DeFi, CBDCs and Web 3.0

My perspective has been evolving as I work to build out infrastructure for “when Crypto grows up” in my new Company. I’m pleased to report that Accept Payments (acc3pt.com) went live this month and is expanding our private rollout as we fine tune all of the CX. Thought for the day… Its about trust.. 

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A2A, Fed Now and Real Time – Threat to V/MA? Nope.

Sorry for typos

My good friend Dave Birch wrote a piece in Forbes today on Account to Account transfer threat to V/MA. I wanted to provide an alternate view. This will likely be a multi part blog.. today I’m starting with the consumer and the merchant (from a US perspective). 

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Plaid and Pay By Bank

There are 2 big options: 1) Plaid is expanding its API set and back-end to create a new organic service 2) Plaid is a partner in a new bank service

As I sit down with my coffee this morning I’m asking myself what are the key questions to answer:

  1. What is the Plaid service? What innovation have they created?
  2. Is it a threat to V/MA?
  3. What merchants/Consumers will use it?
  4. What do banks think of this? Can they stop it?
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Payments and the Observer Effect

Most of you techie’s out there had a physics class at some point and can recall the Observer Effect in Quantum Physics: the act of observation can change the measured results. Observation in payments has become the second largest driver of margin

Most of you techie’s out there had a physics class at some point and can recall the Observer Effect in Quantum Physics: the act of observation can change the measured results. Observation in payments has become the second largest driver of margin and has enabled many new specialists…. so I thought I’d outline some broad thoughts and tell a few stories. 

Why is observation important? Payment behavior is truth marked data of what a consumer actually did (offline). While I may search for Ferrari’s, or visit dealership (mobile location) what I actually bought is much more important in predicting behavior and evaluating risk.  Purchase data is the most valuable data for that reason (and issuing banks had a lock on it.. Until about 5 yrs ago). The lock has been broken and payment data has become the “missing link” to unite heterogeneous data sets. 

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Walmart – Banking and FinTech

Imagine a world where bank accounts don’t matter. You select services that solve your problems when you have them. Walmart (and Amazon) are unbundling banking.

As always pardon the typos

It seems like only yesterday that 30 members of Congress wrote the acting chairman of the FDIC to stop Walmart Bank.

“Wal-Mart’s plan, to have its bank process hundreds of billions in transactions for its own stores, could threaten the stability of the nation’s payments system,”

30 Members of US Congress, March 2006

Of course, we all know that Walmart pursued a different course to deliver services. Partnerships (MGI, Moneygram, Paypal, …) and banking in a box (literally an isle with prepaid cards). Most analysts discount or “write off” Walmart’s achievements in financial services.  Given Walmart doesn’t break out financial performance of Money Center, analysts are left with the tea leaves of MGI and GDOT reports. There is little doubt that comparing Money Center financial metrics to tier 1 banks would leave most unimpressed. However, Walmart has created a portfolio of banking services that supports their overall retail strategy and creates overwhelming loyalty amongst their core customer base.  

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Finicity, Plaid, Tokens and Network of Networks

Summary

  • Primary driver of finicity/Plaid deals is not open banking, but in support of the “network of networks” strategy.
  • The owner of the consumer directory, will rule payments. Tokens are the central battle field for trust networks (and payment network) consolidation as well as new services. 
  • MA lost out on the Plaid purchase, but is likely to end up far better off for it. 
  • The Visa/Plaid deal is likely to fall through as the retain consumer credentials for 5yr (claimed by class action).
  • V/MA will likely own the payment token directory 
    • Visa is leading – 1B tokens issued by Visa (acquisition of BellID/Rambus)
    • Mastercard Track  successfully leads the market in global B2B Least Cost Routing
  • V/MA have substantial hurdles in expanding the directory beyond payments
    • Few direct consumer or merchant relationships
    • Bank and Apple/Google leadership in Customer Identity/Trust
    • Trust is the core of bank risk management (and Bank margin)
    • Network effects decrease transaction costs for established services and increase value (acceptance). However they have the reverse effect on new services.
    • Value/Margin is migrating to the ends of the network and many new networks are forming. 
    • The energy to manage participation in multiple networks is dropping (with Mobile). Enabling specialized networks that cater more finely to precise needs of each node. 
    • V/MA will see substantial growth in core payment volume with continued network effects and the breakdown of Payment silos.
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Payments in the Pandemic – Paypal

Paypal is very well positioned to capture new volume both short term and long term growth

First off, best wishes to you and your family during these challenging times. I had intended to get this out last week, but found the need to invest in family. My family is doing fine, I’m fortunate to have all of my children, grandchildren and parents within 10 miles of Davidson North Carolina. We are like the rest of you, navigating needs for family support and volunteering in our community.. All of which has changed up our schedules. My hope is that we all find some way to create good out of this terrible event. 

In this Blog

  1. Massive disruption in Commerce has created fundamental changes in payments and consumer behavior. 
    • Discretionary and T+E spend is dropping 40-80%. Visa and Mastercard have both revised growth from mid teens to low single digits. Paypal has maintained low end guidance. 
    • eCommerce is clear winner right now, estimate that Paypal’s core eCommerce TPV could be 40-60% above average 
    • Consumer behavior changes driven by the pandemic will rapidly accelerate the move away from physical retail (See 1 April WSJ).
  2. Paypal is very well positioned to capture new volume both short term and long term growth.
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Banks as a Data Business – Example Amex Advance/Acxiom

Traditionally the core of bank margin is in risk management. The core of risk management is data.. thus Banks have been the among the best data businesses (as IBM knows). Banks “learn” about their customers through bank interaction: payroll, card transactions, lending. This has helped banks make better risk decisions (both credit and fraud/identity). Within the bank data cycle the traditional use of data is for an internal benefit: risk and cross sale of the bank’s products and services (not that of consumers or merchants).  However the “virtuous cycle of banking data” is very different from that enjoyed by Amazon and Google, both in the scale and type of data and consumer facing use.  Continue reading “Banks as a Data Business – Example Amex Advance/Acxiom”