Power Plays And Partnerships: Chase, Starbucks, Visa And MasterCard

Ready. Set. Shop.

That is the major takeaway from the roundup of retail headlines now that the spooky (Halloween) season is officially over. Where consumers are going to shop, how they are going to shop and, most importantly, how much they’re going to spend is eating up the airwaves.

However, with the holiday shopping season only 24 or so hours old, “predicting” mostly still remains the polite word for “guessing” when it comes to the immediate future. But the good news for the regular Data Dive reader: Most of the time, the best way to know what’s next is to know what’s going on right now. Which regular readers know is our specialty here.

So, who were last week’s power players? Well…

Chase Pay Moves On Merchants

The wait is over. Chase’s payments platform is in play.

And betting that better payments economics for merchant partners might be the magic mobile payments is waiting for.

Chase is leveraging “merchant friendliness” as one of the leading value propositions for its platform, offering “favorable payments economics,” as well as the integration of existing merchant loyalty programs, into its mobile payments platform.

Those favorable payments economics will mean that merchants will pay a fixed fee for payments processing, zero fees for value-added features, such as security and tokenization, and will be indemnified for consumer-directed fraud. The operating theory being that if Chase can make it, on average, cheaper to take their payment via Chase Pay, it has reasons to encourage consumers to use it, and if enough consumers use it, that ol’ magic flywheel of payments network effects kicks in.

Chase achieves those lower costs because it operates its own closed-loop network now. The deal it inked with Visa two years ago essentially gives it direct access to Visa’s network at a negotiated rate. Chase is additionally the #1 wholly owned merchant acquirer and debit/credit issuer, bringing 94 million consumer accounts to the mobile payments party.

It all plays as part of a larger strategy that CEO of Chase Commerce Solutions Mike Passilla referred to as “beating the swipe” — something he’s identified as a necessary goal for actually cracking scale and success in mobile payments.

Announced in tandem with the glimpse under the Chase Pay hood was the announcement that the platform is formally pairing up with the “merchants mobile platform” — MCX’s CurrentC.

The partnership with MCX brings merchant scale to what Passilla describes as a platform with existing consumer scale. The rollout of the 100,000 merchant locations that are part of the MCX network will begin in mid-2016.

Gordon Smith, CEO of consumer and community banking at JPMC Chase Cards, noted that the pair-up with MCX, which comes part in parcel to access to major consumers favorites like Walmart, Target, Best Buy and Shell, sends the company’s mobile payment play into the market with a cloud-based solution for almost everyone.

“Our partnership links Chase and its customer base with CurrentC’s extensive network of leading retailers, restaurants, grocery stores and fueling stations, which process over a trillion dollars in transactions annually at more than 100,000 U.S. locations. This is a significant milestone, not just for MCX and Chase, but for mobile payments overall as the industry continues to take shape. Everywhere CurrentC is accepted, Chase Pay will be accepted,” Smith confirmed.

Chase Pay, unlike many of the other major market players jousting for the mobile payments crown, isn’t NFC-dependent, instead opting for the much more accessible. More or less, any consumer holding a smartphone with a working camera can use it.

To account for security concerns, Chase Pay will also deploy tokenization to secure payments — across all channels — in-store, in-app and online.

That was the big news out of Chase. There was also the quiet news that JPMC would be taking over where Square left off processing payments for Starbucks. Hopefully, Chase can do better than the $71 million loss Square sustained in three years of processing for American’s favorite purveyor of caffeine and smooth jazz.

And speaking of Starbucks.

Starbuck’s Magical Mobile Blend

The sale of coffee at Starbucks remains amazingly warm, quarter in and quarter out.

Which is not to say things were exactly piping hot.

Starbucks met analyst expectations in its Q4 results with earnings per share exactly in line with analyst projections of $0.43. That, however, was paried with a slight miss on current quarter projections, which had after-hours trading implications with a small but visible dip.

However, on the whole, Starbucks saw profits up 11 percent and same-store sales on the rise at 8 percent. Starbucks is approaching two dozen consecutive quarters of same-store growth up more than 5 percent. Global sales were also above The Street’s projections of 7 percent, at around 9 percent. That was largely driven by a larger-than-expected bump in U.S. sales that offset growth only 6 percent growth in the Asia Pacific region.

