Brett King

Posts Tagged ‘google’

Could SOPA kill a bank website?

In Internet Banking, Media, Strategy on January 17, 2012 at 21:50

The PROTECT IP Act (Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011), is a proposed law with the stated goal of giving the US government and copyright holders additional tools to curb access to “rogue websites dedicated to infringing or counterfeit goods”, especially those registered outside the U.S. Both of these “Acts” would have massive impact globally, and could create absolute chaos. The PROTECT IP Act is a re-write of the Combating Online Infringement and Counterfeits Act which failed to pass in 2010.

SOPA builds on PIPA. Known as the Stop Online Piracy Act or SOPA, is a bill that was introduced in the United States House of Representatives on October 26, 2011, by House Judiciary Committee Chair Representative Lamar S. Smith and a bipartisan group of 12 co-sponsors. The bill, if made law, would expand the ability of U.S. law enforcement and copyright holders to fight online trafficking in copyrighted intellectual property and counterfeit goods.

As proposed, SOPA would allow the U.S. Government the power to block any website from both a DNS Lookup, and eliminate it from search engine results – without needing any court order. Due to the vague nature of the bill being passed through, this could create significant chaos. So what about for banks? Would SOPA/PIPA impact banks at all? Is it in the interest of banks to support or push back against these bills?

Enforcement process

The key problem with SOPA is around enforcement actions available to copyright holders and the US Department of Justice (DoJ). The enforcement actions are unilateral, brutal and extreme. Violators face immediate action against their site and/or business, and up to 5 years in jail for infringement. The fact that you might be in another country and not subject to US law, doesn’t really factor in this process.

If a violation is lodged by a copyright holder, or as SOPA defines it “the owner or operator of such Internet site is facilitating the commission of [copyright infringement]”, the site in question can be blocked at the DNS (Domain Name Server) level and removed from all websites. Payment providers (section (b)(1)) and ad networks ((b)(2)) are required, upon receiving a claim against a site by a copyright holder (section (4)(A)(i)), to cut off all services to the accused site within five days, unless they receive a counter-notification from the operator of the accused site. Note that there is no requirement that the accused be actually notified of the accusation, and thus, they would have no opportunity to provide a counter-notice. Probably the first you’d know about it is when your email stops working, or customers start calling letting you know your site is down.

The only way to provide a counter-notice to a claim or breach is to agree to submit to U.S. jurisdiction (section (5)(A)(ii)) if you are a foreigner, and to state under penalty of perjury that your product does not fit the definition of an “Internet site…dedicated to theft of U.S. property.”

The definition of SOPA around offensive ‘copyright violation’ behavior is as follows:

An `Internet site is dedicated to theft of U.S. property’ if [a portion of the site is US-directed] and is used by users within the United States and is primarily designed or operated for the purpose of offering services in a manner that enables or facilitates [copyright violation or circumvention of copyright protection measures].

This means that YouTube, Facebook, Wikipedia, Gmail, Dropbox and millions of other sites would be “Internet sites…dedicated to theft of U.S. property,” under SOPA’s definition. As far as being ‘US-directed’, any contact form that enables a US consumer to enter their details, would be in violation from this perspective.

There’s an excellent review of much of these specifics around the law and how it ties in with enforcement action on Mashable.

Scenarios to think about?

So what does this mean? To illustrate simply, lets say you post a video of your baby dancing to Beyonce’s new song, filming your kids song and dance routine of their favorite bands song, you post a review of a restaurant or show a photo of a new gadget you’ve purchased. The site you hosted it on would be banned from search engines, advertising companies would not be able to do business with that company and internet providers will be forced to block their customers from accessing those sites and you the uploader would be fined and sentenced to jail for 5 years on a 1st offense.

What about in respect to banks, banking content and possible SOPA violations?

