Even though the official end of Summer isn’t for another few weeks, the impending turn of the calendar pages from August to September sure signals that summer is over . If that isn’t enough, the signs of Fall are also in great abundance: kids are going (or have gone) back to school, the days are getting a little shorter, the nights are getting a little cooler (well, unless you live in the Southern U.S.) and the U.S. obsession with football (and tailgating) is gearing up. Yes, folks, the football season in the U.S. officially begins on September 4th when the Super Bowl champion Seattle Seahawks host the Green Bay Packers . Already the Vegas odds makers have their money down on their favorite to win Super Bowl 2015 (hint: it isn’t Giselle’s husband’s team).
A more contemporary take on football has emerged over the years, though that has become even more of a seasonal cult classic than the traditional game itself: Fantasy Football. Even though Fantasy Football has its official roots in 1962, this sophisticated virtual spinoff of the real deal got into high gear in the 1990s thanks to the proliferation of digital communications and the popularization of the sport by CBS. Fantasy Football has teams and players battling head to head and participants vying for both money and bragging rights .
So in the spirit of Fall 2014, and with apologies to our non-U.S. readers whose own football obsession we all got to know better and fall in love with during the World Cup this past summer, I give you the lineup for the sport otherwise known as Fantasy Payments 2014.
Amazon Vs. Everyone
I mean, really, what aren’t these guys into? Founded in 1994, this massive online e-tailer started out as a little old online bookseller. Fast forward about twenty years, and they’re a massive marketplace that competes vigorously with just about every physical and online retailer. Their famous one-click Pay with Amazon button is now moving off Amazon to third party sites, competing with everyone else who has their sights set on digital checkout dominance. Their acqui-hire of the GoPago team and technology license in early 2014 culminated in the launch of their first (but surely not last) mobile POS package just a few weeks ago . Their Fire Phone , which is built on a forked version of Android, is intended to create a mobile ecosystem that they own and control – compete with the Firefly app, which makes their retail innovation, showrooming, easier and more efficient than ever. Amazon Fresh and its Dash device is designed to make grocery shopping from the comfort of a consumer’s own kitchen easier than ever (just scan the bar codes of stuff in your pantry and a shopping list is populated and submitted with payment linked to Amazon), with a big bullseye on the physical grocery store. Amazon Drones would replace local delivery (and local delivery services), if the FAA would only play ball. And someone with knowledge of Amazon even said at PYMNTS Summer School that Amazon will enter the physical retail space at some point. The news this past weekend is that they intend to take on Google and use Amazon’s data to create and monetize its own ad network.
Amazon is clearly all about using its scale and pricing power to gain even more of both, while making it really hard for anyone in the markets that it chooses to operate gain any of either. And speaking of that, Amazon’s notorious lack of profits is a potent weapon .
So what part of “everyone” can win in this matchup?
Visa Checkout vs. PayPal
At the ripe old age of 16, PayPal is indeed the granddaddy of digital accounts. It started on eBay, ignited and moved off eBay to enable secure payments transacting on etail sites on the web. Over the last 16 years, they’ve amassed just shy of 200 million accounts, worldwide, And off eBay, an impressive roster of retailers that accept PayPal as a checkout option: JCrew, Neiman Marcus, Saks, Net A Porter, just to name a few of my favs. Their partnership with Discover, now beginning its third year, was intended to accelerate their move to the offline world, by enabling consumers with their PayPal digital wallets to pay at the physical point of sale. But progress has been slow and the barriers large. For instance, First Data has sort of boycotted PayPal and merchants have pushed back over its pricing. Over the years, PayPal has improved its user interface, and launched its latest, one touch checkout, last week, leveraging the Braintree/Venmo platform that it acquired in 2013.
Life was looking pretty cushy for PayPal, even as recently as six months ago, given the absolute silence from the world’s largest payments network about its plans for a “digital wallet.” V.me launched in 2012 to a lot of hype and not much else. It sort of flopped around and seemed to all but shrivel up and die after CEO Charlie Scharf took over in 2012. But all of that changed when Visa launched its Checkout product in July of 2014.
