Over the last 20 yrs, most countries have implemented an RTGS system. A CBDC is a generational leap: Money itself becomes an immutable digital object that is assigned and can’t be destroyed or created without the specific direction of the Central Bank.
I doubt if this blog will be beneficial for the crypto and CDBC experts. But for my friends, I’ve linked several very detailed articles and reports… which I’ve tried to summarize.
With respect to payments, let me start with the quote of the week
“Tom look at the pace of change in China as a model. 15 yrs ago they were cash. 7 yrs ago they were China Union Pay, Now they are Alipay/WeChat Pay.. 3 tremendous changes in 10 yrs. I believe change will happen much faster than anyone could imagine.”
“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.
Visa is my second largest holding and I’m buying more tomorrow. Why? Plaid would have been:
Visa is building an amazing team, and Plaid is not the right core (in tech, bank permission or in data rights).
$5B for a company running at a ~$35M Rev (with Paypal as their largest customer) is beyond “good will”. Apple’s Ring.. their star ship campus is $5B.. there must be something better to buy than a team of 340.. with 300 of them in screen scraping.
Data rights. Plaid will likely need to cease and renew all consumer agreements. Few customers are aware that their one time share of bank credentials to link their bank account led to 7 years of access to validate balances.
Bank agreements.. banks certainly want to support the distribution of data under consumer permissions.. but this all starts with the bank and the consumer. A bank can’t grant plaid something it doesn’t have.. this is why Banks can’t give Plaid (or Visa) the agreement they want
Per my “open banking” blog, Banks are creating their own API service in Akoya.
Investors should cheer Visa’s pull back here. Less regulatory distraction, less org distraction and more fuel for something that makes sense.
As I related in Open Banking, Open Payments and Trust Networks, Operating Agreements are the #1 factor for investors to asses when evaluating network value. Visa/MA Operating agreements to 15+ yrs to establish and to this day take more than 1yr to change. While this is cumbersome, no network can scale without a firm understanding (by all participants) of revenue, risks and operating costs.
While there may be a technical end run to obtain data and deliver value (aggregation), the hard work of operating agreements must be done. Theoretically, Visa’s existing bank operating agreements could have been extended. After all, they are one of the few entities that have agreement with every bank. But as I mentioned previously, networks become brittle as they expand… their common services become entrenched commodity infrastructure, and most importantly the observation that Trust is Domain Specific, making extension of “trust” in new services … well.. problematic. From my blog:
As networks scale → network effects take hold. Larger networks become more efficient increasing the value of their core services increases, connection costs drop, and ability to retain each node increases. Payment is becoming a commodity service, and payments specialists functions are being assimilated (as their function MATURES they are no longer special). However, as networks scale, they become more rigid and their ability to create NEW services (beyond payments) diminishes. After all, existing participants connect with a purpose (within an operating agreement). Additionally, trust is domain specific, thus current networks are constrained by BOTH the rigidity that comes with scale and by trust extension.
Understanding flows of data, and the structures in which it is controlled, provides a map of: value, power and margin. What is changing in the flow of data?
Warning.. biggest blog ever.. So I made a two page summary.
Happy New Year! Best to you and yours. Having completed the successful sale of Commerce Signals to Verisk last year, this blog is a reflection on some of my lessons learned as well as my predictions on where I see things headed. The thoughts here are guiding my investments and launch of my next venture. I love the interaction, so please take time to write a comment on any of this. Also I ask for your pardon in advance for typos..
“We had confirmed earlier that we are exploring how we can partner with banks and credit unions in the U.S. to offer digital bank accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools, while keeping their money in an FDIC or NCUA-insured account,” stated the release.
Smart, according to Google, because it will provide its checking accountholders with money management tips to optimize and manage the funds in those accounts – funds linked to payments and identity credentials that consumers can use to buy things, pay bills and send money to others in and outside the Google ecosystem.
My belief is that Mobeewave will be the equivalent of a NFC/EMV certified “toll collector”
Turns out my rumor was well founded as Bloomberg verified this weekend. As such I thought I would give my view on what Apple will do with the asset.
The broad theme.. Specialized Hardware ALWAYS gives way to software.
Apple will make accepting cards as easy as using a card. They are likely to take on the role of a platform for acceptance. Acceptance requires tightly controlled and certified software and hardware. Thus it is also likely Apple will develop an app ecosystem for acceptance that expands on the “controlled” app with many 3rd party applications, and will also enable a physical acceptance device (ie dongle) to support acceptance of any card.