Here’s a few banking specific scenarios that I identified from SOPA that could be problematic for banks:

  • A bank promotes an iPad or iPhone giveaway as part of an offer – unless you had Apple’s permission, you’d be in violation
  • The use of an image of a car or car brand in a motor vehicle insurance advertisement
  • Credit Card Loyalty programs that promote rewards using products would be in direct violation of SOPA
  • A contact form that allows a US citizen to apply for a pre-paid Visa Debit Card on a foreign website before they travel overseas on a trip.

Let me illustrate how ridiculous this is.

HSBC in Hong Kong offers a program of rewards for cardholders they call “RewardCash“. Their RewardCash e-Shop shows products like a Mophie Juice Pack, a Panasonic Rechargeable Shaver, Targus USB powered Travel Speakers, Victorinox 22″ Carry-on luggage, etc. Let’s say that one of those companies was trawling the web and found ‘image’ violations of their product, it could be interpreted that HSBC was using credit card ‘rewards’, miles or points as an alternative currency to sell those products and circumvent US distribution chains, and a complaint could be lodged with the Department of Justice. A similar complaint could be lodged if a brand owner feared fake products were being given away from this site. They wouldn’t need proof, just the ‘threat’ of potential impact to a US IP owner.

5 days later, HSBC.com (and other domains) would be removed from the DNS databases in the US and around the world, becoming totally inaccesible. While HSBC would have the right of recourse, the damage would be massive and very, very expensive. Internet banking would be down. The main website would be down. Staff email would be down.

Now, could this scenario really happen? It’s unlikely, but the point is that SOPA would allow such an action to be taken.

Imagine how much fun legal and compliance would have with this legislation?

A disaster

All in all, SOPA simply is a disaster for the future of business, free commerce and innovation. The Whitehouse Administration cautioned in a blog post last week that it would not support any bill that did not “guard against the risk of online censorship of lawful activity and must not inhibit innovation by our dynamic businesses large and small.” While this is not a direct condemnation of the proposed act, it seems probably that President Obama would veto this bill if it was passed into law – and he’d be right to do so.

The MPAA and RIAA lobby groups that have driven this law to Capitol Hill, should not be in a position where foreign banks could be brought to their knees by nonsensical legislation. This is very one-sided legislation.

When your Telco becomes a Bank

In Customer Experience, Economics, Future of Banking, Mobile Banking, Mobile Payments on September 8, 2011 at 16:46

The announcement that the Canadian carrier Rogers Telecom has applied for a banking license should hardly come as a shock to the retail banking fraternity. There is already a plethera of mobile carriers fully engaged in mobile payments right now, from Safaricom in Kenya, Orange (with Barclays) in the UK, the ISIS collaboration in the US, LG Telecom in South Korea, and the list goes on. Everywhere you look right now, there are carriers trying to muscle in on the mobile wallet and payments space.

Should Banks be Worried?

They should be terrified.

The fact is that it makes perfect sense for mobile operators to start thinking about offering banking products and services as we dispense with plastic and start using our mobile phones as payment devices. Increasingly, banks are being detached from the end consumer by a technology layer. Let me prove it.

PayPal reinvented the customer experience layer around payments, and in doing so set the benchmark by which Peer-to-Peer payments are made. Sure there are banks at the back-end of PayPal, but today I can take out my phone or get online and send you money and all I need to know is your email address or your mobile phone number. This is compared with the average wire transfer which requires account number, account name, bank name, bank address, SWIFT Code/ABA Routing Number or IBAN, etc, etc. Now we’re all wondering why it’s simpler, and in many cases cheaper, to use PayPal than a wire transfer through our traditional bank. Why go back to complexity and friction?

Today, if a bank wants to allow their customers access to Mobile Banking they have to go through a layer of technology called an App Store (or Marketplace). Sure, there is HTML5 and mini-browser mobile sites, but the fact is that if you want best-in-class interaction and engagement, you need to go App. So today, a bank must ask Google, Apple or RIM for permission to have clients access their bank via a smartphone.

Mobile Carriers are a significant threat to day-to-day banking

Are Telcos a Threat to the High Street Bank?

