Brett King

Posts Tagged ‘visa’

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…

Banks and Credit Card Issuers beware – Apple just stole your business

In Customer Experience, Mobile Banking, Retail Banking, Technology Innovation on October 17, 2010 at 23:01

200 individuals were the first to receive credit cards issued by Diners Club in 1950, the brainchild of Frank McNamara. It was the start of a completely new era in personal credit and payments. American Express entered the credit business with its own card in 1958, within five years had issued more than a million cards.

Today there are more than 1.6 Billion credit cards in circulation, and the US credit cards industry generates $2.8 Billion dollars a year in revenue. One in 12 households in London (or 8 per cent) have used credit cards to pay their mortgage or rent in the last 12 months and outstanding credit card balances stood at £63.5 billion in November 2009. By 2013, China’s consumer credit market—encompassing credit cards, mortgages, and other personal loans—will account for 14 percent of profits in the banking sector.

Growth in Contactless Technologies

In recent times we’ve seen the move to NFC or Near-Field Contactless credit cards. It is estimated that NFC enabled credit cards will reach the tipping point in 2011, with a total of 30 million British contactless bank cards alone being issued by then. The ease of use of an NFC-enabled card is obvious, no swiping, no inserting. Steve Perry from Visa Europe said that the rising popularity of contactless technology brings the promise of a cashless society where there is no longer any need for people to carry notes and coins around with them.

“Contactless is as revolutionary as the shift to internet payments was five years ago. It will mean having no notes and coins – it will certainly mean having no coins. It will move us almost to a cashless society.” – Steve Perry, Visa Europe

But as the modality shifts toward NFC, the reality is that the physical card itself does not represent a competitive advantage or differentiation for banks or issuers, not that it does today. Once the move to NFC-enabled POS terminals is ubiquitous, it’s probably easier just to carry your phone to make payments than a gaggle of credit and debit cards. That’s not going to happen overnight though right? Cards as a product are still too strong to be replaced by mobile quickly, so we have plenty of time right?

It will happen quick…

WRONG. We know that Apple is working on an NFC-enabled phone, and given their recent hires in the space, it is assumed that the iPhone 5 will be the platform for this change. So how will Apple’s NFC-enabled iPhone 5 work? We know a few things about the likely capability of the phone based on the patents issued by Apple. Firstly, the payment application will be a core app integrated into the phone, there will be a biometric strip (presumably enabling fingerprint authentication) and the phone will ostensibly work just like an EMV-chip credit card.

Some of the detail of Apple's NFC patent for the iPhone

The question you are probably asking is, how will the payment mechanism work? Here’s where it is largely speculation because Apple is being extremely tight lipped. We know that the primary payment app will work as an interface to your bank or credit card company as you need it to. However, it doesn’t take a rocket scientist to work out that Apple could use its current iTunes store platform to provide stored value for an effective debit card mechanism. If Apple was to use this mechanism as the underlying currency or stored value behind their core ‘debit card’ equivalent payment capability, they would effectively become a bank overnight, and one with perhaps an even stronger differentiation than any other debit card on the market today. Other handset manufacturers and mobile platform providers would be sure to follow as Apple’s payment capability quickly becomes ubiquitous. That is, if the payment networks talk to Apple’s iTunes store…

Competing with Apple, Google and Microsoft Mobile

So how will banks compete in such an environment? Well banks can’t issue their own mobile phones like Apple or Google’s partners can, and plastic cards and checks look downright archaic in comparison to such a payment paradigm. The only choice of Card issuers and banks would be to embrace the new technology and scramble to partner with the handset manufacturers and mobile OS owners. Visa has already deployed their Visa Paywave solution on the iPhone, but currently you need a cradle or sleeve that the iPhone sits in to do the sexy NFC bit, that simply won’t be necessary on the new device.

So the question for banks in this new environment would be how do we now issue cards to customers? Do they have to come into the branch for us to configure their phone? Given how easy it is to upload iTunes credit, this would be a huge competitive disadvantage, so the compliance procedures applied to the current physical process of card issuance become a millstone around the bank’s neck and result in rapid disintermediation. Within the space of 3-5 years, banks no longer have a credit card business. Sure, they might eek out a small business settling payments between Apple’s iTunes store and the bank, but compared with the size of the card business today this would be miniscule.

Challenges Ahead for Banks

What about if a customer could download a new “credit card” from the iTunes’ App store, or from Google’s Marketplace? Well how would you qualify for the card as a customer, are there different card apps for each bank, what is the onboarding and risk assessment process?

Don’t be tempted to think that the protection of existing payments networks or a bank license will protect your existing business from such innovation. If Apple does launch their NFC phone and announces collaboration through Visa and Mastercard’s payment network, do you honestly think with millions of iPhone 5’s going out the door that the regulator is going to call a halt to payments from a phone?

Seriously, if you are a bank, it’s likely that in just 8-9 months you’ll be faced with competition from non-banks who can do the whole NFC-enabled phone payments thing much faster, easier and more compelling than you ever could by issuing a plastic debit or credit card. And guess what?

If you’re the CEO of a bank, you probably don’t even have someone appointed to work on mobile credit card onboarding yet, so what’s the likelihood you’ll be ready to compete?

Let’s try plan B – let’s go to the regulators and see if we can stop mobile phone payments as a mechanism shall we?