7 Dec 2010

Summary for investors:

• Ensure existing investments have plans to align to one of the emerging ecosystems. Go it alone will not work.
• Expect $5-$10B of industry investment in payments over next 5 years as new networks develop.
• Seed teams with people that have experience in payments and working across large players. Success will not come from “technology” ..
• Focus on delivering value to one leg of the network. Merchant friendly value propositions are recieving new focus.. but retailers are not participating where there is “traditional” bank leadership.. new non-bank networks are forming.
• Digital goods payments is red hot, and also likely to be focus of Google, Apple, Amazon, Visa, MA, PayPal, … Solutions will be driven from multiple players, the “channel masters” of: content, social network, consumer payment, consumer advertising, …
• The relationships between the large banks and Visa/MA are deteriorating, particularly in the area of innovation. NFC is still an area for collaboration, but small and mid-size banks are more likely to align w/ Visa/MA plans than the large players.
• Consumer payment behavior changes in 20 year cycles, largely because there is little differential value (beyond rewards). There are exceptions, as Target is attempting to prove through its REDCard. Other large retailers are assessing plans to buy a bank, replicating  Target, and WalMart (in Mexico and Canada)
• As a rule, Banks are not collaborating with each other or internally and seem to be engaged in multiple initiatives in a hedge your bets strategy (to see what sticks). If your companies are working with a bank, don’t assume there is coordination internally.. your teams must learn to work across complex political lines.

Quite a few interesting “rumblings” this week.

1) Bank of America Merchant Services and First Data are assessing development of a new card network.

2) Google and a major bank (?Citi) are working heads down on a mobile payment platform network driven by mobile advertising revenue. Citi would make sense given its 110M cards and it’s key weakness in merchant acquiring (vs. Chase Paymenttech and BAMS). This team still would leave a large gap at POS…. So perhaps Discover is there as well? Yeah that is a very wierd prediction.. Citi rebranding all of its portfolio Discover so it could regain control.

3) Apple working on a 2Q11/3Q11 iAD platform, with couponing and purchasing. This is a rather big project as they also work to consolidate 4 internal payment systems (legacy apple store, iTunes, app store, and Treasury) with new mobile walled (Apple Patent) and a major bank as partner (?Chase?)

4) Wells Fargo and Bank of America retail teams assessing collaboration on a mobile P2P platform.. which was taken away from their Pariter JV.  See related Blog. I’m sure the cards groups must be shaking their heads a little given the anticipated volume, but banks cannot cede this space.. and it is critical to bank leadership. I just wish the banks would focus on the business and not on the technology.. just buy Cashedge and put it in The Clearning House or something.

5) Merchant acquirers and processors putting together more focused offerings for large retailers. See Target Red Card.

6) Visa and MA have M&A plans around pre-paid which are in flight, a focus more on the G2P and Cross border segments rather than mobile… re: mobile, Visa and MA have retrenched here after “learning lessons” in failures of Mastercard MoneySend (Obopay) and Visa Money Transfers. Funny that MA learned its lessons on a remittance focused Obopay, while VMT attempted to focus on domestic card-card and now is “refocusing” on remittance.