I’ve been meaning to post this super long blog on network profitability.. 8 weeks ago. I’m almost finished.. to encourage completion I promised myself not to post anything else until it was done. Well.. I’m breaking my promise.
For frequent readers, most of you know that I love PayPal. They just rolled out their latest “vision” today
I thought it was some sort of joke.. PayPal.. if you are listening.. please take it down. Do you really plan to penetrate large multi-lane retailers?! That POS demo with someone keying in their phone number and password.. yeah a grocery store would LOVE letting their customers spend 2 min on a payment terminal. Come on guys. Why not focus on your existing small merchants? Maybe you are but wanted to show something different. I almost spit out my lunch as I laughed when the lady self scanned in the aisle, put the items in a bag and walked out of the store by waving her phone above her head to the cashier busy with another customer. Yeah…. store of the future.
My hope is that PayPal outsourced the video to a 3rd party and forgot to review it.. With Sig and PIN interchange both sitting at $0.21 + 5bps what would motivate a merchant to take PayPal? Do you go after merchants that do not accept cards (ie Square’s market)? existing merchant customers? big retailers? There is no way I see big retailers going your way.. too much change in customer behavior at POS.. I do use my PayPal debit card … but typing in my phone number? Heck I don’t want to do that and I love you guys.
On another front.. I just read the ABA journal article on Visa’s CAP initiative.
These experts are all wrong. I can tell you why the big banks will not go with this.. it is about risk management. Currently the big banks can manage fraud with custom infrastructures.. banks compete on ability to manage risk (including fraud), putting this technology out puts all banks on a level playing field and wipes out all of their investment edge. Take this together with a $1B+ plastic reissue cost and a $5B+ re-terminalization AND a rotten bank environment and you have a very poor environment for adoption. I do believe banks will selectively reissue to global travelers. I can’t even use my mag stripe cards in Canada anymore. The ABA analysis is all wet. The worst line in the article has 2 major hypothesis which are completely unsubstantiated.
1) … they [Issuers] may push for shifting more of the fraud losses and fraud prevention costs to merchants.
2) As is the case in some countries and as proposed by Visa, merchants would only get the current guaranteed payment if they adopt the new chip technology.
ABA.. come on!! Merchants and Issuers both have legal agreements in place. What dark crevasse did you pull these ideas from? For point 1), Durbin allows for future adjustment (to rate) if banks can show that fraud costs are not being covered. What we will see is the death of signature debit. PIN Debit rates have been show to one fouth that of signature (http://www.digitaltransactions.net/news/story/2845) … so the change will be toward PIN only transactions at merchants. This PIN model combined w/merchant ability to route transactions is a very big threat to Visa’s network.. How will Visa address? By creating a Chip.. everyone must validate it with Visa.. THIS IS THE PRIMARY STRATEGIC POINT. What banks and merchants will agree on is that Visa has no place in a debit transaction.. as we will see later in the year 2 large banks will roll out their own network…
For point 2) FORCED re-terminalization? … yeah that will win friends. As you can see from Durbin merchants have the power this year. So Visa will force merchants to accept a new agreement and incur additional expense? In the EU, Visa used the carrot.. not the stick. So please, please give me an example of Visa pursuing this approach in any country. For history, I ran channels for Citi in 47 markets.. and didn’t see this.. but perhaps they did it in last year or so.
ABA’s next point caused me to choke
Not only will chip technology accelerate mobile innovations, it is also expected to secure payments into the future through the use of dynamic authentication
Have you heard of NFC? I don’t disagree that Visa would love to create a platform where they are the trust authority.. but the banks and mobile operators have different plans. Visa’s CAP plan is a poor attempt to build a platform where they have additional control over merchants, consumers and banks. Mobile is causing tectonic shifts in where and who performs: risk, authentication, KYC, mobile provisioning, clearing and settlement. These are all threats to Visa’s network, CAP is their attempt to put barbed wire around their decaying model.. to keep customers from leaving…