The Inevitable ApplePay Blog

McDonalds+drive-thru

So, the payments unicorn has finally made its way out into the world, with more conjecture and hyperbole than, well, the last time Apple did something. Much has been written thus far about ApplePay and it’s going to be hard to write anything truly fresh at this point, but I will try.

While the mainstream media was ooing and aaahing over Apple’s innovative new product, us fintech geeks were generally a little underwhelmed by certain aspects. In truth, I was very impressed by the integration of biometrics and tokenization – absolutely leading edge in terms of where security should be (is a fingerprint a PIN, Mr. Durbin?), but the rest of the ApplePay news was a bit flabby and old. NFC? That’s been rattling around since 2003. Building a merchant ecosystem? Not really – just piggybacking on Google Wallet, Softcard and those nasty looking old terminals at McDonalds that have been gathering McGrime since 2006.

HOWEVER. I can only assume that Apple is thinking beyond a consumer electronic and have some tricks up their sleeve around BLE and owning the merchant side of the equation. On the BLE front – I can see more holistic initiatives in the pipeline that allow ApplePay accepting merchants to integrate some pretty interesting customer analytics relative to where they are in store, what they are looking at and for how long – clear expressions of interest in certain merchandise. On the owning of the merchant side of the payment – I am anticipating an NFC iPad in the not-too-distant future that will allow for Apple to equip small merchants with the ability to accept ApplePay. Of course, small merchants in the market for POS hardware won’t be able to do away with cards and cash. Square acquisition, perhaps, Mr. Cook ?…

And then, there’s that undefined “thing”… the Apple halo effect. While others have come before essentially offering ApplePay with a different logo, Apple has this bizarre effect on the press and public at large. I call it the “I Have His Gourd” Syndrome (obligatory Monty Python reference – I am British). Effectively, anything they produce whether it be a computer, phone, tablet or potato, immediately becomes the most sought after thing ever (God help us if they move into children’s toys.) For the first time in my life, my Mum can go to her book club and actually explain to her friends what I do for a living. Thanks Apple, at least for this small miracle.

So, here’s the big unanswered question that we at Javelin are going to attempt to answer… can ApplePay’s halo effect drive awareness and adoption of NFC / contactless and, by proxy, EMV devices? We have a survey out right now of small and micro merchants assessing just that. It’s a given that large merchants are shifting to EMV terminals and fast, but what of those 58% of US retailers that have less than 20 employees? These lingerers will prove an achilles heel to counterfeit card fraud at the POS for potentially years to come. ApplePay, for better or worse, could be just the bait they need to upgrade to EMV. I am more than a little excited to see what we discover…

iApathy

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So we are all waiting with baited breath for Apple’s announcement tomorrow of the payments messiah and I can’t help feel that this is something like the scene in Life of Brian where he is being pursued by religious obsessives, clutching his gourd and forcing him to huge in juniper bushes. I’m more than a little iFatigued by the fervor around Apple changing the face of payments. If Apple does, as is heavily expected, release the new iPhone with NFC capabilities and a roster of retailers ready to accept iPayments, what is game changing here?

Rumors seem to indicate that Apple has partnered with existing card brands, meaning a ready made network of acceptance, but nothing revolutionary and certainly no threat of disintermediation for the incumbents. If it is reliant on NFC, it is still hamstrung by the lack of contactless terminals in the market, a situation we don’t expect to be remedied for a few years until EMV catches light and frankly, the track record for mPayments in the US is not good. Both Isis and Google failed dismally in making it work and the one big success, Starbucks, is in many ways hard to replicate because of the unique attributes of their customer base (affluent, tech savvy and time starved). Apply the mPayments model to a Home Depot or a Target where customer throughput is less critical and it’s hard to see how there is a clear advantage over cards or cash.

I’m not so cynical that I’m not prepared to be wowed, and would very much welcome some truly innovative ideas in payments. But Mr. Cook’s idea of innovation thus far has effectively been limited to longer or thinner devices that can come in different colors.

iJaded.