Well, yes and no.

If you look at broader offerings of financial service products, then mobile operators really don’t want to play in that arena. What most of the mobile operators are looking to do is play in the payments space, taking control of the wallet on your phone or offering pre-paid debit card type services.

In 2008 about 17% of the US mobile subscriber base were on prepaid deals, but since the GFC (Global Financial Crisis) approximately 65% of net new subscribers are prepaid users. In emerging markets like India and China 90%+ of the subscriber base is prepaid, and the same counts for sub-Saharan Africa, and broadly across Eastern Europe and Asia. So what does this have to do with banking?

Prepaid subscribers for mobile phones generally speaking are more likely to be at the lower end of the scale for retail banking (less profitable, underbanked) or even in the unbanked segments. These are customers who don’t have extensive multi-bank relationships, and who increasingly are moving to products like prepaid debit cards to facilitate their day-to-day banking needs.

So guess what happens when you combine a prepaid debit card with a prepaid mobile phone? It’s a marriage made in heaven! What’s the difference between making a telephone call, an ATM withdrawal or a debit card transaction at a merchant – they are all just transactions from a value store.

It’s likely that as Telcos figure this ‘secret’ out that they will be aggressively going after that marginal layer of customers that are underbanked, and promising utility that a bank can’t provide in the payments space. The combination of prepaid phone deal with a prepaid debit card will likely result in the loss of around 10% of the retail banking consumer market in developed economies in the next 5 years in my opinion, as they migrate to this type of modality.

So What? We can Afford to Lose a Few Marginal Customers!

This will be the justification for lack of action from many retail banks; that the loss of these less profitable customers is not a bad thing. There’s two problems with that logic.

Firstly, this shift will create momentum behind changing payments behavior that will fragment day-to-day banking for many customers. Increasingly even your best, most profitable customers will be abandoning the old ways of payments to go for the utility of a combined mobile phone and payment device. Once I am managing your day-to-day spending activity, I can start to influence your decisions, spending and choices for more complex financial products too.

Secondly, the fact is that even these ‘marginal customers will likely be extremely profitable for Telcos, because to them it is just new revenue, and they don’t have all the expensive infrastructure that banks have around the very traditional (some would say antiquated) retail banking system.

The implications for banks is that they lose touch day-to-day with customers, and the day-to-day retail front-end of banking becomes owned by telcos, App stores, social networks and marketing organizations. The bank becomes the back-end manager of risk and the product manufacturer, with the lowest margin of the whole value chain.

How Steve Jobs Killed the Branch…

In Customer Experience, Future of Banking on August 25, 2011 at 04:37

As the news of Steve Jobs’ resignation rocks the world today, it’s almost like we’re reading his obituary rather than the news that a Fortune 50 CEO has moved on. The impact of Steve’s resignation will be felt hard on Apple’s share price no doubt, and even potentially hit the very fragile US market at a time of uncertainty. Although Apple’s leader has had a question mark over his health for some time, the eventuality of the departure of such an iconic leader was always going to hurt.

When we look back at the amazing career of Jobs, the creation of Apple, his messianic return to Apple in 1997, the 200 patents filed under his name (although he has no formal engineering qualifications) and the meteoric rise of Apple Stock – from $7 a share in 2003 to around $400 today – we see the evidence of something amazing. But how has Steve Jobs influenced financial services, and how will his legacy continue to influence the sector?

The Graphical User Interface through to Multi-Touch

Although largely attributed to the team at Zerox PARC (Palo Alto Research Center), Apple was the first company to commercialize the Graphical User Interface. The GUI led to the modern computing interface, the creation of the mouse, and the concepts of human computer interaction and usability that are so widespread today. These are at the very core of our understanding of the way individuals interact with devices today.

