Visa/MasterCard/Amex: Mobile Payment Bets

In a recent article, Gigaom draws out some of the most interesting moves that each of the big 3 payment networks are making in mobile payments. 

The most interesting overall observation is that many of these moves are unproven, high risk and somewhat scattered.  Visa is teaming up with Square, MasterCard is joining forces with Google and Amex has partnered with Payfone.  This goes to show that none of the big players have yet figured out where the industry is going and seem unwilling to place more than a few chips on any one technology.

It is also noticeable that Visa and MasterCard are considerably more active when it comes to partnering with technology players than Amex.  From a cultural perspective this may not be surprising, seeing as V/MC have based their entire business models on being open networks, whereas Amex has built a closed-loop, proprietary network.  Still, in a highly uncertain market, V/MC's model may prove more nimble and adaptable than Amex' and may provide a crucial head start.

Among all the partnerships that have been announced, the most interesting in my mind, would be MC's venture with Google.  I absolutely believe that Google will be a central player in the mobile space and in mobile commerce, in particular, and that this partnership has the potential to make MC the dominant mobile payments provider.

Read the whole article below.

http://gigaom.com/2011/04/27/credit-card-cos-whos-doing-what-in-mobile-payments/?utm_source=social&utm_medium=twitter&utm_campaign=gigaom

Visa Acquires PlaySpan and Takes a Bite of the Digital Goods Market

Visa yesterday announced its acquisition of Silicon Valley based PlaySpan, a payment processor in the digital goods space.  Visa will pay $190 million cash, plus an additional performance based element.

So what are digital good; these are products or services that are purchased, delivered and consumed in its digital form.  Most common examples are software, music files, online movies and e-books.

Although these categories are experiencing rapid growth, the most exciting category are purchases made on social networks or within online games.  This has become an incredibly attractive space where PayPal has taken an early lead.

PayPal launched micropayment solution last year, with a number of high-profile partners onboard, such as Facebook, the FT, Autosport and Justin.tv.  What sets PayPal’s solution apart is its frictionless, two-click convenience and open APIs that enable merchants to customize the solution to their needs and easily integrate with their systems.

Importantly, micropayments also require a different pricing structure, as the traditional structure is not economical for smaller payments.  PayPal has therefore introduces a different structure that reduces the fees from a $1.00 transaction from $0.33 to $0.10.

And it is exactly this that PlaySpan provides to Visa.  Like PayPal, PlaySpan has developed a frictionless e-wallet that enables consumers to complete transactions across social networks and online games without interrupting their online experience.  It also operates with open APIs, so that merchants can easily integrate the PlaySpan with their application. 

Within four years to launch, PlaySpan is already the number two company in this space, with 28 million users, only after PayPal with its 80 million users.

As TV producers, online game developers and mobile operators increasingly seek to monetize their content through digital goods and micropayments, PlaySpan’s market potential is rapidly expanding.  This acquisition could consequently provide Visa access to entire new markets.  Let’s see how other networks such as MasterCard, American Express and Discover respond!

Cardlytics: Merchant Funded Rewards for Debit and Prepaid

Red Herring, the business and innovation magazine, yesterday named Cardlytics among its 2010 Global Awards Winners.  Previous winners include Google, Skype, Netscape, Salesforce.com, YouTube and eBay.

Cardlytics is a deals intermediary that connects retailers and potential customers through their online bank.  Cardlytics leverages its proprietary technology to target offers according to customers’ actual card transaction data, enabling a more targeted marketing approach – a “market-of-one” approach, as Cardlytics refers to it.  The retailer is charged only when a customer actually acts on an offer and purchases the goods.

Cardlytics partners with banks and integrates its technology with the online banking platform. Cardlytics analyses customers’ transaction history and displays offers on their bank statements.  For interesting offers, customers simply click a button on the statement to activate the offer.  Once they complete the transaction, the discount is automatically transferred to their account, rather than the customer having to worry about coupons or promotion codes.  According to Cardlytics their campaigns consistently generate activation and conversion rates that are 20 – 50 times higher than other marketing channels.

So far, Cardlytics has implemented its programme with more than 100 banks, through which it reaches more than 30 million customers with offers from more than 100 merchants.  Unlike, other deal intermediaries, such as Groupon and Living Social, Cardlytics’ merchant partners are primarily national retailers, rather than local service providers.

However, the transformational aspect of Cardlytics is its impact on banks’ debit card programs.  Through Cardlytics, bank customers get a reward program for their debit cards.  Retailers attract new customers with a transaction-based marketing program with a pure pay-for-performance model.  Banks generate additional revenue from debit, an already low-revenue product, which has recently come under even more pressure from the Durban regulation.

Transaction-based marketing could have a fundamental impact on the revenue model of the payments market, which has historically relied heavily on discount revenue funded by merchants.  American Express is the primary example of a company that has pursued a premium discount rate strategy.  They justify this premium by giving merchants access to affluent cardholders who are more likely to spend with merchants that accept the card. 

