The Directory Battle PART 1 – Battle of the Cloud

The Directory Battle PART 1 – Battle of the Cloud

This week we had both Finnovate and CTIA going on, and behind the scenes the battle lines are being formed in a forthcoming “BATTLE OF THE CLOUD” wallet. I didn’t include wallet in the quote because Battle of the Cloud sounds so much more ominous. Perhaps I should take a page from George Lucas’ playbook and start with Chapter 4.

I’ve been talking about the directory battle for some time now (see Clearxchange post).  Who keeps the directory of consumer information? As I outlined in Digital Wallet Strategies: “ securing information AND giving Consumers the exclusive ability to control what is shared with whom is a challenge (beyond technology and trust). We thus have many limited “Wallets” that are constructed around specific purposes”.

This week we had Visa’s President tell the CTIA audience that Visa has moved beyond NFC to V.me (see my previous post on Visa Wallet). What is really going on? What is the battle of the cloud?

Square, Visa, Google, PayPal, Apple, Banks, … have recognized the absurdity of storing your payment instruments in multiple locations. All of us understand the online implications, Amazon’s One Click makes everything so easy for us when you don’t have to enter your payment and ship to information. (V.me is centered around this online experience). Paypal does the same thing on eBay, Apple on iTunes, Rakutan , …etc.   But what few understand is the implication for the physical payment world. This is what I was attempting to highlight with PayPal’s new plastic rolled out last week (see PayPal blog, and Target RedCard). If all of your payment information is stored in the cloud, then all that is needed at the POS is authentication of identity (see blog). Remember US  online commerce is $170B/yr, physical commerce is $2.37T (not including FS, Travel/Entertainment).

The implications for cloud based payment at the POS are significant because the entity which leads THE DIRECTORY will have a significant consumer advantage, and will therefore also lead the breakdown of existing networks and subsequent growth of new “specialized” entities. For example, I firmly believe new entities will develop that shift “payment” revenue from merchant borne interchange to incentives (new digital coupons).  Another example is Paypal’s ability to selectively assume settlement risk on some transactions as they route through low cost ACH, or even allow customers to use BillMeLater to selectively convert certain purchase to loans AFTER THE FACT.  In these 2 examples, traditional payments revenue will be significantly disrupted by: lower cost transactions, competitive credit terms (each purchase), and incentives tied to payment type.

But do consumers really want to store all of their information in one place? With one entity given the ability to see all of your spend? For an mCommerce transaction, there is nothing I hate more than having to type in my name, address and card number in that tiny little screen.  Most of these mCommerce solutions (like V.me) are little more than an “autofill” where the merchant checkout page leverages API integration to the cloud service to retrieve user information (see diagram here). If I’m on my phone, my carrier already knows who I am, so seems fairly logical for them to help me with the autofill. This is a reason I’m now a big fan of Payfone. I could also see why it makes sense for Apple and Google. But why Visa? Does it make any sense at all for Visa to hold my Amex card?  Oh.. let me cast a few more stones on ISIS/NFC.. that payment instrument that locked in your phone.. yeah it can’t be used for the online purchase. Perhaps someday someone will write a secure NFC mobile browser plug in to extract data from the SE.. but that opens up a whole new can of worms.

Today’s online merchants are getting a very small taste of the war as they are asked to integrate auto-fill plug ins (Paypal, V.me/CYBS, Payfone, Google, soon to be Apple). Merchants should get on board with all of them, as they do represent a tremendous improvement in customer experience, and you may be able to squeeze some free marketing/implementation money from each of them. However, the cloud battle at the physical POS is still a few years off, as existing card products have a substantial advantage in risk modeling/fraud. This is where Square is taking a lead, as it has the best consumer experience hands down. Low volume merchants really should assess whether they need a specialized POS system, as the parameters for selecting one have shifted from ISO/Processor/Cost/Acct Recon/Book Keeping to Sales, incentives and customer experience.