For almost 10 years (1988-1997), Microsoft and Apple were locked in a legal battle over the apparent IP infringement of “Windows” in respect to the LISA and Apple Macintosh GUIs. Regardless of the eventual outcomes of this battle (which ended in a private settlment between MSFT and APPL in 97) the fact is Jobs’ team (that included much of the PARC team) were credited with the first mass market GUI implementation. Since then the GUI has been a basic element of our computing. The VT-220 green-screens of old have long ago disappeared, thankfully!

However, Apple totally upped the ante in 2007 with the introduction of multi-touch. Combined with Nintendo Wii launch in 2006, multi-touch saw the emergence of a range of direct input innovations. Microsoft followed soon after with Kinect, incorporating gesture based control. Multi-touch was the first incorporation of human control that was direct input, as opposed to a mouse and a keyboard. Even the Wii was an evolution of the input device – multi-touch eliminated an input device all together. This development has forever changed our expectations of device interaction.

Steve Jobs - Branch Killer, Innovator and Visionary (Photo Credit: Apple)

Of course, as banks we’re already massive deploying iPhone, iPad and Android Apps for mobile banking, but we’re also incorporating other direct input methods such as gesture recognition and biometrics into the experience. Recently bank branches have started deploying touch screens, media walls, Microsoft surface tables and even facial recognition in signage displays. Itau bank in Brazil has developed an ATM that uses gestures and 3D to control interactions. But the biggest change was not around input, but a shift in the value of the bank in our day to day life.

Detaching Banking from the Bank

This is not the sole legacy of Steve Jobs and the team at Apple, but when we look back on banking in 10-20 years time when branches have disappeared, we will attribute the destruction of the traditional value chain of banking to the death of the ‘store’. Not all stores are destroyed, of course, but where you have goods or services that can be easily digitized or where distribution does not absolutely require physicality, then the value chain is disrupted. The two big upsets in this evolution of the store were really Amazon’s destruction of the book store, and iTunes destruction of video and music stores.

iTunes was the more significant disruptor for banking, because the “App” has disrupted the retail financial services distribution platform by changing ownership of the customer experience. Today banks who want customers to have access to their banking through a mobile “App”, no longer have direct access to customers. Customers download the ‘bank’ from Apple or from Google, and banks need to meet the criteria of the ‘store’ before customers can get access to that functionality.

In the future the destruction of the physicality of banking from branches, cheques, cards and cash will all be attributed to the emergence of the iPhone. The smartphone with Apps, supported by an App store in the initial instance was the trigger for a whole evolution of interaction on-the-move. Then the mobile wallet and distributed, pervasive, engaged banking through a device that enables payments and connects customers with their bank everyday, will eliminate the need for “the bank”, but not banking products and services.

Gone, but not forgotten

When historians look back at the massive shift in banking and the rapid decline in branch activity, the death of cheques, plastic and cash – the inflection point will be the creation of the App Phone. This is perhaps Steve Jobs’ greatest legacy for banking today.

He has changed the way our customers behave, he’s changed the way we think, and the way we demand service. Thanks to Steve Jobs’ vision – banking of the future will be about banking embedded everyday into our life, a true utility, and no longer a place you go.

In the end when the dust settles, there will still be banks at the backend owning the wires, payments networks and carrying the risk, but they won’t own the customer. The customer will hardly notice banking embedded in their daily life as they go shopping with their phone, as they buy a new car or home, or as they travel overseas or send their kids off to college. It will just be a part of our everyday life, and my kids won’t even remember the days when you used to have to go to a building before you could do this stuff.

The Total Disruption of Bank Distribution – Part 3

In Bank Innovation, Customer Experience, Future of Banking, Technology Innovation on July 12, 2011 at 07:37

Massive spend on innovation at the front-end of retail financial services

Putting aside conjecture of whether or not we are in a bubble at the moment around tech, social media, and mobile services (which I believe we very well could be), the reality is we are seeing a flurry of massive investment in new distribution models and organizations acting as either technology or behavioral enablers. We’re used to seeing big numbers for M&A activity in banking, but we’re not used to seeing such a flood of start-ups and non-traditional competitors facing off against traditional players at the retail side of the business.

