Monday Mar 02, 2015

Payment Consolidation

What do you get when you add the following pairs?  Samsung+LoopPay, Google+Softcard, PayPal+Paydiant?  Answer: Viable ApplePay competitors.

First everyone and his brother had a mobile payment solution, then a select few rose to the top and got acquired.  The cycle goes like this: innovation, consolidation, standardization.  In this case, there's room for multiple standards, but not too many.  When the music stops, somebody will inevitably be left without a chair.  Today I feel like that's Samsung.

Google wants to play by established rules, but for the longest time telcos weren't letting them in the game.  Their recent agreement with the backers of Softcard now level's the playing field.  I think their ultimate strategy is the obvious one: advertising.  Being part of offline transactions gives them access to the customer's eyes and intentions.  Combine that with their existing online efforts and you have omni-channel marketing.

Approaching from a different angle, Apple is constantly looking for ways to remove the friction in everyday lives.  Their focus is on the user experience of payments, making sure its as smooth and simple as possible.  This either drives sales of existing devices or creates new markets.  With ApplyPay they'll sell more iPhones and create a new market by eventually charging fees (that consumers won't see directly).  They managed to dodge the telcos and get the backing of the banks, but that's no surprise given their track record in other industries. 

On the other hand, PayPal is more aligned with the merchants so their acquisition of the MCX technology-provider makes lots of sense. Their goal is to offer an alternative to swipe fees that satisfies both consumers and merchants.  Their work with Discover, beacons, and their Square-like fob are seeing some success with smaller retailers.  The ability to create orders and do person-to-person payments also sets them apart.

Then there's Samsung, the smartphone manufacturer.  LoopPay has very cool technology that transmits the card data to an existing magstripe reader through the air.  So for terminals that don't support NFC, the consumer can still put the phone within 3 inches of the magstripe terminal and send the card data.  That means that generally every existing merchant can already accept SamsungPay.  But there are two issues.  First, I'm not confident this system works 100% of the time.  And second, its predicated on dying, insecure technology.  Clearly Samsung isn't worried about either of those issues.

All these moves coupled with the occasional security breach makes this space very exciting.  Sit back and enjoy the ride.

Wednesday Feb 12, 2014

Push Payments for MCX

Today MCX announced its adding Paydiant's cloud-based payment technology to its platform.  Recall that MCX was formed by several leading retailers to build new payment technologies.  Although not overtly stated, they are clearly trying to bypass the fees charged by the credit and debit networks for processing payments.  These fees are quite significant.  For example, the NACS estimates that in 2007 the 146,000 convenience stores in the US paid $7.6B in credit card fees while generating $3.4B in profits.  Granted, credit cards have several benefits for merchants such as speedier checkout and elimination of cash handling, but those fees seem very out-of-line.

So how does Paydiant help retailers avoid fees?  They are taking a "push payment" approach that turns payments upside-down.  Typically the consumer hands over their account number to the merchant so that the merchant can extract the appropriate funds for the purchase.  That account number can be a checking account, debit card, credit card, etc.  The merchant hands off to the acquirer (the merchant's bank) which sends the data through one of several payment networks (like VisaNet) to reach the issuing bank (banks that issued the account) where the transaction is approved or denied.  And of course everybody gets a cut along the way.

The push model instead has the merchant give the consumer their account number so the consumer can "push" their money into the merchant's account.  When the merchant sees the money in their account, they release the product.  By skipping the acquirer and network and going directly to the issuer, most of the fees are avoided.  This method has the added advantage of better security because the consumer never exposes their account information.  Think about that.  Plus, this approach works fine with the existing POS.

The trick here is getting the merchant's account number to the consumer.  Paydiant does that by displaying a QR code at the POS that represents both the merchant's account and the transaction amount.  The consumer must use their mobile phone running the white-label Paydiant application to capture that data and process the transaction.  The request goes into the cloud, and the authorization is sent to the POS where the merchant is informed of successful payment.

Snapping a picture of a QR code at the checkout isn't exactly the most natural thing.  Using NFC or Bluetooth would certainly be preferable, but I assume that's a follow-up innovation.  Now that brings the customer experience into focus.  Thus far we've seen the huge benefits to the retailer, but what does the consumer get out of this?  Well, nothing.  In fact, this payment process seems more complex than swipe-and-sign.  Perhaps those consumers worried about privacy will love this approach, but most people appreciate the simplicity of a swipe.  (I still use a paper boarding pass at the airport even though I can get my boarding pass on my phone.  Less can go wrong with paper.)

Payment is a really tough area to win because all the different constituents have to buy-in.  Merchants wants low fees; Banks want low fraud; Consumers want convenience.  It sounds easy, but its far from it.

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David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.


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