Big Day for Payments: Plastic vs. Digital

a Big Day for Payments: Plastic vs. Digital Maybe both will garner the support of the key involved parties. Maybe neither. Maybe another company will take the Coin concept mainstream sooner than the planned introduction. The one thing I am pretty sure of is that it is further evidence that financial institutions need to place multiple bets on alternative solutions to avoid being left behind.Despite all of the talk in the industry around mobile payments, acceptance of new digital innovations and platforms has been anything but a smooth ride. In addition to the seemingly insurmountable challenge around consumer's concern with security/privacy, getting merchants, consumers, financial institutions and even carriers on the same page has been close to impossible.At the end of the day, the biggest challenge may be the perception by many that there is no reason to fix something that isn't broken. The current card-based process for making payments, while not perfect, is relatively easy and definitely firmly entrenched in the consumer's daily life. Coin is a .84 mm thin plastic card-like device that can store any of your current cards (actually, 8 of them) and behave like the cards it replaces. Instead of carrying an assortment of debit, credit, gift, membership and loyalty cards from various institutions, you simply use the dongle provided (like the one used by merchants accepting Square) to capture your card information on your phone, take a picture of the cards and use the Coin app to load your Coin card. While only 8 cards can be loaded into the Coin card, an unlimited number of cards can be stored in the mobile app and switched in and out of the card as desired. "You don't need eight cards every day, so your phone is kind of like your drawer, and your Coin is kind of like your wallet," explains Parashar, founder and CEO of Coin. When you are ready to pay or use a loaded card, simply press a button on your Coin card to select the card you want to use (electronics imbedded within the Coin card itself), present your card to the merchant like you have done in the past, and the rest of the process is the same as it is today (see compelling video below).For those concerned about the security of the card should you leave the card behind (only happens to me about 4x a year), the Coin card uses Bluetooth low energy technology to inform you on your phone that you left your card behind. Better yet, the card completely disables itself if your phone and card are away from each other for more than 10 minutes. For those concerned about someone scanning another person's plastic into the app, Coin says that the app only accepts a card that includes the user's personal information. Further, the Coin app is protected with 128-bit or 256-bit encryption and the company is pursuing PCI compliance. The app is also password protected.From the video alone, it is clear that Coin is cool. I personally love it because it is another example of incremental innovation, based on simplifying a person's life seamlessly. It combines something that I am very familiar with (traditional magnetic swipe mechanics) and leverages very high tech digital technology to lighten my wallet. The public seems interested as well since, in the first 48 hours, almost 2 million people viewed the demonstration video on YouTube, making this financial product the number one trending video.No new hardware is needed since the device uses a traditional (or new form) credit card swiping device. In other words, Coin has done what mobile payments is hoping to do (eliminate wallet bulk) without changing my payments behavior. And until NFC, Isis, PayPass or any other mobile payment alternative gains the needed momentum to become omnipresent in my life, an incremental improvement works for me (even though I still love the integration of my Moven debit card and PayPass with mobile receipt and payment analysis).Initially, the Coin card is expecting to be released in either black ('Midnight') or white ('Snow'), with additional colors being introduced later (sound familiar?). The app will initially be able to run on both iOS and Android. Obviously, the Coin card would not be used for online purchases.While not the best way to judge a new payments alternative, even the Card website is cool. Here is a link to the product's FAQ page (be sure to read all of the questions . . . some are helpful in daily life).While already having raised funds from venture capital firms (and interestingly the backing of former Google Wallet head Osama), Coin hoped to raise the $50,000 it says it needs to start producing the card by pre-selling the cards to the public beginning immediately for $50 on their website. This method of pre-sale was to gauge the acceptance of the concept up front and underwrite the initial  offering. It is expected that the card will be priced at about $100 at introduction which is scheduled for next summer.According to representatives from Coin, the start-up surpassed their initial goal for funding . . . within 40 minutes. In addition, the buzz in the industry (while not always the perfect barometer) was unprecedented. Obviously, the consumer wants an alternative to the fat wallet, that is easy to use, acceptable everywhere and avoids a steep learning curve.To kickstart the process (pun intended), Coin is offering a $5 referral incentive for those who pre-order Coin. Once a person orders Coin, they will be provided a unique URL via email which can be used to tell friends and family about this unique payments solution. For each referred party (up to 10) who also pre-orders within 90 days, a $5 credit will be applied (up to covering the $50 cost of the service. Just like the card-based platform Coin is hoping to simplify, the solution is not without some potential drawbacks. For one, while the concept of connecting the smartphone and Coin card for security is a significant benefit, there may be some challenges during normal use when the bluetooth connection is lost (during airplane mode) or the card is out of contact with the phone for extended periods. Coin says that reactivating will be simple.Additional issues include the normal concerns around any card-based system such as potential skimming even though there is encryption, durability of the card (said to be 2 years of 'normal' use) and the fact that the Coin card is not waterproof. It is still to be seen how durable a computer embedded, less flexible card will be (especially in my pocket).From my perspective, there is one more drawback . . . Coin won't be available for at least another 6 months. Knowing the unpredictable payments world, the introduction will probably correlate with an announcement by Apple regarding their entry into the payments battlefield. As mentioned in the beginning of this post, another significant announcement occurred today with the long awaited launch of the Isis Mobile Wallet. According to the press release, customers with one of the more than 40 'Isis ready' smartphones can receive an enhanced SIM card from their wireless carrier and download the Isis Mobile Wallet for free from Google Play. The Isis Mobile Wallet will allow customers to pay at contactless payment terminals. Unfortunately, with only 200,000 local and national merchant locations (out of 8 million merchant locations in the U.S. market), this solution will continue to face an uphill climb. In other words, this might be a potential mobile solution if you live in the right place with the right phone.Not surprisingly, the newswires were buzzing with discussion and stories about payments innovations today. It just wasn't about Isis.