Most interesting to watch, however, is the increased primacy of digital in the Starbucks business line. The holiday quarter EPS forecast of $0.44–$0.45 came in a hair below analyst’s consensus of $.47 — a difference at least partially attributable to the firm’s commitment to technology investments.

All in, Starbucks will push $100 million to $125 million into technology programs in FY 2016 — that comes on top of $145 million already invested in FY 2015. That big investment will hit margins some.

But the upside for Starbucks is also measurable. Digital engagement was up 4 percent in Q4, while mobile users grew an overall 32 percent year on year in the latest quarter across the United States and Canada.

Mobile ordering accounted for more than 20 percent of transactions in the U.S. in October, and it’s been available throughout the U.S. for only about a month, the firm noted during its call with investors and analysts to discuss the earnings.

Starbucks’ executive team continually reiterated during the call that the company stands “at the intersection” between the physical and digital worlds and sees how advances in one feed advance the other — in the form of marked improvement in traffic and lines that typically have snarled smooth operations during peak times for the coffee retailer.

Plus, on top of the expected starring role Starbucks played during its own earnings call, it also had a significant guest spot during Apple’s Q4 earnings report last week, with frequent reference made to signing Starbucks into the Apple Pay merchant stable.

Of course, such touting makes sense on Apple’s part given Starbucks extraordinary success in habituating its large active fan base into mobile payments. Apple’s latest consumer adoption numbers might just indicate that it is hoping some of that mobile magic juju might just rub off on them.

However, lest you think last week was a total love fest with everyone, everywhere partnering up and hugging and such, there was plenty of good old marketplace competition.

Visa & MasterCard Get Ready To Rumble

It’s not all about finding new ways to collaborate in the digital environment; it’s also about competing for market share.

The United Services Automobile Association (USAA) — the financial services brand most closely affiliated with serving military men and women and their families — announced last week that it is officially jumping ship to Visa.

With that move comes the end of a 30-year relationship with MasterCard and the flip of its entire portfolio of debit and credit cards in the U.S. The firm noted that Visa “provides [it] the opportunity to offer more benefits, including the elimination of foreign transaction fees for all USAA Visa credit cards” beginning next year.

“Most cards will be changed from MasterCard to Visa throughout 2016,” says a statement on the USAA site.

USAA-issued MasterCard debit cards were responsible for $26 billion in purchase volume in 2014, according to an April 2015 issue of the Nilson Report. USAA is the tenth-largest issuer of credit cards in the United States, with $17.53 billion in outstanding loans as of June 30.

For its part, MasterCard noted in a statement that it had “reached a point where the economics [of re-upping its arrangement with USAA] did not make sense.”

“While we don’t like losing anything, this is part of our business, and we factor this into how we work.”

The week also brought some good news for MasterCard: It’s partnering with Cardlytics to bring new card-linked loyalty offerings to U.S. banks of all sizes.

“Card-linked marketing is a frictionless way for consumers to get more value from their shopping experience and for merchants to drive more sales at a higher return on their advertising dollar,” Christopher Bond, SVP of loyalty solutions at MasterCard, noted.

“By partnering with Cardlytics, we can provide a proven, loyalty-driving solution to our partners in the form of a compelling offers program with high-quality advertisers and reward consumers based on the kinds of purchases they’re making already.”

According to Mercator Advisory Group, merchant-backed rewards drove nearly $4.7 billion in U.S. credit card purchases last year, with an anticipated annual growth rate of 20 percent through 2020.

It also came up during JetBlue’s quarterly investor call that MasterCard, in partnership with BarclayCard, will be stepping in to fill the role American Express once played for the airline: co-branded credit cards.

Going forward, the JetBlue card will come issued by BarclayCard and be processed on the MasterCard network.

On the Visa front and on the topic of a Visa/Visa Europe deal, the headline seemed to be “up in the air” as of last week, with reports circulating the deal might not go through, or at the expected levels.  That chatter was rapidly and immediately put to bed, however, with reports today that Visa and Visa Europe will manage to get that deal over the line – for a higher than forecasted $23 billion.

Those rumors, were, however, blown out of the water with the surprise announcement this morning

So, the moral of the data story this week: Make friends and show strength in the hopes that paying customer friends will follow.