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Near Field Communication (NFC) wallets – Market Status

Hello all,

This post will be about NFC wallets and usage for payments at Point Of Sale. Let’s observe announcements made by each of the payment players.

PayPal

Image representing Scott Thompson as depicted ...

Image via CrunchBase

PayPal has announced that NFC wasn’t a focus for them first and as Scott Thompson has put it NFC should have stand for “Not For Commerce”. Playing their own strengths and be present mostly remote payments and have no presence at Point Of Sale, it makes sense for the growing giant to say so. They then came back on their own opinion saying that they would consider NFC and will keep an eye out for any development in that space. Of course for a payment player to say that they would ignore 80% of current payments doesn’t make sense and maybe PayPal has realised that they had to play where  the majority of the payments happened and with the current tools used if they wanted a real share of that huge business.

Square

Square’s model is obviously to re-create the Point Of Sale ecosystem as they are effectively trying to create Point Of Sale out of all mobile phones and other devices. So again it makes perfect sense for them to say they don’t want NFC.

Visa

Visa’s main announcement today was about a trial that they are doing in France with Credit Agricole. For doing so, they have by-past the usual partner that is Telco with having a clever piece of Hardware (phone case in that instance) to allow to introduce the chip close enough to the phone to process payments.

Visa will also launch their eCommerce and mCommerce wallet which will probably have an NFC component to it.

MasterCard

Clearly the biggest and strongest player in that field so far. MasterCard has launched a TON of beta and tests around the world (watch Ann Cairns video) – always playing with all partners when they are relevant (manufacturers, Telcos, Banks, etc)

UK with Barclays and Orange

Latin America with Telefonica

Turkey with Turkcel

MasterCard logo used on cards 1990 to present.

Image via Wikipedia

Dubai with RIM (BlackBerry) and Etisalat

US with Google, Citi and FirstData

Korea with Samsung banks and card issuers

Personally, I think the way to NFC will be to try, fail, iterate and make improvements before winning and I particularly like the approach of MasterCard right now. They play with everyone and the they play offense on a field that no one will monetise for a long time. Well played.

Sincerely,
David Pardo

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The “Offers” offering of payment companies

Hello all,

Couple reflection and a blog post I wanted to write for a long time.

All payment companies are trying to differentiate their product offering and of course a big and nice way to do this amongst consumer is through Marketing and Offers.

Now the game has intensified significantly as everyone thinks of the future potential geo-targeted, demographic , some even say tailored offers that retailers would want to push to their consumers. Some companies are going their own ways and a lot of startup companies have been created in the past couple months to try to fulfil that holy grail. Payment companies are also trying to get in the game and it’s pretty obvious that those 2 types of services will get closer together over time:

CHICAGO, IL - JUNE 02:  The Groupon logo is di...

Image by Getty Images via @daylife

Player number 1 (no special order here): Groupon and Square– Yes you weren’t expected this one but as Groupon may (or may not) do its IPO and get a LOT of cash, some rumors are that the company is in discussions with Square. In effect you could foresee that the “daily deals” that Groupon offers could transform the ecosystem with some clever geo-targeting and use of consumer data they do not have. Imagine utilising the Sales Force of Groupon (around 2000 people worldwide now) to source any kind of deal that would be highly targeted to users to be pushed through notifications and coupons given at Point of Checkout or Point of Sale through Square apps. Cool? It would be an interesting development for sure.

Visa just announced that they partnered, JointVentured and acquired a piece (?!) of Monetise. Monetise is a cool service that offers…well offers as well as an enhanced experience through their apps and APIs – they also offer, mobile services for online banking and a mobile wallet. I am not sure how the 2 latter would be used by Visa as they are building their own solutions but we ll see. Article here.

PayPal is talking a lot of offers and of course at this stage, they haven’t got that much traction as they are missing the big and powerful merchant that can have good offers

Image representing PayPal as depicted in Crunc...

Image via CrunchBase

and the fact that their traditional base of merchants is usually small and don’t have bandwidth to put together the same. That doesn’t stop them from talking about it and I d be surprised if they wouldn’t announce couple exciting developments either as new products imbedded in their Proximity payment products or through partnerships. After all they are part of eBay inc who is the biggest eCommerce site in the world, owns Milo (local based offering only in the US) and RedLaser. Again here, the appetite is here and we know for sure that they ll play in that space but we haven’t seen any product yet. As for the proximity payment announcements, is PayPal getting good at “just producing videos?”

And last but not least, American Express. Now I personally like what I am seeing there. through their wallet launched earlier this year, Serve, they now have the potentially play in many use cases, proximity based payments as well as remote based ones (announced through the new API they are launching)which is not their traditional way of doing business. But more importantly, AMEX is getting close to so many great players in the eCommerce and mCommerce and those strategic alignments will certainly pay back in time. Facebook. Video Games and Digital Goods. What’s next?