Mobile Payments Growth: Just The Tip of The Iceberg?

AppId is over the quota AppId is over the quota Mobile Payments Growth: Just The Tip of The Iceberg? When Amazon and eBay launched their online shopping sites in 1995 and 1996 respectively, the notion that over half the U.S. population would make purchases online would have been scoffed at. Yet in 2013, the number of online shoppers in the U.S. will reach 189.6 million, according to eMarketer. In this case, the majority of the consumers were resistant to change until they made the switch and realized the benefits. The same applies to mobile payments. The key is to examine the current payments industry growth trends, motivations of current users, the reasons for the gap between awareness and usage, and how financial institutions, retailers, network operators and equipment manufacturers can work together to convert reluctant consumers into loyal users. As mentioned by many of my fintech colleagues recently, it goes beyond a mentality of "If you build it, they will come". There is a need to solve for the concern around mobile security as well as develop incentives for usage.For the purpose of the study being reviewed, 'mobile payments' were defined as when a mobile, internet-connected device (smartphone, tablet, smart watch, Google Glass, etc.) is used to facilitate a transaction that might otherwise have taken place using a physical credit card, debit card, check or cash at a physical (not online) store. 'Mobile transactions' (for the purpose of this study) are a larger category that included mobile payments as well as mobile commerce and e-commerce channeled by an app or mobile website (e.g., Amazon's mobile app).Mobile payments and transaction innovation is currently be led by start-ups and tech companies, who are prompting legacy payments players and card companies to reevaluate their current strategies and increase their own pace of innovation. 'Coopetition' has become the norm as companies team up with each other as opposed to building a mobile strategy from scratch. These partnerships (and individual initiatives) are pushing innovation forward quickly, making the industry fragmented yet ripe for consolidation.Like an iceberg, there is much more to the mobile payments than what the can be seen on the surface today, with a U.S. mobile payments forecast of $30 billion in 2013. According to the research compiled by BI Intelligence, this forecast represents an average annual growth rate of 118 percent since 2008, but still will only account for 2 percent of the $3.3 trillion debit and credit card volume in the U.S. this year. It was also found that other global markets (such as Africa and the Asia Pacific regions) are seeing a much larger percentage of mobile transactions.In both the U.S. and other global regions, the growth in mobile transaction volume has been driven primarily by the growth in smartphone adoption (especially in areas of underdeveloped banking systems). Not only has the smartphone impacted the consumer side of the payments equation, but also the merchant side, where attachable card readers transform smartphones and tablets into cash registers, making card purchases easier.In a recent research study conducted by Accenture entitled, Driving Value and Adoption of Mobile Payments: Consumers Want More, it was found that while consumers know that mobile payments are an option, they still prefer not to make them. In the study, 41 percent of North American smartphone users were highly aware that their phones could be used as a payment device, yet only 16 percent had done this. Similarly, the BI Intelligence research found that, similar to most disruptive technologies, the adoption of mobile payments to date has been driven by both the underserved and the early adopter segments. From the merchant perspective, firms like Starbucks, Apple and Home Depot are helping both awareness and usage.On the consumer side, new apps and 'mobile wallets' from firms like PayPal, Google and Square are helping mobile payments acceptance. But, while consumers are highly aware of these mobile payment applications, and find the convenience and money-saving incentives appealing, many are holding back from using mobile payments because of security and privacy concerns. Consumers worry about their liability if their phone is lost or stolen and express concern that the risk will escalate as the phone evolves into a mobile wallet.According to the Accenture study, 45 percent of respondents who do not currently make mobile payments said they were concerned about security, while 37 percent had worries about privacy. These findings were in line with another study done earlier this year by Chadwick Martin Bailey entitled, The Mobile Moment: Barriers and Opportunities for the Mobile Wallet. In this study, 73% of those households that