Square Peg, Square Hole

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It was inevitable really that @Square would have come out with an EMV capable card reader sooner or later. Turns out it was sooner. Yesterday in fact. And in doing so, they answered a lot of lingering questions I had. Notably, how do you move from a business model built around distributing m-POS readers for free to one where the end user would have to pay for the device? My expectation was that the US would follow Europe with PIN pad readers that tether to mobile devices via Bluetooth. This would be quite a shock to the business model since these EU readers retail at around $99 per device. For the US small business that has grown accustomed to free(ish) card readers, this might well push them away from card transactions altogether.

Instead, Square has opted for a halfway house – an EMV reader that is not using PIN. I asked Square via Twitter if the reader was PIN capable and they replied…

@nickster2407 Hello, Nick. Right now we’re focused on the US which is a chip-and-signature market.

Actually, it’s not. Not yet anyway.

This decision to avoid PIN obviously keeps the bill of materials down and although we anticipate that Square can’t give these devices away, that the sticker shock for merchants will not be a deal breaker like a comparable PIN pad model. However, it also takes a lead in tipping the US to Chip and Signature (as preferred by Visa) rather than Chip and PIN (as preferred by retailers and the NRF). Just a reminder… Visa was part of the Series B investment of Square in 2011 to the tune of US$27.5 million.

While I think the decision for a Chip and Signature approach is more to do with maintaining the existing business model, it’s not difficult to connect the dots in terms of Visa’s chosen path for EMV and the devices that seed the market. EMV PIN isn’t dead, but this may precipitate a different course for US payment card security, further prolonging the bifurcation of the US vs. Rest Of The World.

Isis Rebranding Voteathon

Well, no great surprise there. Isis is no longer Isis, to avoid confusion with ISIS. I applaud Michael Abbott for having the courage to do this, and I think it could well pay off in the long run. It’s not as if they set the world on fire with the venture to date and they could use this as a valuable period of strategic recalibration (assuming their mobile operator overlords haven’t lost faith).

I figured we could consider a few names for the new Isis. Here are a handful off the top of my head and feel free to comment with your own. Go!

Cr-Isis (TM)

isis-survey1

 

In three years there will be a movie released, starring Jonah Hill. It’s about an ambitious and successful PR executive for an exciting new electronic payment system called “Ares” that’s set to revolutionize the way that people buy things with their phones. The name choice for the brand is made by a small and forceful CEO with an obsession with Greek mythology and LARPING, played by Danny DeVito.

Ares isn’t doing that great as a payment company. They backed the wrong horse technologically, have failed to excite the public and have experienced a few directional SNAFUs with ill conceived publicity stunts re-enacting scenes from 300 in a shopping mall in Denver, but they are finally on the cusp of going bigtime. Danny DeVito utters the line… “nothing can stop us now”.

Wrong.

While Ares has been focusing on winning hearts and minds in the US, another Ares has had a similar idea in the Middle East – “Al Reprehensible Extremist Sect”. This Ares is taking over great swathes of Syria and Iraq through anti-Western sentiment and a significant amount of bloodshed.

Faced with a PR disaster (who wants to be reminded of torture and execution when paying for groceries?), Danny De Vito insists that Jonah Hill heads to the Middle East to commence talks with the leader of Ares, accompanied by a plucky British payments analyst (probably played by Simon Pegg). Through various high jinks and inexplicable random acts, the sect leader embraces Western payments and ends up taking a position as CMO at one of the top 5 US FIs, Jonah Hill wins the day and the British payments analyst elopes with a camel.

Reality is very often stranger than fiction. In terms of things that Isis really didn’t see coming, having your brand kidnapped by a terrorist network with a better social media presence is probably not one of them. I really don’t know where they go from here. In fact, it’s hard to imagine a PR disaster in recent times that could be worse. Okay, the infamous US Airways tweet was pretty bad, but even that didn’t take over the entire brand name in the way that Isis is now experiencing. Given the level of concern that Isis currently has (a survey is going round their users to assess the extent of the damage) and the already shaky ground that they have been on for a few years (how much money have AT&T, T-Mobile and Verizon burnt on this already?), I expect there to be a do-over, with a new name and a fresh start at relaunching. In the meantime, a couple of thoughts on launching a payment company…