Visa Checkout isn’t a digital wallet as much as it is an acceptance mark for consumers to use online in a “one click” fashion. Consumers can attach any card to Visa Checkout and then have a registered account that makes checking out on the web as simple as Amazon and PayPal. Merchant integration is said to be simple and efficient. Visa Checkout launched with Neiman Marcus, lululemon, Staples and Ticketmaster, among others, and is said to have driven lots of usage from consumers on the sites that are now accepting it.
But Visa Checkout is a different business for Visa, one that requires it to get both consumers and merchants on board. Most consumers already think they have a “Visa account” so that part of things might not be the long pole in the tent for them, provided consumers have an incentive to switch away from whatever they are using today . But will the merchants bite? Well, let’s just say that the relationship between the merchants and the networks, hasn’t been the happiest of marriages over the last couple of decades. Success will come down to two things: how many consumers use Visa Checkout and how much it costs merchants to accept it .
Where’s your money ? PayPal with a running head start of consumers and merchants or Visa Checkout with its massive advertising budget, well known consumer brand and loads of credit and debit cards in consumer’s leather wallets ?
Apple vs. Payments Status Quo
Thank goodness, we’ll all be put out of our miseries on September 9th, when Apple unveils its plan for payments. There’s been oodles of speculation for years now about how and what it will do, but no one really knows for sure. What we do know is that Apple never replicates anything, they reinvent it. They did it for music, they did it for mobile phones and they are doing it for healthcare and the home based on what we all heard at the WWDC in June. Apple may not be first to market but they are generally best in market once they enter.
Although we don’t know any of the specifics of what their payments solution will offer, we’ve seen some of the breadcrumbs they’ve dropped over the years. Passbook was launched in 2012 as a digital container for storing anything that can be read with a barcode, including coupons and loyalty cards. When iBeacons launched in 2013 as a way for messages to be microtargeted and delivered to anyone running the iOS7 operating system, it also unleashed a massive ecosystem that is innovating how brands and consumers interact. From what we’ve seen and heard, we can be fairly certain that Apple’s iPhone 6 experience will leverage iBeacons and probably a variety of payments technologies to recreate the relationship between consumers and their favorite merchants, all in the name of commerce enablement.
ASore the 180 million iPhone 6’s expected to be sold worldwide, and 80 million of those in 2014, enough to change the course of payments forever ?
MasterCard vs. Cash
MasterCard has declared a war on cash. And understandably so. With 85 percent of the world’s payments transactions still happening in cash, there’s a lot of room to move that volume to digital methods. MasterCard’s CEO, Ajay Banga, argues that the only way for the world to solve the financial inclusion crisis is to rid the world of cash. And MasterCard has been working diligently over the last several years to provide its issuers and channel partners with the tools to make that a reality. In markets where there are POS terminals, MasterCard has partnered with various issuers to make prepaid products more available. In markets where POS infrastructure is lacking, it’s using its MasterPass platform to digitally enable the exchange of value between individuals and merchants. In countries like Nigeria, MasterCard’s Nigerian National Identity card is the largest financial inclusion initiative in Africa with 100 million cards being distributed to Nigeria’s 167 million citizens. It also recently completed the acquisition of ElectraCard Services in order to accelerate those efforts in the emerging markets of Africa, the Middle East and Asia .
Yet, despite this focus and broad enabling platform, the needle away from cash has moved very slowly, if at all. Cash is still being used And in fact, is growing in its usage, as populations expand in all markets, emerging and developed, and cash is considered a trusted and widely accepted method of payment. Even in markets where mobile money is predominant, such as Kenya, consumers still need and use cash to transact at their local merchants. Cash-in and cash-out networks remain an essential part of the economy. And in countries like Russia, where consumers have access to digital payments products, Russian citizens chose to transact in cash because it is outside of the watchful eye of the government.
So who do you think has the best shot – MasterCard or cash?