However, under the discount rate model, merchants are asked to blindly trust that they will see incremental revenues and are generally not offered data to track the impact.  Transaction-based marketing turns this on its head, as merchants pay a much lower discount fee and a fully performance based marketing fee for incremental transactions. 

As Cardlytics and similar providers expand their networks of bank partners and extend their services to other parts of the payments industry, such as prepaid and credit, one could imagine that merchants would increasingly favour this model and shy away from traditional discount rates.  It is therefore no surprise that the payments networks have long tried to implement their own transaction-based marketing services and that industry observers and investors view the emerging market leaders with much interest.

Apple: Taking NFC to the Mainstream?

The hottest area of speculation at the moment is around Apple’s entry in the payments market.  Already early last year, it was being reported that Apple was putting together a payments team, while patent applications revealed that they would likely introduce NFC the iPhone 5, which will probably launch in June 2011. 

Now, considering that NFC has been around for a long time and that a flurry of prominent companies, from Visa to the major phone carriers to Google, already have NFC enabled products or trials – why is Apple able to generate so much excitement? 

Simply put, Apple has a remarkable track record of popularizing new technologies with a user experience that seamlessly bridges the hardware and software.  Like they have previously applied their midas touch to the personal computer, the music player, the mobile phone and most recently the tablet, people are eagerly awaiting what they will do to payments.

Most interestingly, people are asking how they will enter the market?  What role will they play in the payments value chain?  Consensus says that they will probably use a version of iTunes as a mobile wallet.  However, it will be interesting to see if they simply have their customers pay with their credit cards through iTunes or if they attempt to link directly to customers’ bank accounts, and essentially do their own clearing and settlement.

Moreover, what features will they offer their customers?  Will they start their own offers and rewards program, similar to what Google is developing?  will they do anything cool with the data they collect?  How will they extend NFC outside payments – e.g. identification and ticketing?

Also, will they enter the merchant side of the industry?  Will they enable the iPhone or iPad as payment terminals by developing NFC readers that plug directly in to the devices?  Will they offer data services?

Another interesting perspective is if they will open up their payments platform (iTunes) for external developers to develop application, similar to what Apple has done for the iPhone and iPad and PayPal has done in payments.  We are starting to see some interesting developments coming out of PayPal X and cannot even begin to imagine where Apple could take this market.

Still, with all this excitement, we should still remind ourselves that not all Apple launches are a success.  Apple TV is a classic example.  The payments industry is probably also more complex than industries Apple has previously taken on.  It is the quintessential network business, which might not be a good match for Apple’s notoriously proprietary and closed approach. 

It would take time for the iPhone 5 to build a user base that is sufficiently attractive for merchants to justify new point of sale investments.  If acceptance is not wide from day one, all the excitement that surrounds the launch could whittle away and slow application innovation, etc.

Despite all the excitement and endless opportunities, we should therefore remember that Apple faces big challenges and stiff competition in this field.  Still, the buzz generated by an Apple launch, along with all the other launches upcoming launches, could mean that 2011 is finally the breakout year for NFC.

Three Exciting Stories in Payment (Jan 19)

Starbucks has launched a mobile payment application for iPhones, iPads and Blackberry's built on its Starbucks Card platform.  The application will enable customers to make their purchases with a barcode that appears on their mobile phone, check their balance and receive Starbucks loyalty points.
http://www.pymnts.com/mobile-payment-debuts-nationally-at-starbucks-20110119005434/

Softbank Mobile has selected France's Gemalto for their NFC trial in Japan.  The trial will leverage Gemalto's UICC SIM card and N-Flex technology.  Users simply receive a replacement SIM card, which enables a conventional mobile phone for NFC through the antenna.  In addition to a prepaid service, Softbank's trial also enables users to perform NFC transactions from two Japanese credit card issuers. 
http://www.paymentssource.com/news/gemalto-joins-mobile-japan-3004716-1.html

MasterCard has entered a marketing partnership with Transport for London (TfL) to distribute PayPass (MasterCard's NFC solution) branded wallets to Oyster Card users.  PayPass is still not available in London, but the marketing push is in anticipation of TfL putting Oyster on an open-loop network, such as Visa or MasterCard.
http://marketingmagazine.co.uk/news/1049764/MasterCard-brands-Oyster-wallets-PayPass-push/

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MasterCard: Leading the way in Prepaid

I have previously written about the opportunities in prepaid and the truly transformational potential of this product, both for the payments industry and society at large. 

Firstly, it is ideal for underserved markets, such as the unbanked population in emerging markets or the teen market in developed markets, and consequently has enormous scope for growth. 

Secondly, for two important reasons, this market may be a leader within disruptive product innovation; (1) emerging markets do not have a fully developed cards-based infrastructure and may therefore leapfrog to mobile payments and (2) the processing infrastructure for prepaid is relatively new and more open for mobile and online applications.