Sincerely,

David Pardo

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Users are not ready for this. Which key player will win?

Hello all,

A quick post to introduce two important articles and one video that resumes well the slow or conservative point of view to this “revolution”.

Today the market is not ready for the revolution both from a consumer and a merchant side:

http://www.americanbanker.com/issues/176_184/google-wallet-mobile-payments-isis-lightspeed-1042421-1.html

The second one is to discuss what is usually forgotten into that revolution – payments is not really painful as it is but this revolution will need to bring a whole set of value added services (Offers, Coupons, what else?) to the ecosystem to make a real dent into the current modus operandi:

http://gigaom.com/2011/09/26/mobile-payments-mobilize-2011/?utm_source=social&utm_medium=twitter&utm_campaign=gigaom

Again, I like the approach here. You ll here it more and more, consumers and merchants are not ready for this. Even the professionals are saying it. What they are also saying is that they are all working to make this happen and make happen this faster in their own way using their own strengths.

List of questions and random thoughts from me:

– Will PayPal be right at assuming that NFC will be too slow to deploy and that merchants will try to embrace added value services experiences through players like themselves?

– Will the giants that are Visa, MasterCard and others be able to digitalise fast enough their offline offering?

– Will hardware deployment be the determinant limiting factor?

– Can we look at Google, Facebook, Apple and other non traditional payment players to be completely disruptive into their approach and leverage their data at payments to provide the best added value services both for merchants and consumers?

All I can say is it does look like a race and a pretty bloody one too.

Another thought is that I think that people still try to ameliorate a system that in the US and other mature markets works pretty well already. But what about emerging markets? What about the billions of people who are still un-banked/un-carded and don’t have access to that vast world of choice, depth and breath of products that mature markets do. Maybe the future winner will be the one(s) that will bring those two worlds together.

Happy to talk about it, let me know,

Sincerely,

David Pardo

The payment players and their positioning

Hello all,

I have been quite impressed with how much coverage there has been about the recent Payment related announcements these past couple days and in fact, it is funny to say but I don’t see any surprises in any of them, or at least not much. Let me try to explain and unroll that as I see it (completely open for debate though):

PLAYERS

PayPal:
https://www.thepaypalblog.com/2011/09/paypal-unveils-the-future-of-shopping/

Mr Thompson was kind enough to share with us the fact that PayPal didn’t see much of a future in NFC. Well being a company with most of their presence in the cloud, truly no presence a Point Of Sale, I don’t think how they would say otherwise.
The coffee use case is interesting though: One thing that this video unveils is that PayPal still plan to go to the Point Of Sale (POS) but though their own mean. Meaning that they will still need to find away to be of an appeal to offline merchants. This doesn’t say how they are thinking about reaching out to the thousands but their use case would show that they would tackle chains first and then expand slowly from there. This wouldn’t be playing their own advantage which always have been SMEs but who knows?! It would also be a very slow global roll out as chains even as powerful as Starbucks will never be giving them relevance in China, India or even Europe for that matter.
A big announcement with Facebook is apparently coming up. I hope the audience is captivated. I know I am…

 

MasterCard:
MasterCard has announced that, at the contrary, they believe in NFC. Again no surprise here, a company that has such a strong POS presence can only capitalise on that. MasterCard has already expanded quite aggressively their acceptance for NFC and they ve been at it for couple years now so the only thing that will change is the use of mobiles instead of cards.
MasterCard war battle will be to convince that 1)NFC is secure. 2)merchants and consumers are willing to use NFC – which all their competitors would not agree with (see Square below)

 

Google:
Google announced that they will open their wallet to the wider audience beyond MasterCard / Citi Bank cards. Again no real surprises here, a player that wants to be mainstream has to play with everyone.

We probably have to pay attention to their Offers offering to merchants and consumers. Google data span is HUGE even compared to a PayPal or a MasterCard it could get scary/interesting (depending on who you are :)).

 

Visa:
No real news besides the above.
Of course a Digital Wallet in in the cooking and has been announced to launch in US and Canada soon.
I want to also circulate this that not a lot of people are aware of. Visa in Australia had launched a Wallet already called PayClick. It’s an interesting positioning itself as it calls on the youth segment and Digital Goods. now I don’t think it is very successful but it does give them grounds into a new positioning that would hopefully have taught them a lot.

We ll definitely keep an eye for the “fall” announcement as well.

 

American Express:

Wallet announced and launched. It’s called Serve. It positions itself mainly on Personal Payments through Mobile but with an eCommerce and mCommerce posibility… Meaning…we don’t have merchant acceptance online yet but when it comes, the wallet will work with that.

 

Square:

I am sure you got it by now, Square doesn’t believe in NFC, as they use proximity payments already and that they don’t intent to get back to the traditional way of doing POS payments. Their positioning is also SMEs but from the POS stand point and so their strategic fit with PayPal is more and more prevalent.

