My largest holdings are card networks, and I’m very keen on their continued growth and sustainability of competitive advantage. My confidence is based on five broad themes.
Winning in Network of Networks: Collaboration
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Tag Archives: identity
Digital Wallets – Core Functions and Competitive Strategies
What are the core functions of a digital wallet and what will the future bring now that Apple has opened up their Secure Element (see blog)?
I’ve been writing about wallets for over 12 yrs. Let me recap some history
- In 2006, mobile operators had control of what “apps” could operate on a phone. In the US Qualcom bought Firethorne in an effort to create a single bank application, where banks had to pay $1 for every balance request. I’m not joking.. Open app stores destroyed this model quickly, but so the MNOs pivoted to the SE and SIM card.
- In 2010, Mobile Network Operators (MNOs) had control of the encryption keys for secure elements. Their pitch to Google was, “Give us a billion dollars, and we’ll give you the keys”. The absurdity here was only surpassed by Doug Bergeron (CEO of Verifone) marching into Google the next year and asking for a “Billion dollars” for Verifone to support contactless (I was just outside the meeting room). Of course there was no economic model for Google to make a single penny off of payments back then. Even worse, there were 12 parties in the NFC ecosystem, all looking for economics, yet there wasn’t a dime to share between all of them (blog). Now wrap all this silliness into a MNO consortium with the name ISIS.. yep.. What a great brand!
- From 2008-2014 the GSMA had a global vision for managing the phone’s secure storage (see blog) and monetizing it for the MNOs. MNOs could control either the secure storage within the SIM card with Single Wire Protocol (SWP) or within the secure element.
- ApplePay’s 2014 launch did several things that changed the game. 1) Ripped away control of the SE from MNOs and OEMs, 2) integrated payments and security into the OS (Card in SE, biometrics in Secure Enclave), 3) required a card to activate a new phone, 4) Created economics with the networks for payment (see blog).
- From 2007-2014, US Issuers wanted to only enable credit cards for contactless (a premium experience). 27 Issuers (led by Citi’s Paul Galant) were working on their own wallet, to “own” mobile payments (see Civil War). In 2014 launch of ApplePay, Apple forced the Issuers to enable debit at parity to Credit, and also gave Issuers a take it or leave it revenue share (15bps in US, 7bps in EU and ROW). Charlie Sharff (then CEO of Visa) also established a fundamental network rule in “no wrapping”. You can’t wrap a Visa card with another number and let it operate. A rule that was ahead of its time and also more formerly established with Durbin regulations.
- The 27 bank project thus floundered for 16 yrs until last year when saw the light of day in PAZE. Paze is Gen 5 of this effort, and really a white label version of SRC. A wallet that abandons the POS and focuses on eCom with Visa given the reigns as the lead architect only last year (see eCom Politics and Scenarios)
- Today, Issuers classify Apple as “enemy number 1” because of the 15bps fee that the Issuers voluntarily signed up for. Their renewed complaint is that merchant discounts (ie 45 bps and Costco, Walmart and Target) puts them upside down on transaction economics. Apple’s position (anecdotally) is “you knew what my fee was when you gave the discounts.. You voluntarily signed the agreement.. And now its successful you want a discount”? (see 2022 US Payments Environment)
- Visa and Mastercard have become the identity infrastructure for the internet because of the binding of identity to payment. India’s UIDAI and UPI have shown the power of separating identity from payment. Europe is working to build a new digital identity infrastructure (and wallet) in eIDAS. Commerccially, Fast Identity Online (FIDO) is at the heart of new eCommerce experiences that will massively disrupt investments in risk and fraud infrastructure. These services are in Card Networks Payment Passkeys, PayPal’s Fastlane and others. These first generation identity services will be surpassed by 2nd generation identity solutions with hardware bound credentials. Google’s Seccure Payment Authentication (SPA) is the best in class authentication solution globally. (also see Adios 3DS hello FIDO2).
- While the tech changing eCom is amazing, there are only 3 options for organizing it into a successful platform: 1) Government Led, 2) Standards Led, 3) Commercial (payment) Network. Of the 3 only V/MA have established an economic model where participants can invest (see Identity Models and my new blog this week on topic)
- Wallets have grown substantially from “payments” to the consumer interaction point for “everything” between the virtual and physical world. Door keys, concert tickets, boarding passes, DLs, loyalty cards, student IDs (see Apple’s list of UC’s it will support).
Part 1 – Identity Models, Government and Governance Structures
This is a big topic, and I’ll get a few things wrong. My mechanism for correcting my viewpoint is this blog, where this community gives feedback. It’s the reason I write. I won’t get into the tech weeds in this blog series. When there is a need to drill down on a standard or tech, I’ll provide a link to documents providing an overview. The insight I’m attempting to provide surrounds the evolution, economics and value chain implications of various models.
Why read this?
Identity is the key shaping force across many domains (including payments) because:
- ID touches “everything”,
- ID is the “primary key” in trust, risk, contracts and value exchange
- ID is core to a well-functioning government (voting, taxing, regulating, …etc).