MasterCard is among the leaders in this space and have announced a number of interesting programs over the last years.  Let’s have a look at a few of these programs that demonstrate different applications of prepaid:

· US Social Security Administration: partnership with the government to replace checks for social security payments.  In addition to being more cost efficient, convenient and safe than checks, prepaid is also a greener alternative

· Walmart: partnership with Walmart to replace cash and checks from their payroll program.  The benefits are similar to the Social Security partnership and the potential is enormous

· Univision: partnership with the largest US-based Hispanic TV channel to market prepaid products to the Hispanic population of the US.  This segment includes many migrant workers and has the potential of including many unbanked people in the financial sector

· TravelEx: MasterCard recently announced it’s acquisition of TravelEx’ portfolio of MasterCard branded multi-currency prepaid cards for $459m.  The product is seen as a convenient and secure alternative to traveller’s checks and is part of an ongoing effort for MasterCard to grow its international business through acquisitions

The combination of tremendous market potential with transformational product innovation is sure to make prepaid one of the most exciting spaces of the payments industry over the next years.  MasterCard has demonstrated its commitment to this opportunity and if it continues to develop its product and strike up exciting partnerships, it will no doubt see huge rewards.

Social Commerce: Leading the Future of Online Shopping & Payments

Until recently, e-commerce was the domain of online shopping sites and payments was a fenced-off part of a now-familiar ‘check-out’ process.   With the emergence of social and geo-location-based services, e-commerce will change fundamentally.  This will disrupt the current online payments process and require more flexible and customisable solutions.  This blog entry looks at the emergence of social commerce, early market leaders and possible implications for online payments.

Although online social networks have been around since the late 90s (sixdegrees.com launched in 1997), the tipping point can be traced to 2003 when PC penetration, the emergence of broadband technologies and the rise of software platforms fuelled the growth of these networks.

Today, these networks have fundamentally changed the online experience from a passive, read-only mode, to an active, read-write experience.  The corporate world has thrown itself on the bandwagon and nearly all companies now have a presence on social networks.  Still, very few have cracked how to transform this presence to dollars on the bottom line. 

In a recent edition of the Lydian Journal, Karen Webster identified 4 forces that will trigger a tipping point for social commerce:

The explosive growth of social networks

·  75% of worldwide online users now visit social networks or blogs, a 24% increase from 2009 

·  Although younger users are more likely to visit social networks, half of Internet users aged 50 – 64 and one in four of users aged 65 or older now use social networks

·   Among the different networks, Facebook is the largest with close to 600 million users, followed by Twitter (190M), MySpace (122M) and LinkedIn (70M)

Social networks become the dominant destinations online

·  Time spent on social networks Facebook and Twitter accounts for nearly one-quarter of the time spent online for Americans, up nearly 50 percent from a year ago

·  One explanation is that social platforms allow their users to do everything from online gaming to messaging with friends to exploring their interests and favourite brands, and thus economise on their time spent online

·  Mobile phones are also increasing the time we spend on social networks; 150 million people connect to Facebook via their mobile and 37% of Twitter users connect via their mobile

Social networks are high-trust sources of information

·  People join social networks to be part of a connected community

·  Communities of peers are high-trust networks where users are more willing to disclose personal information and even make purchases

·  Peer-to-peer word-of-mouth has always been a source of valued, dependable information – social networks have the potential to systematise this and become a hub for purchasing decisions

Merchant begin to see the value and growing importance of social networks

·  Based on the above factors, merchants are beginning to view social networks as a sales channel with which to turn fans into customers

·  Nearly all major retailers have a fan page on Facebook as traffic to their own websites is being cannibalized by traffic on Facebook, where fans are more willing to buy and advocate on behalf of the brand

·  Analysts estimate the value of an average Facebook fan to be $136.38, suggesting that fans are likely to spend an extra $71.84 they would not otherwise have spent

·  More than half of Twitter-users recommend companies or products in their Tweets, with just about that same percentage actually following through to buy that product

Although social networks clearly represent a fantastic prospective sales channel, very few companies have yet managed to generate revenues on these platforms.  Attempts to tap into this opportunity can be grouped in three categories:

·  Shopping cart technology that facilitates check-outs on Facebook (e.g. Payvment)

·  Deal-sites off social networks that drive sales at discounts (e.g. Groupon or Living Spaces)

·  Promotional activities aimed at driving traffic to online or offline stores off social networks (e.g. JetBlue’s Twitter promotions)

However, the next years will no doubt see tremendous innovation and social networks will transform our current experience of online shopping.  New forms of online shopping are likely to tap into social dynamics in new ways and will require more flexible and customisable shopping and payment interfaces. 

It is therefore essential that payment providers develop technologies that can support this development. PayPal and IP Commerce have approached this challenge by opening up their platforms to external developers.  However, the other major players, such as Visa, MasterCard and American Express will undoubtedly have their own responses.