from a consumer DESIGN and experience which then evolved to product and subsequently to engineering. Apple was fanatical about customer experience and customer centered design, obviously quality (hardware and software) and connected services were also essential in driving the experience to establish behavior.  How many products in the market start with customer centered design? How many of your product heads know their customers and how they differ by segment?  My time at Gartner and Oracle led me to a few hypotheses on software products:

  • Every Software product usually starts with a customer in mind… but customer focus typically fades fast as other objectives (financial, competitive, alliances, big “special” customers, timeline: execution on “something”…) move the product off of the initial customer centered goal.
  • Delivering any consumer value proposition requires either a killer value proposition or a killer distribution channel.  Consumer adoption is “unpredictable” at best…  be highly skeptical of any initial success (acquiring early adopters of a product) never resembles the broader launch when the product goes mainstream.
  • Small companies (leading delivery of a visionary consumer service) require alliance partners… Alliance partners require financial incentives that quickly erode the original value proposition. “when you dance with an 800lb Gorilla, you can expect to have your toes stepped on”. Give equity and it biases your board (focus on their problems/customers), give cash and it kills the consumer or the distribution channel. Equity is better.. but structure in a way you can take them out.
  • New Software products within large companies (ie MSFT, SAP, Oracle) are either poorly integrated into the core, or not integrated at all.  Product teams can spend over 50% of resources focusing only on internal integration… which further distracts from original  customer centered design. There is usually a case for 2 product teams here.. one focused externally on customer and market, they other focused internally on integration requirements.
  • Customer testing and trial is a 9 month+ process… no exceptions. Few companies go out of their way to solicit negative customer feedback on a new product. They are much more concerned about “secrecy”…  Companies may have justification for short-circuiting (Example: “what are we supposed to do with the engineering team while we wait for feedback”) usually come back to haunt as products in market are much more difficult to change AND effect consumer perception/adoption.  Cloud based services are no exception , “lets throw our product out there and see what happens, we will fix bugs later” is not a great business plan. This model makes your early adopters unpaid quality assurance participants..
  • Few companies can survive by tackling a niche in the consumer market. There are only 3 markets (US, EU, China) where a 10% market share equates to a sustainable business
  • Large companies may not be able to “win” in delivering a new value proposition, but they can muck it up for everyone else. Their game plan is one of “control” over value. They leverage their existing network, infrastructure, products, communication and market power to influence potential customers.
  • Consumer visionaries and innovators play a distant second to executives driving financial performance. There are exceptions. For example, Google is also a fantastic innovator, a result of having the best minds working round the clock with pressure to do something great.. not to drive a revenue target.

Story.. my lessons

My lessons learned on customer centered design are many… After Oracle I went back to my old team at Wachovia (which had just bought First Union) our team had launched the world’s first major online bank in 1995 (Cyberbanking).. I was fortunate to return to oversee the complete remaking of our online and payment services infrastructure… a $200M project (2002). As an engineer.. I have many faults..  among them thinking that I know what the customer wants without ever talking to them… We had 2 excellent execs at Wachovia that completely changed the way I thought about customer centered design.  We brought customers into the product design process at every stage.. hand drawn screen mock ups.. asking them obvious questions… Why do you do this? what are you looking for? When do you typically do this? What does this mean to you? Jason Ward’s amazing team took this customer feedback and analyzed it to prioritize product design changes.  When I started at Wachovia…. we had no facilities or process for including customer feedback, it was the call center’s problem to deal with. After development was complete, we did extended “dog fooding” with employees and customers.. then brought that feedback into refine final release. We also communicated with ALL customers.. why are we upgrading? what will be changing? We explained what things will look like. 3 months before it happened (believe it or not customers don’t like surprises in their bank).

What happened next was something that still amazes me.. During upgrade customer call volume went DOWN.. we transitioned customers from one system to another… completely changed screen flows … and they did not call to ask questions, they did not call to complain..  We had budgeted for extra call center staff.. and we didn’t have anything for them to do..  What was more amazing is that our customer satisfaction went up… DURING the transition to the new system. This is unheard of..