  • Acronyms are dangerous. If you’re thinking of giving your company a short name of three or four letters, then a cursory search on Wikipedia might be a good idea to make sure you’re aren’t sharing it with a gastrointestinal parasite or white supremacist group. The Electronic Transactions Association shares their acronym with a Basque separatist group, but they seem to get away with that because no one in the US knows or cares about a small enclave between France and Spain and besides, Jason Oxman is very nice.
  • Don’t pick a name that sounds symbolic, particularly of historic struggles. If we have learnt anything in recent years, it’s that terrorists love symbolism and pick names like Al Qaida and Taliban for that reason. Instead, choose a name that is benign and pedestrian, like Kabbage or Oink. Clearly no self respecting terrorist network would want to be called Oink. Or BlingNation.
  • Think globally, act globally. Could Isis have anticipated this? Actually, yes. This has been simmering in the background of global news for a couple of years, but they’ve been so wrapped up with getting people on their network that collective myopia has placed them where they are today.

Schadenfreude? A little. But I think there is still time for Isis to recover and they still might have a place at the table when NFC finally happens in around 2018. And PayPal* didn’t get burnt that badly with the recent crises in the Catholic church despite their name…

 

*PayPal / Papal. Geddit?

 

Is Amazon… “Fish and Cushion”?

Skeet-Field-LayoutI had the pleasure of speaking at NextBankUSA in Boston the other week on the Future of Payments, as I see them. It was a fun event, and provided some latitude to go off topic a little, including one of my favorite British comedy skits on Chip and PIN. Okay, I found it much funnier than the audience but that happens to me a lot. What can I say? I crack myself up.

The crux of my presentation being… “Chip and PIN” had no idea that they would inadvertently launch “Fish and Cushion” and that goes for the payments industry as a whole. Huge assumptions have been made that the architecture that exists today, and has done for decades (card / POS / checkout) will remain intact as we shift to EMV, which will hypothetically maintain the status quo for current ecosystem players when the mythical NFC payments unicorn arrives in around 2018. This assumption is broken on so many levels –  EMV (or, using the colloquialism Chip and PIN) backers assume that technology innovation will somehow take a nap for the next four years and that disruptive newcomers will sit idly in the wings until the requisite EMV card and POS penetration reaches a palatable level of traction. I think we’re ripe for “Fish and Cushion”. Meaning – a totally unexpected and counterintuitive success from an outsider that will broadside the incumbents. I think that the delivery of “Fish and Cushion” will come not from Apple, or Google, or Isis, or Facebook, or Square. I think it will come from Amazon. Here’s why…

While Apple has been touting “innovation” the last couple of years as a longer, or thinner, or more colorful device, while Google has been discovering that merchants aren’t going to give up SKU data easily, while Square has been facing the realization that their cash cow of free mag stripe readers has an expiration date (October 2015), while Facebook has been transitioning to your uncle’s social network and while Isis has been doing whatever they’ve been doing (taking over swathes of Syria and Iraq?), Amazon has been tinkering away with relentlessly removing friction from not just payments, but the entire retail experience. And this is the epiphany that the payments industry has yet to reach – as far as consumers are concerned, payments don’t need fixing. The retail experience does.

I used the “Fastlane” analogy for US retail at NextBank. Travel on any US highway for a distance and you’ll come across a toll and you will be faced with one of two scenarios. First scenario… you’re paying with cash and have to grind to a halt, quite possibly behind a long line of other vehicles that have ground to a halt. Second scenario… you’ve pre-registered with your local state for a FastLane transponder, have your payment credentials stored in the cloud and have luxury of passing through the toll at 60mph. Mag stripe and EMV are scenario one. NFC, BLE beacons and other wireless protocols applied to retail are scenario two. Amazon is an entirely different scenario – the roadtrip equivalent to teleportation… you don’t travel to the destination, the destination travels to you.

Amazon has been relentless in shifting from the electronic equivalent of a mail order catalog to a viable contender to all forms of brick and mortar retailer by focusing on what consumers want… anything they want in the world at rock bottom prices delivered to their doorstep in a timeframe that is compelling. Speed is being addressed by services such as Prime that deliver goods within two days or less to the home. Two days is a bit long for the dopamine release of an impulse purchase, so Amazon is addressing this with pre-emptive shipping of wish list items to dropship locations near you. They have also mentioned the use of drone delivery, although this one looks more than a little sci-fi for now (along with providing inspiration for a brand new sport I’ll call for now “Skeet Shopping”). In short though, the barrier of speed for online purchasing via Amazon is sufficiently truncated to negate a trip to the mall. Available products are almost limitless, given Amazon’s connection to third party retailers across the globe, and broadening from books, electronics and clothing to more mundane items like diapers, condiments and, in my case, cans of tuna fish. No, I can’t quite do my grocery shopping on Amazon yet, but it’s getting damn close.