Merchants vs. NFC
This contentious matchup has been around for the last eight or nine years, at least, worldwide, with respect to its use with the mobile phone. But the history goes back even further when considering its use in Smart Cards and contactless payments cards. Regardless of where you want to start counting the “season” matchups, the scoreboard has always pretty much read the same year after year: Merchants 1, NFC, 0.
The reason for this is pretty simple, yet surprisingly hard for NFC advocates to fully grasp. Merchants didn’t see the business case for installing and supporting NFC. In spite of the proliferation of contactless cards in the mid-2000s, consumers everywhere were still swiping or dipping and PIN-ing, and not tapping . Several of the large merchants that took the NFC terminal plunge, turned NFC off. NFC was driving virtually nothing in the way of payments transactions anywhere in the world and still doesn’t.
But two things have happened over the last year that many believe could give that story a new lease on life. The first is the transition of the U.S. market to EMV. With EMV comes new merchant terminals. And with those new terminals comes NFC capabilities. Even though, in the U.S., those terminals are shipped “dark,” (aka NFC is not turned on), the hardware will be in place . But statistics suggest that it will be another 6 or 7 years before all of the merchants and all of the merchant terminals are EMV compliant (and therefore have the capability to initiate NFC). Today, the estimates suggest that of the 13+M terminals in the US market, roughly 350k are enabled.
The second is the likelihood that Apple’s new iPhone will include NFC. That, pundits say, is the match that will ignite NFC for real this time. But that will all depend on what Apple wraps around the NFC capability and whether that will be enough to get consumer’s mouths watering for the NFC enabled experience. In the US, that comes down to how many of the 25 million consumers that are expected to buy a new iPhone 6 will take the bait and find enough places with NFC to try it out, what other experiences Apple enables via the iPhone using other payments technologies and iBeacons, what other players with apps on iPhones have up their sleeves, and ultimately, whether merchants are persuaded to make the move.
Is this the year that NFC finally gets points on the board?
Networks vs . Merchants
For a very long time, the networks actually forgot that they had more than one customer group to serve and that was the merchant. As bank-owned organizations for the first several decades of their lives, their priority was to make sure that what they did was for the good of their issuers and the consumers they served . In the early days, equipping consumers with cards that eliminated the hassle of payment in their stores, drove incremental customers and spend to merchants, and paying for acceptance was the cost of customer acquisition so accepted.
Over the years, things changed. Networks got bigger, merchant discounts and interchange fees got bigger too, as payments volume increased and issuers offered rewards to get consumers loyal to their products. Merchants got Congress to add a few pages to the massive Dodd-Frank Act to put a cap on debit card interchange fees for the big banks . But they’ve struck out in the courts so far in the U.S. on credit card interchange fees (Europe is another matter…)
As publicly traded entities with shareholders, networks began realize that merchants are customers, too. But from the perspective of the merchant, not much else has changed. They feel that their fees for acceptance are still too high, and that they have no real option but to go along with whatever the networks deliver .
That feeling fuels a number of dynamics that will determine how the payments landscape evolves over the next few years. MCX, is a merchant coalition that is working on an alternative scheme and set of rails for merchants that today drive $1 Trillion in spend. It’s also why merchants remain wary of NFC, and why they dragged their feet for so long to move towards EMV – they feel it “locks” them into a global standard from which it is harder to be extricated. It’s why LevelUp’s “interchange zero” proposition to small merchants has resonated and within a few months of deployment overtakes the networks in terms of volume. It’s also probably why there’s been little said by anyone about MasterCard’s proposal to charge extra for tokenization services.
Yet consumers don’t give two hoots about the merchant’s issues with the networks. They like their cards and they like using them at all of the places they shop in their neighborhood or around the world. Merchants could, if they really wanted to, ditch cards and go back to cash or check, but don’t because that isn’t how consumers want to pay.
In this matchup – who will prevail?
Cybercriminals vs. EMV
We have learned two things since the Target breach. One is that EMV would have done absolutely zippo to prevent it. The breach, and those that are now being reported nearly weekly now, are the result of malicious malware that attaches itself to POS software and enters merchant locations remotely. Cardholder data is then stolen when cards are used at the point of sale and the malware grabs the cardholder data. EMV makes it more expensive to produce counterfeit cards but it doesn’t stop the bad guys from getting inside the merchant location and grabbing cardholder information.
