CEO View – Battle of the Cloud Part 5

There is a payment cluster war going on right now and it is the subject in the C Suite in Banks and the Payment industry. The battle is happening at every level. I’ll be leading a panel at Money 2020 which addresses several of these items, with participation from V/MA… should be interesting. Here are a few updates.

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Google in Payments: Why Yesterday was BIG News

For eCommerce/mCommerce merchants this may be the biggest “no brainer” since Cybersource offered to offload card processing/fraud risk management. This is a V.me killer… from both cost, and advertising perspective.

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PayPals New Plastic

This is more than a decoupled debit.. although PayPal could choose to assume settlement risk through either ACH stored debit (or even ATM??). Paypal has the facilities to provide lending via BillMeLater (previous post) or to the customer’s other preferred lender (via stored card). They are completely in control of a much larger value proposition as well.. with integrated rewards and a 3 party financial network that will compete with Discover and Amex.

No Mastercard Logo on this one…

Quite impressed that they have pulled this together.. a new card network…

This is more than a decoupled debit.. although PayPal could choose to assume settlement risk through either ACH, stored debit card (or even ATM??).  Paypal has the facilities to provide lending via BillMeLater (previous post) or to a consumer’s other preferred lender (via stored card). They are completely in control of a much larger value proposition as well.. with integrated rewards and a 3 party financial network that will compete with Discover and Amex.

I’m very, very impressed.. this is a new product that could completely disrupt traditional credit cards. Not only in rewards, coupons and incentives.. but in interest rates for every single purchase. This could be the only card you carry.. Forget about the “pay by phone number”.. the product innovation here is much more interesting than how it is delivered (plastic, phone number, bump, …).

Paypal also has a new site (beta) a few screen shots of which are below.

This new plastic is currently only accepted at Home Depot. My understanding it that Chase Payment Tech will be a lead acquirer for this new Product… I’m sure Vantive, FirstData … et.al will not be far behind.  I will attempt a more thoughtful analysis later… thoughts appreciated.

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.

Debit Card in Peril?

The biggest story of the week has largely gone unreported. Bank of America (BAC) has taken a $10.3B goodwill impairment charge in 3Q. What does this mean for Visa? Not Good News.

27 October 2010

The biggest story of the week has largely gone unreported. Bank of America (BAC) has taken a $10.3B goodwill impairment charge in 3Q.

The Merchant Payments Coalition responded to the impairment charge (reference above)

“With a Federal Reserve decision on debit interchange rates not expected until mid-2011, today’s claims by Bank of America dramatically overstate reality and represent a feeble attempt to divert attention from its mortgage foreclosure problems,” said Doug Kantor, counsel to the Merchants Payments Coalition.

In the 8-K, Bank of America said it plans to take (ref The Street)

 “a number of actions that would mitigate some of the impact when the laws and regulations become effective,” but it didn’t provide details about what those actions might be.

Will write more later, but I can assure you BAC is looking for debit alternatives. Given their size, most anticipate a new product driven from both their retail and global card team (including merchant services). So in addition to AT&T/Discover, we will now have another major bank led team developing a new payment product with a multi billion dollar incentive.

What does this mean for MA and Visa? Not good news for US growth.

Related Article

PayPal Virtual Terminal – Accept Cards at POS

I can’t help but wonder how this pricing will effect Chase Paymentech (PayPal’s partner and merchant acquirer). Small merchants may indeed think twice of having their own merchant services agreement and specialized terminals.

PayPal Virtual Terminal

6 June 2010

Great job PayPal…. bringing down the cost of card acceptance to $30/mo. No hardware, no special agreements.. just add the service to your existing merchant account.

The only downside seems to be for the 5+ Valley start ups like SquareUp that were targeting physical POS acceptance in a “Craigslist” type environment. The head of payment strategy at a top 3 bank told me that making merchant acquisition easier was a priority for driving new card volume. Looks like VT can both drive TPV growth and address potential down market competitive threats at the same time.

I can’t help but wonder how this pricing will effect Chase Paymentech (PayPal’s partner and merchant acquirer). Small merchants may indeed think twice of having their own merchant services agreement and specialized terminals.