To enable card acceptance on mobile devices, the acceptance infrastructure must work within Secure Enclave (iOS) or the Secure Element (Andriod).
Apple does not publish, support or enable any third party operation in the enclave. Thus any card acceptance platform must be “inside the tent” with Apple’s software infrastructure. This is why Mobeewave was focused on Android and Samsung (openness).
For card acceptance on IOS, in addition to enclave integration, the acceptance platform must be certified by both networks (V, MA, Amex, CUP, …) AND the acquirers (FIS, FISV, GPN, …etc). See Trust Networks.
My belief is that Mobeewave will be the equivalent of a NFC/EMV certified “toll collector” for interaction with the enclave. Apple will enable MANY 3rd party applications to build around their platform. This approach directly attack’s square’s vision of merchant ecosystem centered around their hardware.
Apple currently takes 15bps of all Apple Pay transactions (in US) per issuer agreement. It is likely to also seek a similar transaction fee from acquirers for acceptance. Note: processor take is 20-30bps vs 220 bps for issuer.
Apple’s goal is to create great customer experiences, particularly for device to device payment (see blog). Enabling 100s of “app creators” to build value from this central service could be a $50-100B revenue opportunity if Apple is able to capture 10% of US market. The likely initial focus is small business.
Key hurdles are on areas outside of Apple’s control: 1) Device/Software certification, 2) Acquirer/Processor automation of new merchant accounts.
Estimated timeline? Testing in 5-9 months, Certification in 12-18mo, Rollout in 18-24mo
Positive. Visa/MA merchant network expansion + Cash Replacement. Acquirers/Processors, new platform provider (with TBD cost). Other Fintech’s in this space: Poynt, Toast, MagicCube.
Example – Stripe or Shopify expansion into the POS. Apple’s approach here would enable Stripe or Shopify to deliver omni channel and expand into the POS game with minimal additional investment. Either would be able to deliver integrated payment acceptance through IOS devices and create apps that are centered around their own unique platforms. Apple’s value? Solve device certification and merchant account creation – globally.
A more detailed blog on topic will be coming out next week. I’m a tad slammed today.
Rumor only. Apple has entered the POS game with purchase of Mobeewave.
This is just a rumor.. but when you hear it often I give it a tad more credence.
It would seem Apple is entering the POS game.. Over the last 5 years they have looked at Stripe, Square and others.. but couldn’t make sense of the “hands on” merchant relationships.. perhaps they don’t want to add a sales team or manage payment ops. If that is the case Mobeewave is an amazing company with a solution that makes any phone a POS with just an App. Rather than getting an issuers permission to add a card to your wallet, it would require a merchant bank to create an account to allow for acceptance (I’m sure all acquirers will be calling Apple today).
Apple’s services revenue hit another record in yesterday’s earnings.. merchant acquiring would be new area for growth.. The opportunity: enabling acquirer to add merchants as easily as issuers add consumers. Small merchants would seem to be the best path for attack.
Who is impacted? This is a short blog, so here is my short list
Square. Wow… now competing against Apple.
Samsung. An investor in Mobeewave.. now without an outlet for making Samsung phones the next POS
SMB acquirers. Making payment acceptance an app on an existing device may be the closest thing to creating an “alipay” in the US. If Apple can make pricing simple, and merchant banks can accelerate underwriting, they can make this a fantastic growth service.
Fintech, specialty acceptance. The remaining players (ex Toast and Poynt) will now be in play.
V/MA. They should love this.. it helps anyone become a merchant.. and adds volume to the network.
My firm belief is that Apple is best positioned to create GREAT experiences. This is much more than payment acceptance. Just as Paypal recognizes the need for QR code to transmit more than just payment information (yesterday’s earnings call), Apple can bring Mobeewave into the tent (within the secure enclave) to process identity, loyalty, rebates, rewards and coupons. Remember that Apple chose NOT to enable contactless on their Apple Card.. they want consumer behavior to be device to devices.. this is a very logical step for them (see previous blog on Brokering Identity).
I’m not going to waste much more time on this rumor.. but this is a monster with important implications. For my long time readers.. remember I was almost 2 years off in my estimate for ApplePay launch.. so it may take a little time.
For me… I’m busy buying some more Apple stock. This is genius.
Given yesterday’s blog on Open Banking, Open Payments and Trust Networks I can’t resist writing on what I believe was the greatest, most innovative, trust network in the last 20 years: Libra. David Marcus’ design of Libra is brilliant, and will stand as THE REFERENCE MODEL for creating a trust network (apart from a market).