In just the last 3 years there has been more than $7Bn in private equity, venture capital and private investment made into non-traditional financial services start-ups that challenge existing models. This is the first time globally that there has been this scale of challenge to the traditional retail financial services space from start-ups in the technology arena. To illustrate the level of activity, here are just a few recent investments in the New York fintech space alone (source: Quora):

SecondMarket ($15mm)– marketplace for illiquid financial instruments; secondmarket.com
Kapitall ($7.3mm)– discount brokerage with gaming elements; kapitall.com
Betterment ($3mm)– online brokerage for small investors; betterment.com
Plastyc ($2mm)– mobile based banking for the underbanked; plastyc.com
AxialMarket ($2mm)-
online middle market i-bank; axialmarket.com
BankSimple ($3mm)- online/mobile banking interface; banksimple.com
Covestor ($11mm)- platform to find SMA providers and invest with amateur traders; covestor.com
Hedgeable next generation investment management firm; hedgeable.com

However, in addition to these plays you have very some serious initiatives now doing major business in the space that used to be considered the sole domain of ‘banks’. Here are four examples:

Personal Financial Management

Mint was acquired by Intuit in September of 2009 for $170m. Mint has experienced meteoric growth in customer base. Today Mint has more than 5m customers willingly giving their personal financial data, bank account and spending information to receive the benefits of fine tuned recommendations for financial services investments and credit products.

Businesses like SmartyPig, which has a collaborative play with the industry, are very successful at stimulating simple behaviors like savings for specific goals. SmartyPig has raised over $1.2Bn in deposits for the partners banks it works with such as Citi, West Bank, BBVA, ANZ, etc. They utilize social media to encourage your friends and family to assist you in your savings goals. For example, my kids were able to use SmartyPig to solicit assistance from their grandparents, uncles, aunties, etc to help with their savings goal.

Admittedly, we also seen Blippy and Wesabe crash and burn in recent times. However, the readiness of the investment community to experiment in the space of services that are complimentary or competing directly with traditional FIs is clearly increasing.

P2P Lending

Lending Club, Prosper and Zopa are just three examples of recent successes in the P2P lending space. Lending Club is lending around $20m a month in loans, and have lent more than $300m, with an average loan size around US$10,000. In France, FriendsClear has recently announced that Crédit Agricole will be joining their efforts in a collaboration of sorts; exactly how this will work is still under wraps.

Zopa has lent more than £150m which means they are now approaching a 2% market share of the total UK retail lending market. Zopa’s average loan size is around GBP 5,000, but what is more significant is their Non-Performing Loans (NPL) ratio. Major U.K. banks typically recorded NPL ratios in the 2%-3% range from the mid-1990s through to 2007, but by the end of 2009 Lloyd TSB’s gross NPL was as up to 8.9% and HSBC’s hovering around 3% (source: Standard and Poors). So how did Zopa perform in this environment? Zopa’s NPL ratio sits at around .9%. That’s 10% of Lloyds and 1/3rd of the best bank in the UK HSBC!

Zopa's NPL Ratio is 10% that of Lloyds TSB in the UK

So how is it that a social network that lends money between its participants is better at managing loan risk than banks that have been at this for hundreds of years?

The key here is the positive psychology of social networks versus banks. If I lend money off a bank and I’m having difficulty paying that back due to loss of income, or just having a hard time making ends meet, I’m likely to let the loan slip and wait for the bank to chase me. P2P networks like Zopa, on the other hand, are finding customers proactively contacting them to make payment arrangements when they can’t meet their monthly commitment. Why?

Firstly, there are people at the end of the loan – not a big bad bank who “can afford the loss”. Secondly, the fact that there are people at the end of the loan versus a bank means that people are more inclined to prioritize paying back their loan to other people, over that of a large institution. This positive peer pressure is producing astounding results. I also asked Giles Andrews from Zopa about why he thought Zopa was better at managing lending risk than banks…

“I think our low defaults aren’t just because of P2P but because we built a better credit model, taking more account of over-indebtedness and affordability than banks”
Giles Andrews, CEO, Zopa.co.uk

Who would have thought that social networks would be better, safer, and more efficient at lending than retail banks?