Thoughts appreciated

NFC Break Out – VISA/FirstData/AT&T

Get set for a major announcement in next 4 weeks from Visa, AT&T and FirstData that will combine an AT&T pre-paid card account, managed by FirstData, and with services from several Visa led start up companies (both mobile advertising, couponing and NFC).

23 December 2009

Previous post http://tomnoyes.wordpress.com/2009/11/25/visamobpay/

Get set for a major announcement in next 4 weeks from Visa, AT&T and FirstData that will combine an AT&T pre-paid card account, managed by FirstData, and with services from several Visa led start up companies  (both mobile advertising,  couponing and NFC). Consumers will be issued NFC stickers for existing phones and can fund the account with existing card and deposit accounts. AT&T will also have an integrated reward system to reward payment activity with coupons, airtime and special offers with participating merchants. In addition to the NFC sticker, Visa will also be trialing other “other form factors” including: plastic, handset integrated NFC (new phones) and 3rd party hardware for OTA provisioning. FirstData will begin a new role as both the processor and Trusted Service Manager (TSM).

As stated previously, the US market is ripe for a break from the 6 party political “fur ball” that is hampering mobile innovation (Card Issuers, Acquirers, Network, Merchant, MNOs, Handset Mfg). Mobile Network Operators (MNOs) are better positioned to execute in mobile payment in all markets. AT&T is no stranger to credit cards, even today the ATT Universal card is the largest affinity card within Citi’s portfolio.  The implications for card issuers are unclear, given the uncertainty of “mobile payment” consumers behavior and payment patterns. There is a storng possibility that this initiative will be a “tipping point” in both mobile commerce, unleashing a new wave of innovation for all consumers (not just iPhone any longer). It will be very interesting to see if Apple is a part of this initiative. 

More to come..  

From Previous Post

For those outside the US, US MNOs have substantial control over handset features and applications, they have been leveraging this “node control” to “influence” direction of payments. The central US MNO argument being “it is our customer, our handset, our network we should get a cut of the transaction rev”. Unfortunately existing inter-bank mobile transfers/ payments are settled through existing payment networks that provide limited flexibility in accommodating another party (beyond issuer/acquirer), with much room for improvement in authorization, authentication and consumer “control”. 

Outside the US, the situation is much different, as consumers have great flexibility in switching MNOs, have ownership of their handsets, and are largely on pre-paid plans. The MNO challenge for payments in this environment is largely regulatory.  Many countries (EU, HK, Korea, Japan, SG) have open well defined rules for MNOs role in payments (example: ECB ELMI framework within the EU), while other countries are highly restrictive and are in the midst of developing their legal and regulatory framework.  Even in the countries where MNOs participation is defined, they have largely benefited from the complimentary role that the service plays with pre-paid plans (not in interchange at POS).

Globally, MNOs are looking for a payment platform where they can benefit from interaction between consumer and merchant, with flexibility to deal with a heterogeneous regulatory environment. The competitive pressures on Visa/MC are much different then they were 5 years ago (when both were bank owned). The network fee structures and rules were written with banks and mature markets in mind. Emerging markets present a much different set of opportunities, as MNOs lead banks in brand and consumer penetration within every geography.

All of this leads to the case for a new “Mobile Payments Settlement” network, a network which will alienate many banks.  I expect to see Visa roll out the initial stages of this network in the next 2 months with an emphasis on NFC. Quite possibly the best kept secret I have ever seen from a public company. I’m sure many Silicon Valley CEOs are crossing their fingers (with me) on this, as a “new wave” of innovation is certainly close at hand that will drive growth (and valuations).

For those not keeping up with the 50 or so product announcements a day on NFC, handset manufacturers committed to have NFC enabled phones to consumers in mid 2009 in the GSMA 2008 congress. NFC capabilities are numerous (Vodafone YouTube Overview), and may represent a true disruptive innovation surrounding payments. There have been many very recent product announcements that will enable existing phones to use NFC, and P2P Capability. All of which will blossom in a more “fertile” mobile settlement environment.

Side note: This is not all bad news for Banks, as the structure will certainly provide for existing cards (debit/credit) and may deliver substantial revenue through cash replacement (small < $50) transactions.  More details on structure of MNO in settlement 2 weeks….

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