 

[I know there is a lot of other important brands but I kind want to stay under 100 words…I ll get back to them at some point, I promise.]

 

ECOSYSTEM

OK now that we looked at them independently. How does it look like in the ecosystem.

First one prediction:

Every main player will play the advantage in the next couple months and covering its gaps:

PayPal will try to create Offers online and offlien and will try to bring them to customers, they will reinforce their entry into POS use cases.

MasterCard, Visa, AMEX will most probably enter e/mCommerce aggressively, one way or another, PayPal plays in their turf now so the logical reaction will be to play in PayPal’s. Moreover, I am surprised to not see more activity on SME front by these guys. Sure enough they know that SME are willing to pay more than Large Merchants by now…

Square can limit itself what they have already and re-inforce that but I see them getting either acquire by PayPal (but it would be expensive but a real good strategic fit) or concentrating on creating value for a segment that no one really touches upon now. POS for SME. It could be unique enough to be stand alone.

 

What do you think?

 

Sincerely,

David Pardo

Virtual Currencies – currencies of the future? To what extent?

Hello all,

Bank innovation published a very nice article about virtual currencies and the progresses made by Facebook and Apple and such other virtual currency “emitter”. Let’s look at those currencies progresses and try to see the limits of the system they set for themselves.

http://www.bankinnovation.net/profiles/blogs/the-inevitability-of-virtual-payments

First of all, let’s look at the facts.

History

The  virtual currencies are not completely new. How many offline retailers tried to do this? Loyalty points? Competition and rewards? Win points that you can exchange against presents, gifts and more or different loyalty points. Loads. Once upon a time retailers dreamt of managing their own currency so that they control fluctuation more adequately based on their own standards then a currency that wouldn’t listen to what they thought about the market.

To set things straight, Facebook and Apple are definitely democratising the concept but the real player that was worth watching when this came along was World of Warcraft (W0W). Blizzard didn’t in fact control the sales for those virtual goods that some users spent weeks seeking in the game and were mostly sold offline or on eBay. Many made a living out of that business very fast and it is said that there still are some 400 professional WoW sellers in South Korea alone and there are even price comparison sites to buy “WoW Gold” online (the WoW virtual currency). I am sure that Blizzard will see this as a big source of their future revenue for their next Massively Multiplayer game they ll produce. Who wouldn’t?

eBay themselves had to issue new rules of how to sell  those items which pretty much banned the virtual goods of the site at the time as the fraud was big and even sometimes went very far in litigation and even some murder cases (!).

So what is new? 

Certainly the scale. If the article quoted at the beginning is correct, Facebook would have sold for $250M of virtual money this year. This number is big. Although in the grand scheme of things $250M compared to the overall scale of payments (about $20-$25 Trillion) is nothing ~ 0.13bps or 0.0013%.

The growth would also make people wonder. Facebook’s revenue alone are said to grow 70-80% a year still and 1/4 of that would come from their virtual currency. Something to watch out for then?

The number of players in that new economy is also interesting, of course most talk about Apple and Facebook early successes but  the number of players in the market is astronomical. Small and medium merchants are also issuing their own currencies, usually game producers and other gaming platforms are forced to emit their own virtual currencies. Reason: economies of scale perspective. In effect, all payment companies charge a by-transaction fee that would make the low cost items too expensive to sell and eat the merchant’s margin so they all came up with that virtual currency so that they can afford to get higher ticket items and lower proportional transaction fees; $0.18 of $1 would be 18% of your margin that would just evaporate, $0.18 of $18 is much more affordable and only 1%.

Let’s consider the limits to these new currencies

At this moment, no or few rules exist on how to use that currency but of course as any financial services company and banks all those companies issuing these new mode of payments will need to comply with normal rules. Facebook is considering usage of their virtual currency offline, for physical goods and beyond borders. Surely at some point our lovely lawyers and regulators will start to regulate all of this very strictly. Again all is about scale.

Inter-operability will also grow into an issue. The big players will probably be strong enough to enforce more and more acceptance points but what about the myriad of small ones? Where would I be able to use my obscure virtual credits that I bought online if the company goes bust or if I don’t want to spend some more. Very few companies authorise these currencies to be cashed out. And even if they did, Anti Money laundering laws won’t be long to block any kind of transfer back to cash.

In conclusion,

Virtual currencies are an interesting problem to have, for some economy of scale stand point, players have created new problems that they wouldn’t have if the payment industry was more adaptable. PayPal is at this moment the only payment player that issued their Digital Goods’ pricing but I see this as a legitimate fight back by those industry giants. How long for the historical players like MasterCard, Visa and American Express to emit a reasonable response? Will it be too late to turn back to “normal money” by then for all the small players? Will Facebook and Apple succeed where other retailers that created their own currency failed?

Sincerely,

David Pardo