This breadth makes it challenging to sift through ID-related announcements and assess the implications. Thus, I’ve created three identity communities for my taxonomy:
- Government – Working to define identity as part of Digital Public Infrastructure (DPI). DPI has three legs: identity, payments and data exchange.
- Commercial – Platforms, Banks, Healthcare
- Web3/Blockchain/Social – Jack Dorsey is the unofficial spokesperson.
These communities find alignment in technology but are working toward different end goals with significant philosophical differences across communities, particularly regarding the role of government and near-term objectives. These differences surround the definition of trust, authority and governance structure, which is the focus of today’s blog.
New Blog Series – The Economic Models of Identity (and Trust)
Free Content
Happy New Year. I’m starting a new blog series in 2024 – The Economic Models of Identity.
Identity is the #1 shaping force in new payment schemes, Web3, blockchain/crypto and more broadly “trust” interactions in government, commercial and social (see Trust Networks). Most investors haven’t spent much time thinking about identity because it was the realm of tech geeks or bundled into the services we use (see Separating Identity and Payments). The reason to pay attention today? Identity is shaping a redesign of the internet’s infrastructure AND governments are defining new LAW on what constitutes a digital identity (ex India’s UIDAI and Europe’s eIDAS/eID).
Let’s unpack the word Idenitity to ensure a consistent taxonomy. While most people relate a drivers license or passport to identity, it is much more than that. Who are you? And who can answer that question? Are you a US citizen? Licensed Driver? Doctor? Skier? Great credit risk? While your SSN or DL# are legally issued identitiers that only the government can issue and authenticate, you are also biometrically defined and have credentials, behaviors, preferences and other attributes. Identity and the contexts in which it is used are the foundation of trust, contracts and relationships.
Continue readingUS Payments – Where to Invest
New Payment Experiences
Topics today (pardon the typos)
- Are US payments still an attractive area for investment and growth? If so, where are the opportunities?
- High level view of the payment landscape and areas of friction
- Consumer Journey – how to unlock new consumer experiences
- Where will innovation come from?
- Core areas for improvement?
- Who are the best providers? Wallets as the new metaphor
- Challenges with Issuer-led innovation (ie PAZE)
The top questions coming out of Money 2020 were: is the US payments environment maturing? Are there still opportunities for break out growth? Where? Who is best positioned and why? Today I will be taking part of that on.
Payments and Identity – UPI continues to lead the world
Short 4 page blog
I’ve written heavily on payments, trust networks and identity. Today I’m providing an example of how UPI, powered by UIDAI’s centralized identity, is creating a new cannon for next-generation payment networks and trust.
I believe that mobile platforms are well placed to learn their lessons in India and create a new phone based network agnostic identity platform that will drive a significant change to payments, the internet and how we manage trust with counterparties.
Identity Driving Payments
Great article in today’s MRC Journal Moving identity authentication earlier in customer flow/
Short Blog. Summary. US issuers are creeping into identity and eCom data as they seek to build a non-network auth. The only model which will work is where networks are the enablers of identity. From a payments perspective, there are only 2 options for owners of identity and authorization 1) V/MA or 2) Apple/Google.
I was fortunate to go to MRC-Vegas this year. Whereas M2020 is filled with Issuers/Fintechs/Investors MRC is filled with payment operators (merchants), and the companies supporting them (ie Visa/Cybersource, Stripe, Adyen, …).
Continue readingPayment Authorization – Under The Hood
Retailers should tread very carefully in direct issuer connections
My focus over the last 18 months has been identity, trust, authorization and assertions. Today I thought we would get under the hood a little on the technology of authorization and the current operational issues with a key network service: 3DS.
Identity, Authentication and Risk
Bridging Domains – Short Blog – Random Thoughts
This is a “Random Thoughts” blog, which means there are many points that I’ve left hanging (not finished cleanly). The blog’s objective is to stimulate discussion, so please don’t hesitate to comment. Identity is a hot topic for me with 15+ years of previous bosts. Here are a few updates … as well as my evolving perspective.
Continue readingTrust Assertions – Identity Will Define the Future of Payment Networks
©Thomas Noyes, May 2022
My blogs last week have me thinking about the changes going around in Identity. This will be a long blog. Typo warning.. I’m still revising.
The number one thing I look for in payments is change: volume, technology, behavior, data, …etc. Effective networks are notoriously hard to change, but they are also very resilient (see blog). Small changes in data flows, can lead to significant changes in margin and “control”. Margin and control guide both public and private investment (see Evolution of Visa and Mastercard Beyond Payments).
Identity is our most important asset — it’s literally who we are.
Our complete “identity” is known to no one, as each entity we interact with has a partial view of us based upon what we chose to give them and what they observe. How others accept and validate our identity, and how others share insight about us, is the core of payments (see Trust Networks and Authentication in Value Nets). The structure, exchange, and assertions associated with identity are defining: web3, DeFi, Crypto, CBDCs and the Metaverse. These are not separate silos, but rather overlapping ecosystems that must interact, thus the importance of bridging identity across networks/domains (see Blog – Trust is domain specific).