The second thing we’ve learned is that cybercriminals are among the most clever, productive, well organized and dedicated people in the payments community. They’re nothing if not nimble – talk about knowing how to pivot. So when EMV is implemented, just like the bank robbers who rob banks ‘cuz that’s where the money is, cybercriminals move online (and to other channels) in order to continue to put food on their tables. We’ve seen this repeatedly everywhere EMV is deployed .
The other thing we know is that fraud on any PIN based transaction is really, really low, even on those prehistoric mag stripe cards that we still use here in the U.S.. We also know that everywhere else in the world, EMV cards have entered the market as Chip and PIN. Yet, in the U.S., the largest payments market in the world, the standard is Chip and Choice – PIN not required.
IfSo we are really interested in stamping out fraud, is the lack of a PIN an invitation to these hard working and diligent entrepreneurs, who like all entrepreneurs are motivated by bragging rights, to crack the PIN-less chip? And since not all chips are created equal, some chips are static some are dynamic, aren’t we just tempting fate ?
So even if you’re rooting in this matchup for EMV, where’s your money ?
Bitcoin vs. Reality
Bitcoin-related ventures have attracted ~$270M of venture money so far this year. Most of that money, like 75 percent of it, is from U.S. VCs and directed towards companies operating in the U.S.. Funding amounts are pretty big, too: Xapo snagged $20 million for its bitcoin debit card and Jeremy Allaire’s Circle grabbed $9 million; Coinbase got $25 million in December 2013. Investors and bitcoin entrepreneurs believe that the price of bitcoin, which has fluctuated rapidly over the last year and is now trading in the low $500’s, could reach $100k and Xapo’s founder believes that each bitcoin could easily be worth $1M.
Merchants are starting to accept it, too. Overstock.com was one of the earliest adopters of bitcoin. It has said that accepting it will add 4 cents to its earnings in 2014 and it plans to allocate 3 percent of its profit to popularize its use. Dell reported recently that it processed a $50k order in bitcoin. And local merchants accept it in order to leverage the PR value that comes from doing so.
Yet the largest concentration of bitcoin usage is in the Deep Web, and for the purchase of naughty things that you wouldn’t want your mother to ever find out about. It has, in many ways, ignited these marketplaces since it was very difficult to pay for bad things using a credit card that would link buyer to seller And therefore, law enforcement at some point. Today, not only are these marketplaces flourishing, according to recent reports, the competition it has created has inspired whole new levels of customer service and product quality, never before seen in such transactions.
The bitcoin advocates say that bitcoin as the catalyst for skanky activities is nonsense. And that bitcoin and the underlying protocol enables the efficient and inexpensive movement of money between people anywhere in the world and is the future of money movement. They point to the fact that exchanges are now popping up all over the world that make it essentially instantaneous to send money from anyone to anyone anywhere – and for free . While some still hang onto the fact that bitcoin could essentially become the world’s first and only global currency, an experiment that even the complexities associated with a single currency and 28 European countries can’t seem to quash, “it’s the protocol, stupid,” that they say will change the world.
Governments, so far, disagree and the CFPB has practically written it off as riskier than jumping out of a plane without a parachute. Many businesses have, too, saying that if Bitcoin was that useful, they’d be using it instead of the traditional rails. Critics, we among them, say that once bitcoin has to comply with all of the regulations that countries want in order to maintain control of their money supply and economy – like KYC and AML just to name two – that bitcoin will have no advantage at all.
Yet that hasn’t stopped the investment and the hype.
So who comes out ahead this year – bitcoin or reality ?
Mobile Payments vs. EMV
EMV gets another shot to put points on the board, albeit in a nuanced sort of way. The march to EMV is underway in the U.S., at exactly the same time that merchants are motivated like never before to deploy mobile commerce initiatives that help them drive more foot traffic into their stores. Mobile, as we all know, offers merchants the opportunity to communicate in real time with their consumers, a channel that they’ve never had before and are eager to leverage. EMV has introduced a new variable into the mix, and is consuming the time and resources of merchants that already operate on very thin margins.