were familiar with the concept of a mobile wallet but were forgoing using the capability mentioned security as the reason for non-use. The specific reasons for security concerns included identity theft (70%), theft of phone and personal information (60%), interception of personal information during transaction (57%), hacking of mobile phone (52%), hacking service provider (34%) and getting charged for an accidental transaction (19%).Chadwick Martin Bailey Mobile Wallet Research, 2013As we move from mobile payments to mobile wallets, many studies indicate that there is the potential to offer more than just payments. According to a recent study from mobile marketing firm Vibes, nearly 85 percent of smartphone owners would like to receive non-payment services from a mobile wallet, including loyalty card storage, coupons, personalized offers and other marketing materials (similar to the Apple Passbook app). Interestingly, the study finds that only 19 percent of those surveyed believe they had been offered any such content.Again, the Chadwick Martin Bailey research from earlier this year collaborated with the findings from Vibes, illustrating that several additional features would be viewed positively by households who understood mobile payments but had decided not to use this functionality. In fact, the 'perfect' mobile wallet combination from the perspective of non-users was payment functionality combined with the ability to store loyalty cards and other sensitive documents (insurance cards, drivers license, etc.). While mobile offers were not scored as high as storage of cards in the CMB research, the Accenture research found that 60 percent of consumers who already do mobile payments would do so more often if they received instant coupons. In addition, 36 percent said they would provide personal information in exchange for such rewards and 46 percent would increase payments if they received location-based offersChadwick Martin Bailey Mobile Wallet Research, 2013Near Field Communications (NFC) is a technology that allows devices to communicate with each other at close range to facilitate payments and other transactions. Despite years of debate on the pros and cons of the technology (especially in the U.S.), there are more and more who believe NFC will be a non-starter as a payments technology. It's not that the technology is disappearing (NFC chips are being placed in virtually all new Android phones). It's just that acceptance has never gained steam:Google Wallet recently dropped the requirement that NFC technology be required for its wallet app to run. Google wallet has recently developed an app for the iPhone and becoming device and technology agnostic.Apple (and PayPal) recently released new close range technology (Beacon) that use low frequency bluetooth communication that is available on virtually all smartphones. This technology also requires significantly less hardware upgrades from the merchant and is faster and has more functionality for the consumer.Beacon technology could eliminate the checkout entirely, providing real-time offers, product information, facilitate payments and remove any security devices before leaving the store.Despite a lot of noise among financial technology insiders and the payments industry, mobile payments and mobile wallets are far from becoming mainstream. As expected, mobile payments are more commonplace with younger demographics and higher income categories as well as having greater potential for those who are underbanked. In other words, the potential for mobile payments in the future is high, but is far from guaranteed.While our industry continues to be focused on the next shiny technology breakthrough in payments, consumers are more concerned about security, privacy, convenience and the improved 'value' of using their phones to make payments. In other words, "Will the customer experience be better than what I have now?"Financial institutions, merchants, network operators and technology providers must answer the above concerns and provide education on the way to best move forward . . . from the consumer's perspective. This education is made more difficult with the multitude of different payments solutions being introduced and the overall 'noise' in the marketplace. Finally, recent research indicates that both current mobile payments users and non-users can be provided incentives to increase their use of mobile payments. This can be in the form of transaction incentives, mobile coupons, geolocational offers, etc. that are incorporated into the mobile payment experience. Today's digital consumer expects their mobile devices to improve and simplify their lives. Until the providers of mobile payments can achieve this goal on a broad spectrum, mobile payments will look like more of a tip of the ice cube vs. tip of the iceberg.

