20 Feb 2014
Let me state up front this blog is far too short, and I’m leaving far too much out. Token strategies are moving at light speed… never in the history of man has a new card present scheme developed so quickly (4-6 MONTHS, see announcement yesterday). As I tweeted yesterday, the payment industry is seldomly driven by logic, and much more by politics. Given many of my friends (you) make investments in this industry, and EVERY BUSINESS conducts commerce and payments, movements here have very broad implications. The objective of this blog is to give insight into these moves so we can all make best use of our time (and money). I was flattered at Money 2020 when a number of you came up and told me that this blog was the best “inside baseball” view on payments. Perhaps the only thing that makes our Starpoint Team unique is that we have a view on payments from multiple perspectives: Bank, Network, Merchant, Online, Wallet, MSB, Processor, … etc.
It’s hard to believe I’ve already written 12 blogs on tokens… more than one per month in last year. As I outlined in December there are (at least) 10 different token initiatives (see blog). Why all the energy around tokens? Perhaps my first blog on Tokens answered this best… a battle for the Consumer Directory. It is the battle to place a number in the phone/cloud that ties a customer to content and services (and Cards). The DIRECTORY is the Key service of ANY network strategy (see Network Strategy and Openness). For example, with TCH Tokens Banks were hoping to circumvent V/MA… (see blog). The problem with this Bank led scheme (see blog): NO VALUE to consumer, wallet provider or merchant. It was all about bank control. The optimal TCH test dummy was almost certainly Google, and the “benefit pitched” was that Regulators were going to MANDATE tokens, so come on board now and you can be the first.
Obviously this did NOT happen (perhaps because of my token blog – LOL), but the prospect of a regulatory push was the reason for my energy in responding to the Feds call for comments on payments. In addition to the failure of a regulatory push, the networks all got together to say no Tokens on my Rails (see blog). Obviously without network rail allowance, a new token scheme would have to tackle acquiring, at least for every bank but JPM/CPT (see blog). Paul Gallant spent 3 yrs pushing this scheme uphill and had no choice but to look for greener pastures as the CEO of Verifone (Congrats Paul).
In the background of this token effort is EMV. I’m fortunate to work at the CEO level in many of the top banks and can tell you with certainty that US Banks were not in support of Visa’s EMV announcement last year. One CEO told me “Tom I found out about EMV the way you did, in a PRESS RELEASE, and I’m their [Top 5] largest issuer in the world”. Banks were, and still are, FUMING. US Banks had planned to “skip” EMV (see blog EMV impacts Mobile Payments). The networks are public companies now, and large issuers are not in control of rules (at least in ways they were before). Another point… in the US EMV IS NOT A REQUIREMENT A MANDATE OR A REGULATORY INITIATIVE. It is a change in terms between: Networks and Issuers, and Networks and Acquirers, and Acquirers and Merchants (with carrots and sticks).
In addition to all of this, there were also tracks on NFC/ISIS (which all banks have walked away from in the US), Google Wallet (See Don’t wrap me), MCX, Durbin, and the implosion of US Retail Banking.
You can see why payment strategy is so dynamic and this area is sooooo hard to keep track of. Seemingly Obvious ideas like the COIN card, are brilliant in their simplicity and ability to deliver value in a network/regulatory muck. This MUCK is precisely why retailers are working
Key Message for Today.
With respect to Tokens, HCE moves are not the end. While Networks have jumped on this wagon because of HCE’s amazing potential to increase their network CONTROL, Banks now have the opportunity to work DIRECTLY with holders of CARDS on File to tokenize INDEPENDENT of the Networks.
Example, if JPM told PayPal or Apple we will give you:
- an x% interchange reduction
- Treat as Card Present, and own fraud (can not certify unless acquirer)
- Access to DATA as permissioned by consumer
- Share fraudulent account/closed account activity with you to sync
- Tokenize (dynamically) every one of our JPM cards on file
- Pass authentication information
- Collaborate on Fraud
This is MUCH stronger business case for participation than V/MA can create (Visa can not discount interchange, or give access to data).
This means that smaller banks will go into the V/MA HCE schemes and larger banks, private label cards, … will DIY Tokens, or work with SimplyTapp in direct relationship with key COF holders.
Sorry for the short blog. Hope it was useful