(sorry for typos). I’m up at 5am this Saturday and have all kinds of things I’d like to write about: DeFi, PayFacs, Opportunities in B2B payments, Platform strategies of Shopify/Stripe/Adyen.. I’ve settled on a short blog surrounding ACH, A2A and Marketing incentives. The key question I will be answering today: will an ACH based A2A or ACH checkout option develop threatening V/MA?
The networks are now in the midst of defining new rules to ensure they can “influence” wallets. Banks have legitimate concerns surrounding ability support consumers and adjust their risk models. But the real business drivers here control and customer data.
#1 CUSTOMER DATA
Banks don’t really want consumers to choose… not really… they will make their favored option seamless and ensure friction with everything else. This is normal business behavior, but payments are a networked business. Banks SHOULD be neutral here.. they DO NOT direct commerce but support it.
The current ACH system will never go away (related blog). There were $33.91 TRILLION moved over the network in 2011, compared to total debit and credit volume of around $4.5 Trillion. However, there are several “improvements” to ACH where all could benefit, primarily speed and fraud management.
US banks are getting out of the business of supporting MSBs as the regulatory burdens increase. The most recent (and significant) are CFPB’s final section 1073 rules.
So why do I call this service “mCommerce phone number based credential storage and authentication service”? Verizon already has one wallet (ISIS).. they don’t want to confuse the market…
MoPoNuBaCreSAS (explained at end of post)
update Aug 2013
General architecture below is correct. Think the first deployed “use case” will be around mCommerce. An “autofill” function similar to V.me and Google Chrome. MNOs are in a much better place to deliver this as they have information on EVERY handset.. and they can AUTHENTICATE with handset information. This is my FAVORITE MNO led payment effort in the US. Online merchants should adopt this without pause.. think you will see immediate conversion impact. See overview here http://payfone.com/1-touch-checkout/
5 August 2011
I ran into a Payfone exec last month.. while stuck together in an elevator…“hey you look familiar”.. “I’m Tom… “ “You’re the guy writing bad stuff about us”… “I’m never afraid of being told I’m wrong.. tell me what is wrong”… After spending a little time with Payfone, I’ve changed my view.. If US users can be convinced to pay with their phone numbers, and merchants can be convinced to implement the Payfone mobile payment API.. this may be a very good way to go.
What did I get wrong in previous post?
- It is not only about P2P (at least in US).. but about mCommerce. Don’t know if I got it wrong, or whether their strategy has evolved… but today their focus is on mCommerce leveraging phone number for payment.
- Buying physical goods with their phone number.. hey in the UK payforit is big… particularly for small purchase. VZ probably wants to have this happen because they see a very rough road ahead for ISIS.. not only will it take consumers buying handset.. it will take 6 parties to align on the value prop.. AND execute.
- Substantial advantage in risk/fraud when carrier is involved in validation of credentials. Remember, my previous post estimated that MNO KYC could be a $5B market opportunity. Will Payfone take out other SMS verification solutions like Authentify?
My picture is based upon general market G2 (.. note I did not say “intelligence” as it may infer I have some).
What did I get right? The merchant integration challenge … I don’t see how AMEX, Payfone or VZ will be able to offer a compelling merchant value proposition. Amex is not exactly a processor of choice… Ticket sales seems like a sweet spot but hardgoods? Re: Digital Goods.. My sources tell me that the carriers are currently doing about $600M a year in old fashion digital goods (think ringtones). Apple is doing about $1.6B in App Store, and $4.8B in other Digital Goods (previous post). Given that neither legacy digital goods (ring tones) nor App Stores need this functionality what are the physical goods use cases? Best Buy? Gap? Payforit found a great sweet spot in subscriptions and paid content (read the newspaper, video), ticketing, …. Similar services in Japan also extend into vending.
So why do I call this service “mCommerce phone number based credential storage and authentication service“? Verizon already has one wallet (ISIS).. they don’t want to confuse the market… (great.. really great attempt here.. we would never call storing payment instruments and sending them to a merchant a “wallet”.. )
Oh.. BTW.. Citi and Verizon are both working on something substantial.. I will have to think of a new acronym for it.. how do I innovate a new word for “Offers”? Digital discount delivered by an MNO with redemption verified by a large multi-national bank? …. question remains who will actually create campaigns.. so need to put those words in there too somewhere. Suggestions appreciated.
The press seems to be focusing attention on the TBD rate setting and “swipe fees”, from my perspective they bigger long term impact to banks and the networks will be elimination of restrictions associated discounts on competing forms of payment. Specifically Mastercard rule 5.9.1 and Visa
14 May 2010
The press seems to be focusing attention on the TBD rate setting and “swipe fees”, from my perspective the bigger long term impact to banks and networks will be elimination of restrictions associated with discounts (and steering) on competing forms of payment.
“(b) Limitation on Anti-competitive Payment Card Network Restrictions.–
“(1) NO RESTRICTIONS ON OFFERING DISCOUNTS FOR USE OF A COMPETING PAYMENT CARD NETWORK.–A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment through the use of a card or device of another payment card network.
“(2) NO RESTRICTIONS ON OFFERING DISCOUNTS FOR USE OF A FORM OF PAYMENT.–A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, check, debit card, or credit card.
In June 2003, Visa and Mastercard signed the settlement agreement which provided for steering.
D. Merchants shall also have the right to encourage or steer customers from Visa and MasterCard debit transactions to other forms of payment.
This ability to steer has been somewhat ambiguous, outside of cash. For Example, the Mastercard rules show
A Merchant must not engage in any acceptance practice that discriminates against or discourages the use of a Card in favor of any other acceptance brand.
5.9.2 Charges to Cardholders
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments.
and Visa Rules
5.2.D Discounts at Point of Sale
5.2.D.1 Advertised Price
Any purchase price advertised or otherwise disclosed by the Merchant must be the price associated with the use of a Visa Card or Visa Electron Card.
5.2.D.2.a A Merchant may offer a discount as an inducement for a Cardholder to use a means of payment that the Merchant prefers, provided that the discount is:
• Clearly disclosed as a discount from the standard price and
• Non-discriminatory as between a Cardholder who pays with a Visa Card and a cardholder who pays with a “comparable card”
Will update this blog later, but the US Senate’s amendment will have substantial impact on merchant payment strategy. I see a strong future for new cards issued by merchants that embed strong loyalty program.. outside of the Visa/MC network (?ACH?.. PayPal…) with a substantial rewards program to drive adoption. Perhaps ACH POP will take on new life..
Card networks and issuers should get active in the merchant funded rewards space.. before the merchants own it