The Rise of PayPal as a Major Payments Player

AppId is over the quota AppId is over the quota The Rise of PayPal as a Major Payments Player While some of the 'innovation' at PayPal may not seem new or disruptive (such as the use of QR codes), the ability to quickly build scale by using the existing payments infrastructure may be the key to PayPal's success. The company hopes to transform its reputation as a means of exchanging cash over the Internet into the default payment system for many everyday transactions.At stake for PayPal is control of a mobile-payment market that is expected to grow more than three-fold from this year’s $235 billion over the next four years, according to researcher Gartner. PayPal faces a host of competitors, including Google Wallet, Square, Lemon and Stripe (and potentially Amazon and Apple).Brian Roemmele, researcher and business advisor says of a recent PayPal announcement, "The true innovation that PayPal has achieved is really quite invisible and perhaps even boring to technologists. No iOS devices or android devices deployed at the merchant locations. No new add-ons needed, just the a boring laser bar code scanner that every single major retail store already has." It is clear that PayPal is moving fast to become a ubiquitous option at retail merchants, introducing products for both the consumer and the retailer. In fact, there have been so many changes recently, it may be difficult to keep up.To that end, I am providing a brief overview of what has occurred over only the past couple months and what the future may hold.In early September, Paypal introduced an updated version of the PayPal mobile app for both iOS and Android, turning it into much more of a mobile wallet. Maintaining all of the old features, the new app added tools to facilitate shopping and paying for goods online at the physical POS.The app features five clearly labeled sections on the home page, with the major sources of innovation residing within the new Shop tab and Bill Me Later integration. Within the Shop screen, you can find nearby merchants that accept PayPal. Once you check in at a merchant (using your PIN), you can download any special offers from the store and can complete the transaction simply by saying "I'm paying with PayPal". Since the merchant will have your PayPal photo on their POS device or phone, funds can be transferred without needing to pull out your phone a second time.Leveraging the app's location-based capabilities, there is the ability to push coupons based on a consumers specific location and even allow for ordering and paying for a meal within the app.As for payments, PayPal is providing the option to pay directly from a bank account, from a PayPal balance or to use a credit card on file within the app. It's also expanded the 'Bill Me Later' function, providing credit for large purchases within the app. One of the biggest challenges for PayPal over the years is expanding their online merchant capabilities to the physical point of sale, making it easier to use PayPal than swiping a credit card. As any payments player knows, simplifying the payments process is made even more difficult with today's merchant technology and the entrenched consumer payment behaviors.PayPal hopes the introduction of Beacon may be the answer to this challenge. Beacon uses Bluetooth Low Energy, otherwise known as BLE to enable phones and merchant POS systems to communicate with each other seamlessly, without opening an app, without GPS turned on and even without a clear phone signal. In other words, hands-free payments.All a merchant needs to do is plug a PayPal Beacon device into a power outlet in their store. Once the Beacon is plugged in, they will be ready to offer a highly personalized shopping experience (including personalized coupons or even offers based on the consumer's location within the store). Consumers control the stores they will want to check in to, those they want to get prompted to confirm payment for, and stores they will want to enable a complete hands-free experience for. In the latter case, simply walking in a store will trigger a vibration or sound to confirm a successful check in. After checking in, a photo will appear on the screen of the Point-of-Sale system so the shopper can be greeted by name. Paying only requires a verbal confirmation.In addition, PayPal is giving developers access to the PayPal mobile in-store API to create experiences such as being able to self-checkout on a mobile phone or automatically placing a customer’s usual order as soon as they walk through the door.David Marcus, president of PayPal says that PayPal has been showing the device to retailers, large and small, and they “love it.” Part of the reason, he says, is that not only does it help them connect and potentially bring in customers, but it also integrates seamlessly with their existing point of sale systems. “I want to create an operating system for the retail environment,” he said.It’s interesting to note that in iOS 7, Apple is debuting iBeacon, which could provide similar services for apps. But VP of PayPal global product, Hill Ferguson, maintains that the Apple version does not extend to Android, and that Beacon will work for any smartphone.Piloting of Beacon is slated for Q4 2013, with rollout planned next year.To help drive sales volume from the merchant perspective, PayPal introduced PayPal Working Capital in late September as a way to offer a simplified financing alternative to their customers. Initially offered to about 90,000 of it's business partners, potential loans from $1,000 to $20,000 will be underwritten based on PayPal sales history, with no credit check needed.One unique aspect of the program is that PayPal said merchants could receive funds in a matter of minutes and that repayment would be based on a fixed percentage of sales generated with no minimum payments (if no sales are made on a particular day, no payment is required). In addition, rather than charging interest for the loan, PayPal will charge a fixed fee. The faster the payback period, the smaller the upfront