Battle starts in mCommerce/eCommerce

My guess on timing of V.me is driven by knowledge of Apple’s impending plans to “extend” its iTunes account to payment outside of the Apple ecosystem. Visa sees this network risk and is in an all out war to protect its network, by leveraging its CYBS asset online. The banks have worked on a directory concept for quite some time. The Clearing House (TCH) built a working system called UPICK to solve the problem of consumers giving their RTN/ACCT# out in the open.. assigning a virtual number to the account. A sort of “virtual account number” that could only be translated by TCH.  It never took off, because ACH fraud was low and banks were much more excited about having merchants accept cards as payment.

Retailers are not silent participants to this war.. their champions are Target, Tesco, Amazon, and Rakutan. I hope Amazon will finally dust the plans off of One Click expansion. Other retailers are also aligning to assess creation of shared cloud infrastructure.  Sorry I can’t comment more. Similarly MNOs are also in the cloud game, for example Payfone may be one of the best services in the market..

Who are the players in the Cloud [Payments] War?

The initial battle will be in mobile/online purchases.

• Banks: V.me, Mastercard,
• Platforms: Apple, Google, PayPal
• Retailers: Amazon, Rakutan,
• MNOs: Payfone, Boku, payforit, billtomobile, …

Most confusing is that there are few alliances.. it is many against many.

http://tomnoyes.wordpress.com/2011/10/26/apples-commerce-future-square/

Google/TXVIA

3 April 2012

http://googlecommerce.blogspot.com/2012/04/google-acquires-txvia.html

Congrats to Google and the TXVIA team. Given that Google is a  client of mine I’m not going to comment on anything specific here.. but clearly this deal significantly expands the reach of Google at the POS. No longer will Google Wallet be dependent on a few thousand NFC phones in market.

The primary reason for my post is that a senior retail executive just rang me to tell me they are concerned about Google’s wallet and card strategy. It seems I was incorrect in dismissing the WSJ article on a Retailer Wallet. There is MUCH more structure here than I realized, and it is not just wallet that the retailers are contemplating.. but ownership of a new payment/incentive network. I would laugh if I didn’t want to cry..

• Banks are working to form “the next Visa” because they don’t trust the one in market today
• Retailers are forming their own payment network
• Banks are worried that Google will be the next PayPal, or Visa
• Retailers are concerned about Google killing their customer relationship
• Mobile operators what to own payments.. err… that was last week sorry… now they want to own marketing
• Retailers are refusing to adopt NFC because everything is a card transaction…
• …etc. I could go on.. but the chaos just continues

Retailers, I admit I am VERY biased toward Google. The issue in market perception is: through Google’s effort to be a neutral platform for consumers, banks, operators, retailers, … they appear friendly to the competition. For example, they have no desire to be a Bank.. or to be a Paypal.. but if Banks don’t allow for efficient payments (consumers and retailers) they must deliver an alternative.  Google wants to “enable” .. which can mean not picking winners.. but letting the marketplace select them (principle example is Card Linked Offers). This approach is embedded in to Google’s culture of billiant engineers running with a  great idea, and letting the market determine if it will work. Apple on the other hand engineers great customer experiences.. In a very, very controlled fashion. How many “partners” has Apple enabled? How many non-Apple businesses benefit from Apple’s platform? How many other brands does Apple support?

Google has no desire to take over retail.. they want to create fantastic consumer shopping experiences. Yes that means Google’s customers are the same as a Retailer’s customers.. and consumers will use a generic andriod shopping app vs. one your IT team built..

The paranoia is just contagious.. billions of dollars are being wasted because few know how to partner…  In Google’s efforts to be “neutral” they appear to be friendly to all. To retailers they are “too bank friendly”, to banks they are “trying to be a payment network”, to consumers “they are tracking everything I do”..

TXVIA will be a major turning point for Google in payments. This new platform will enable them to support their internal marketplaces in new ways, and give retailers new tools to deliver incentives on their brand. In the Google Press Release, they mentioned TXVIA support for 100M cards. Take a guess how many of these cards have a TXVIA brand on them? NONE..  It is a company that provides a platform to support many business models (like Blackhawk). If Google continues this approach they will win big.  Note, if they do develop a “Google Card”.. it may just be a pilot.. they are not taking over the world with their own plastic.

My top market question is: “what will Blackhawk do now that Google owns your card platform”? TXVIA is the best pre-paid software platform in the market.. hands down.