In fact, P2P lending has been so successful that in recent times both Umpqua Bank and Fidor Bank (a start-up online, direct bank in Germany) have incorporated some P2P as a component of their bank platforms. Why take all the risk yourself as a bank, when some customers are willing to cover the risk themselves? But don’t think that P2P is just easy money. Wall Street Journal reported in June of this year that 90% of Lending Club’s applications were refused.

Maybe that’s why P2P is good business – because they actually take fewer risks than banks?

Pre-paid debit cards, E-Money Licenses and Payments

Amex, Greendot, NetSpend and Walmart are just three organizations that have recently made big pushes into the prepaid debit card arena in the US alone. Significantly, the US now has 40-60 million underbanked consumers (source: FDIC, Financial Times), half of whom have college degrees, and 25% of whom are prime credit rated. Many of these are opting out of the traditional banking system, but carry a pre-paid debit card. The pre-paid debit card industry will account for more than $200 Billion in funds by the end of 2011 along (source: Packaged Facts).

Top 5 reasons people get a prepaid Debit Card

The financial crisis has accelerated the increase in those whom no longer participate in the formal banking system. Since the financial crisis 60% of new mobile phone users in the United States have been no-contract, pre-paid phone users.

“As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States…”
Washington Post, December, 2009

Combined with increased account fees from big banks recently affected by reduction in interchange revenue, and modality changes, I think we can expect that increasingly customers who don’t need complex banking relationships will opt out of the banking system by using prepaid debit cards and in the future prepaid wallets enabled via NFC and mobile Apps.

In the UK Google, O2, BT and others are looking seriously at the combination of prepaid debit cards type functionality into a wallet. Google already launched their Google Wallet earlier this year, and we can only see more and more of this action in the coming months.

The raft of P2P payments, mobile payments and mobile enablement are bewildering at the moment. Undoubtedly, we’ll see many variations of mobile payments in the near future. With PayPal predicting $3 Billion in mobile payments in 2011 alone, the future of mobile-based prepaid debit cards looks very healthy.

Conclusions

We’ve never had such a concerted, technology-led explosion of retail financial services solutions that are directly in competition with the traditional players in the space. While some of these initiatives are complementary, increasingly we’re seeing startups that realize you don’t need a banking license to play on the fringes of the banking system. When you only know one way of running your business you will be increasingly challenged by customers who don’t relate to the questions you ask, the processes you have in place, and the insistance on using outdated physical artifacts and networks.

This is the first time we’ve seen a global attempt at reinventing the way banking fits into our lives on a day-to-day basis, and it is bound to create massive friction for a sector known to be very attached to traditional modes and models. One thing is clear, increasingly banks will be competing with new businesses that are faster, better, more relevant and aggressive than the long-held bastions of traditional savings and loans.

These businesses will embrace and exploit changing modality. These businesses will love disruptive customer behavior, they’ll encourage it!

Visa draws its lines in the battle for the wallet…

In Customer Experience, Mobile Payments on June 10, 2011 at 07:25

The announcement today of Visa’s acquisition of Fundamo signals the drawing of the battle lines in the face off between Mastercard and Visa in the mobile payments stakes. While I understand that a wallet is much more than just an NFC enabler, the announcement of Google’s NFC trial around their ‘wallet’ last month put some pressure on Visa to make a strong competitive statement against the Android positioning. But what does this mean for the mobile payments landscape?

There’s only room for a few wallet standards

While everyone would like to ‘own’ mobile payments and the mythical m-wallet, the fact is that the recent failure of ISIS to successfully launch a competing payments backbone means that in all likelihood the current card issuer networks will remain at the core of the mobile payments infrastructure for the time being.  This gives Visa and Mastercard a fairly significant advantage in owning the plug-in or API that enables access to the backbone. The wallet effectively acts as that plug-in functionality.