And then this week, news of the Amazon Fire Phone went public, and with that news of Firefly. Granted, proof of the pudding and all that,  but the concept of Firefly as a conduit for connecting physical world items to a retail store in the cloud is inspirational. I should have a Fire Phone to play with next month and I’ll keep you updated on the experience.

Amazon seems to be truly connecting the dots here and while the payments industry struggles with collective myopia around EMV, they have seen the future of payments, and indeed retail transcends cards, the point of sale and even retail stores at all. Amazon is arguably, IMHO, “Fish and Cushion”.

 

 

 

The Mobile Payments Impasse.

Ball and chainOn a daily basis, I get an email about a new conference or report or blog around this fascinating new opportunity found at the  intersection of mobile and payments. This indicates a couple of things to me.

  1. I have become fashionable by accident. Like a stopped clock being right twice a day, my core area of research for the last ten years is red hot right now (this will pass). 
  2. With this much noise, there is a bubble. Bubbles burst.

And here is where I produce a nice sharp needle…

YES, there is a lot of activity around mobile payments at the moment. BUT, it is time for a reality check. The mobile payments industry is, as the name might hint, made up of two industries – mobile and payments. The former is radically evolving the way we interface with the world around us, having a significant impact on many facets of our daily lives. The latter is evolving with a speed best described as vegetable. And therein is the rub.

It is hard to think of a single mobile payments initiative in developed countries that is not anchored to traditional payment rails. Even iTunes and PayPal are connected to existing credit or debit accounts held at traditional financial institutions. And, these traditional entities are quite happy with the way things are. In fact, change is to be shunned because change would upset very well established dynamics around tried and tested “top of wallet” strategies and clear interchange models around “card present” and “card not present”. Change bad.

So, we have this dichotomy – the mobile industry chomping at the bit, desperate to evolve and disrupt and the payments industry, content with the status quo and although interested in what mobile can do, really see the handset as simply a new form factor at the very periphery of what already exists. Mobile is a veneer, that is all.

And it seems we are reaching an impasse. The ‘mobile’ part of mobile payments has ran out their leash as far as they can and are now choking themselves while they wait for the ‘payments’ part of mobile payments to catch up. In the US, this is a two to three year wait for EMV infrastructure at the POS, a move that is expected (but not guaranteed) to provide the requisite contactless architecture for NFC to ignite. Elsewhere, there is less of a catalytic event and more of an expectation that next gen POS upgrades will seed the market with the right technology. But again, this is just a change at the periphery and the status quo of traditional payment networks is intact.

For all of the bluster around mobile payments, the two most important stakeholders, merchants and consumers, are often overlooked. For consumers, existing payment systems work fine. Cards and cash are fast, secure, ubiquitous and relatively inexpensive. For merchants, yes, there may be some gripes relating to the cost of card acceptance, but that is pretty much the cost of doing business.

Mobile payments today are not trumping existing payment mechanisms in a way that is noticeable for merchants and consumers. Yes, it may be more convenient to scan a QR Code at Starbucks and redeem points, but that is not so measurably better than swiping a card that a consumer wouldn’t default back in a pinch. And, fine, that works for a major coffee chain, but the fact is that existing payment mechanisms are the ones we still have to use in the 99% of other retail locations. I’m not saying that there are no advantages to mobile payments. However, the opportunity for consumer / merchant value addition seems to be less around the transaction and far more around augmenting the retail experience. The mobile payments obsession is missing the point.

What it comes down to is this… this is not like moving to MP3s from CDs. Mobile does not and will not replace plastic for many, many years to come. And that is our reality. Mobile payments are this year’s hot conference item, but sober evaluation of the opportunity is starting to seep in. The payments industry will not adapt to change at the rate that the mobile industry wants it to. I just hope that the mobile industry has the tenacity to hang in there before moving to the next shiny object.

(Look, a blue car!)