fee. It is felt that this transparent fee structure will be welcome to retailers. "In talking to merchants, a lot of them are very capital constrained," says Brian Grech, who is in charge of risk management for small-business products at PayPal. "In a lot of cases, their next best option would be a personal credit card or a very high-priced merchant cash advance and we expect to displace those overwhelmingly with our new loan product."Since PayPal cannot legally make loans directly to merchants, it is collaborating with the Salt Lake City, Utah-based lender WebBank.On the heels of announcing PayPal Working Capital, PayPal finalized the acquisition of Baintree, moving even more aggressively into mobile payments. In a very short time, Braintree leveraged a mobile-first mentality to build impressive mobile payment solutions that handle transactions in 130 currencies in more than 40 countries.In addition to gaining an impressive list of clients such as Airbnb, OpenTable, Uber, and TaskRabbit, PayPal also acquires the very popular Venmo app, which lets users pay for free using their mobile device.While Baintree will operate as an independent unit within PayPal, it is believed the superior application programming interfaces of Baintree will help PayPal work better with developers going forward. As part of the global Money2020 event in Las Vegas last week, PayPal continued their string of major announcements by introducing Payment Code, which will use QR codes and a PINs to verify in-store smartphone transactions over merchants' existing POS equipment. While initially seeming 'old school', this introduction leverages existing equipment and employee training while improving the experience for both the consumer and merchant.Initially, PayPal is partnering with Discover and their 7 million retail locations to introduce this technology. To make an in-store payment, customers would first check in using the PayPal app. Once the app knows the customer’s location, it determines what kind of equipment the store has. If the merchant has a barcode scanner, a QR code will pop up on the phone screen. The customer then simply runs that code under the scanner finalizing the transaction. If the merchant only has a PIN pad, the app will supply a randomly generated four digit PIN, which the customer types into the terminal to verify the payment. (Note: This process is virtually the same as being used by Starbucks) While the Payment Code does make the checkout process smoother, with easy access to all funding sources in one simple place (the customer's phone), the real benefit is that it will allow consumers to automatically redeem any special offers, gift cards, merchant rewards programs or other forms of payment that might be saved in their PayPal wallet in one quick transaction.As with many of the innovations PayPal has introduced over the past several weeks, Payment Code is expected to roll out in Q1 of next year.Not to be left behind, Amazon responded to the recent wave of PayPal introductions and innovations by announcing a new service that will let customers of other online merchants pay for purchases using their Amazon credentials. Login and Pay with Amazon takes advantage of Amazon's 215 million active customers and helps participating merchants make sales easier by allowing customers to access their account information safely and securely with a single login.The new offering expands on the existing Amazon Payments program that lets customers pay with Amazon at check-out. The new log-in system ties merchants even further into Amazon's platform, including fraud protection from Amazon at no extra fee. Merchants get more information on customers, while the customers can buy without entering their address and card information on multiple sites over and over again.Some merchants may be reluctant to work with Amazon because the company is a major retail industry rival, however.Amazon will collect $2.9 percent plus $0.30 per transaction for transactions of $10 or more, and all fees are assessed on a per-transaction basis - always based on a percentage of the total amount. Login and Pay with Amazon will work on tablet, mobile, and desktop devices, the company said. Gogo, which provides in-flight wifi, already uses Amazon's basic payments service, but is planning to add the new service.Despite all of the innovation described above, PayPal is still an emerging mobile payment service provider, without the market size of penetration of the more popular credit card companies. To alleviate this challenge, PayPal has worked hard to sign partnership agreements with consumer credit (Discover), money transfer (MoneyGram) and POS hardware and software providers (NCR, MICROS, etc.). By leveraging these partnerships, PayPal has expanded merchant coverage from just 18,000 in 2012 to close to 10 million locations expected by 2015."In 2013, Discover helped PayPal grow from the 250,000 retailers who accepted PayPal in store earlier this year to more than 2 million by the end of 2013," said Don Kingsborough, vice president of retail services at PayPal.On October 11th, 2013, former Apple CEO John Scully mentions in passing during a BBC interview some ideas he suggests for Apple.  John referred to the logic of Apple acquiring larger companies with the huge amounts of cash they hold in reserves. In particular, John mentioned the idea that Apple acquire eBay for the single purpose if integrating PayPal into the iPhone."Apple's never been an acquirer of big companies before, and when you look at Passbook, the iPhone5S and fingerprint recognition - What would it mean if Apple went out and bought eBay? And they had PayPal, and integrated that?"If you buy into the logic that Apple wants to be a facilitator for payments and not a merchant account supplier nor a payment card issuer, this idea may make sense. Combined, Apple and eBay would have over 760 million active payment cards on file, with some overlap.So, maybe we will see a day when PayPal is part of Apple . . . or Discover.I've definitely seen crazier ideas become reality over the years.