I have now learned that I don’t know what the customer wants or needs.. and the direct customer interaction is VERY beneficial to all involved.. from product to engineering to the call center. Communicating to the customer (if done correctly) is a great thing.. great customers love you and they want to know what you are working on.. find ways to share it with them. If customers perceive they are getting value they want to HELP you. It is imperative to build facilities to get this feedback.  In Wachovia there was only 2 regular standing meetings that the CEO would attend… financial and customer listening.  Although Wachovia failed on many other grounds.. it taught me the importance of keeping eyes on the customer and ensuring I received the RAW customer data. My priorities became my teams priorities.

Sorry to ramble… I have quite a few peers and former employees read this. Wells Fargo just completed the last migration off of our $200M Wachovia platform. The migration was very well done.. but quite frankly I miss what we had. WFC’s online banking is too clumsy.. too much information.. The difference between using an iPhone and flying the space shuttle (photo below). … although I miss that too.

Apple’s Commerce Future = Square?

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?

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 “

Why Visa, Apple and Chase are Square

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

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

Make no doubt that NFC will come to iPhone, but 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.

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.

Apple’s P2P: Visa Money Transfer

The big banks that have taken the plunge are JPM and BAC. Not sure if both have committed on debit AND credit.. or just credit. The business case for credit is pretty solid and I don’t have any issues here, but allowing Visa to control transfers on debit is not in the best interest of banks. Why would banks want to allow Visa to develop a consumer directory and a new service that directly competes with ACH?

Update 13 March 2011

It would seem that there is some amount of disconnect between the bank eCommerce, debit and inter bank teams. The banks are working on a new interbank P2P service. This service will be based on ACH and follows on to what was pulled from the BAC/WFC Pariter scope last year. My guess is that JPM is also a “partner” and is committing to directory integration just as it is with CashEdge (Citi, 5th 3rd and 200 odd banks).

The Visa Money Transfer commitment may be an “accident”, and the banks may not know that Visa is working with Apple. This Visa service would clearly compete with the new bank owned service.  

11 March 2011

In previous blog I spoke about Apple and NFC, although I still don’t know if Apple’s wallet will be ready for the iPhone 5.. it does seem that they plan to launch with a P2P transfer system powered by Visa (See previous blog on Visa Money Transfer). Apple’s iTunes wallet does not “store” funds like PayPal nor Apple does have money transfer licenses. It was therefore searching for a way to allow consumers to pay each other. News I have is that they have selected Visa Money Transfers for this. Is it the only way? perhaps not… but I give it 90% confidence of being in scope for wallet launch.  (Sorry for the confidence thing.. it was Gartner Group’s way of making shit up)

I just can’t believe that bank payment heads are allowing this. I was on the phone with the head of debit for 2 of the top 5 banks..  their eCommerce teams love the idea of partnering with Apple.. but the debit cards head have said “no way”.  It is just a terrible idea for banks to give Visa a way to circumvent ACH.. and it will be very, very hard to shut down once it gets moving. Reasons:

  • – Visa runs it.. Continues to build Visa brand on your ACH
  • – You own the risk, Visa develops new services
  • – Circumvents all of the industry controls on ACH (ex. TCH, Early Warning)
  • – Unfunded Reg E research burden and consumer support reqs.

The big banks that have taken the plunge are JPM and BAC. Not sure if both have committed on debit AND credit.. or just credit. The business case for credit is pretty solid and I don’t have any issues here, but allowing Visa to control transfers on debit is not in the best interest of banks. Why would banks want to allow Visa to develop a consumer directory and a new service that directly competes with ACH (see blog)?

Bankers, my recommendation is to buy Interlink or Star and put it in TCH… then run the this debit service there.

Start ups.. I would not focus on payments in Apple’s platform. Think there would be new opportunities in intgrating POS to Apple’s payment mechanism, or even a “billtomobile” kind of function where you can pay online with your apple ID.  My head is spinning at the chaos this will cause within ISIS AND each carriers own billtomobile efforts. Apple is near a tipping point with the carriers. I would expect them to start aggressively pushing a much more friendly Android model.

NFC Update – Zenius/InsideSecure

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.

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).