The challenge that Visa and Mastercard have at this point is not technology, but getting partner banks enthused enough to start aggressively rolling out solutions around mobile payments with their proprietary “wallets” plugged-in. The problem is that today you can count on just two hands the total number of banks globally who’ve enabled broader P2P payments as part of their mobile App strategy – such as Chase, Hana, ING Direct and ANZ – and that is an appalling legacy mindset hurdle to get over.

The fact that banks have been so slow to embrace mobile P2P enablement does not bode well for broader bank-led adoption of the mobile wallet. It means that Fundamo and Visa will have to rely on consumer take-up, or integration at the handset level for broader adoption. In this respect, the Google Wallet still probably has an advantage here, but if Visa gets a deal with MSFT/NOKIA or with APPL then all bets are off.

The other opportunity and challenge here is the pre-paid debit card market. With some 50 million+ underbanked in the US alone, with the increasingly strong debit card market in the EU and with China and India ramping up rapidly in respect to smartphone adoption, perhaps the greatest opportunity to be tapped will be integrating pre-paid mobile accounts and pre-paid debit cards in the same handset. It makes sense doesn’t it? What’s the difference between a pre-paid debit card enabled via a mobile wallet, and a pre-paid phone account? They are both value stores…

In that environment, Visa could do with some independence from the issuing banks – perhaps issuing their own pre-paid debit cards as part of the wallet proposition. Given their relationship with the banking community, however, I don’t expect a rapid independent solution to this problem.

The good news is, that Fundamo already has a strong financial inclusion play, so my view is that overall this move is going to be very positive, especially in emerging markets.

Visa's acquisition of Fundamo is a smart move in the battle for the Mobile Wallet

Circumventing the backbone might still be possible

The dark horse here could still be Apple, leading with a P2P solution that circumvents the traditional networks. Apple has just taken a shot across the bow at Telcos with their iMessage component of iOS 5, which circumvents traditional short-message-system networks, so they’ve shown their willingness to use their broadly adopted platform to challenge services that are redundant in the cloud world. In the world of payments, you only need large-scale adoption of IP-enabled handsets to start challenging this space and creating a new service framework. ISIS couldn’t do this because they didn’t have a way to get their service ubiquitous. Apple already has 250 million cardholders plugged-in to iTunes, so they have massive momentum already.  Could they turn that into a P2P backbone?

Sure. Apple will still need to plug in at the back-end in someway, but a cloud-based competitive backbone to the traditional payment networks would be even more pressure on the current interchange environment.

Long-shot? Maybe, but it won’t be long before the pressure on interchange fees, modality of payments around mobile wallets and the changing role of the POS (mobile becomes the POS ala Square and NFC) makes cloud-based alternatives viable. Certainly within the next 5 years this is likely to happen.

It’s still about context

While owning a wallet that has a rapid path to NFC and P2P enablement is a great start, I still believe the real trick with mobile payments is around the context of a payment. The big difference between mag-stripe/Chip and PIN interaction and that of a mobile NFC payment is that I can contextualize the interaction before, during and after the payment. That might be as simple as updating your account balance in real-time, or it might be about integrating offers and loyalty into the payment experience. Square is obviously counting on that as a driver for cardcase.

The challenge Visa faces right now is building context. The wallet is just a plug-in for payments. Where Google (Offers), Apple (iAd), Groupon, Foursquare and others are threatening is the context of those payments.

That’s where I can influence a payment based on location or a trigger.

That’s where I can steal you away using a competitor’s wallet.

That’s where I can circumvent a traditional payment interaction and avoid using the traditional POS all together.

That’s where I OWN the customer.

Visa has made a great start with their acquisition of some very solid tech in the form of Fundamo, but they’re not there yet. My greatest concern is they’ll wait for banks to add the context, and banks are even slower at doing this stuff than visa is…