So the debate playing out now in real time in some segments is whether to make the move to EMV at all. The mandate isn’t really a mandate as much as it’s a shift in liability for those merchants that don’t have EMV terminals and don’t accept EMV cards, even if consumers still carry and use mag stripe cards at those terminals . Small merchants, and those in entertainment and hospitality, are doing the math and considering other options, like mobile payments, as a way to sidestep the investment in EMV while simultaneously deploying solutions that use tokenization and P2PE to keep cardholder data from being used nefariously. And since it’s likely to be 6 or 7 years, conservatively, before mag stripe terminals take their place in the Smithsonian as a payments industry relic, the big question they ask (and even we) is why not just leapfrog EMV altogether and move to mobile?
EMV advocates and critics of such a theory say that those merchants that don’t deploy EMV will be at a disadvantage since consumers will be suspect of any merchant that doesn’t accept a “secure” card. And it’s unrealistic for anyone to think that everyone will use mobile devices to pay so we need secure cards with chips in them. Speaking of mobile, advocates believe that EMV will only accelerate mobile payments since with EMV comes NFC and that will only make the path to mobile that much easier and faster. Yet, the 6 to 7 year timeline, and merchant wariness of NFC seem to suggest that the road to mobile via NFC could be a little bumpy.
Where will you place your bets?
Alibaba vs . Everyone
Alibaba is the biggest eCommerce player on the planet, powering 80 percent of eCommerce in China. It’s pending IPO this Fall is expected to be the largest in tech history. Alibaba’s initial focus at launch in 1999 was to be the Chinese marketplace to outside buyers with an interest in buying cheap Chinese goods. Today Alibaba is a place where anyone with anything to sell can do so on the platform. Over one billion products are listed on its site which is the 20th most visited website in the world. And Alibaba’s investments range far and wide, in things that touch just about every aspect of the Chinese consumer’s life: banking, investments, commerce, media and content, messaging and payment .
Alibaba has honed its pursuit of the incredibly acquisitive Chinese consumer over the last twenty years. For instance, Alibaba hosted the largest single day of online shopping ever on the planet called “Singles Day” on 11/11/13. That say, “singles” bought nearly $6 billion of electronics and other things – roughly six times US sales volume on Black Friday in 2013 . Alibaba enables an easy and secure way to pay online using Alipay, which it owns. With its 800 million customers, Alipay also drives nearly half the online transactions in China and has nearly 6X as many registered accounts as PayPal, 4X that of Amazon, and 1.5X that of Apple iTunes . And as a result, Alipay has had no trouble getting consumer and merchant adoption just about anywhere it wants to take it. It is reported that 60 percent of the parcels delivered in China are from one of Alibaba’s enterprises. Alipay accountholders can also conduct offline transactions such as pay bills and Alibaba has been focused on acquiring even more Alipay accounts and getting consumers into the habit of using them by partnering with Taxi companies and subsidizing the rides for both drivers and riders.
Once Alibaba’s IPO happens, it will be flush with cash, cash to make any number of acquisitions or investments in becoming even more of a global commerce player than it is today, taking its 800 million customers with it. Its $206 million investment in branded retailer mall, ShopRunner, is an example of its intention of being a global commerce powerhouse. Its ability to bring those 800 million incremental customers to American merchants and authentic American merchandise to the Chinese consumer is a value proposition on a scale that few other players can even begin to contemplate, including two other players who names also begin with an “A”: Apple and Amazon. ShopRunner pilots are underway now in advance of a full scale launch to test the payments, logistics and other operational details .
Alibaba has already changed the commerce game but once its coffers are filled with its IPO haul, it could unleash even more innovation that could change the commerce game globally in a very material way.
Who comes out on top ?
So now you have it: The Fantasy Payments Lineup for 2014.
The players have all taken the field.
Let the games begin!