May 10, 2013 by Leave a Comment
Yesterday Barclaycard launched a new service in the UK called Bespoke Offers. The website will feature a range of deals from some of the UK’s largest retailers, including Tesco, British Airways, Virgin and Starbucks. Participating merchants will be able to target offers to consumers, who will be able to select the offers they like via the website or mobile app. The offers will include merchant discounts as well as deals which the customers have to purchase in advance, similar to daily deals offered by the likes of Groupon. My immediate thought was that merchant-funded rewards (MFR) have finally landed in the UK. However, after the first inspection, it seems that it’s MFR with a twist. Most MFR programmes in the US are focused on issuers and their cardholders. Barclaycard’s offers are available to any UK cardholder; it would appear that Barclaycard is building more on its acquiring rather than issuing assets – it is one of the largest UK acquirers and sees a lot of credit and debit card transactions through its merchant relationships. The other difference is that the offers don’t appear to be linked to the card for seamless redemption. Instead, they are delivered as vouchers which the customers have to present to the merchants to qualify for a discount. Finally, at least at the start, there are offers which are generic and available to all customers – all I had to do to get a 5p off per litre of fuel at Shell was to enter my email address and the PDF voucher arrived promptly for me to print it out and present to the cashier. The website did not know anything about me and the offer was not targetted to me at all. Apparently, if and when the customers register and provide more details about themselves, the website then uses that information to target; until then, the customers can get access to generic offers. Another interesting thing was that Barclaycard appeared to be introducing a new digital wallet called bPay. According to Bespoke Offer website, bPay “can be used with Bespoke and other retailers, where you see the bPay button.” Customers “can add new and additional cards to bPay anytime they are at the checkout.” The strange thing is that information about it was hidden deep inside the FAQ section of Bespoke Offers, so I wonder if this is something that Barclaycard will be officially launching later? There is no shortage of voucher schemes in the UK. Weve, the JV of leading UK MNOs is just one the latest examples of companies ramping up its mobile voucher solution. After pulling the plug of Freedom, Barclaycard was always going to come back strongly with the loyalty proposition. Only time will tell if the new Bespoke Offers proposition will stand out in the increasingly busy space.
May 1, 2013 by Leave a Comment
I presented at the CARTES America conference in Las Vegas last week. It was a great event with many interesting conference sessions and good opportunities to network. One of the highlights for me was the opening keynote with panelists representing various merchant organisations, such as Merchant Advisory Group (MRA), National Restaurant Asociation (NRA) and The Association for Convenience and Fuel Retailing (NACS). The message was pretty clear – merchants are not convinced about EMV, certainly not in its present form. At the very least, they have genuine concerns about costs, some of the decisions to-date and the issues that remain unresolved:
- According to the panelists, “even if the fraud rates were to double to 8bps, that is still not enough to cover capital expenditure paid over 30 years,” the “ROI is just impossible.” While it is easy to dismiss merchant cost concerns as bargaining, merchants are not looking just at the cost of terminal replacement. For example, apparently many US fuel stations today do not have sufficient bandwidth for EMV transactions, which means ripping off and upgrading station forecourts. And while that in itself is expensive, many such changes would require certifications and approvals from Environmental Protection Agency (EPA) further escalating the costs.
- Merchant training is also likely to be a significant undertaking – “smaller members don’t know what the letters (EMV) even stand for”, they are “behind on education.”
- Merchants are concerned about the decision not to go uniformly for Chip and PIN. In their view, the continued presence of signature as a cardholder verification mechanism only confuses the market.
- Rightly or wrongly, they are also concerned about the chip being a “property of a few stakeholders” and what it means to them in terms of transaction visibility. “We will not buy information back from the issuers about our customers.”
- Also, ambiguity on Durbin stifles progress by merchants. While the panelists described Durbin amendment as “the most significant positive change for merchants”, the requirements to have two unafilliated network applications on the same card complicate EMV implementation for debit cards.
- Get rid of signature and move to a “common customer experience around the world”, i.e. Chip & PIN;
- Get rid of PCI, or at least reduce the scope;
- Get interchange relief or help with terminalisation;
- Solve e-commerce.
November 21, 2012 by Leave a Comment
Despite increasing online-offline convergence in retailing, there is still a chasm between online and offline payments which today’s digital wallets are struggling to cross. It remains a challenge today to use secure element-based payment credentials online and cloud-based credentials at the physical POS, although various solutions to bridge the divide are emerging. The above statements form the central thesis of my new report to be published early next week under the same title as this blog post. With my report, I sought to address the following key questions:
- Given the proliferation of solutions, how to differentiate between various digital wallets in the market today? How best to think about the solutions, economics and implications for various players?
- Is there any consensus in the market on what is important in order to succeed? What are some of the big unknowns which could significantly influence the market? What are some of the key challenges that the industry as a whole needs to address?
- How should financial institutions respond to these market developments?
September 5, 2012 by 4 Comments
There are so many great conferences and events throughout the year that prioritising them and deciding which ones to attend becomes a critical task for any analyst as it would be impossible to attend them all. However, no matter how well we prioritise, come September, every year most of us find ourselves travelling a lot for a few months, as the conference season kicks off in earnest. This year is no exception – you will be able find at least some Celent analysts in most of the flagship industry events around the world, from BAI Retail Delivery in the US to multiple EFMA conferences in Europe, and from SIBOS (in Japan this year!) to AFP. Many of us will also be speaking, chairing or moderating panel discussions. For example, here are some of the key events on my agenda for the next couple of months:
- EFMA Payments World, which combines two major events at the same time: Mobile and Advanced Payments and Cards and Payments conferences – September 25-26, Paris. I will be chairing Day 1 of the Mobile Payments event, which is also where our Oliver Wyman colleagues will be presenting the findings from the Alternative Payments study conducted jointly with EFMA across Europe. I attended the Cards and Payments event last year and as I wrote in a blog afterwards, it was one of the most interesting conferences in recent years. If you haven’t registered yet, I would encourage you to consider signing up.
- BAI Retail Payments Delivery – October 9-11, Washington DC. This is one event every year where all of Celent’s Banking analysts attend and spend most of our time meeting clients, prospects and industry experts. Drop us or your account manager a line if you would like to meet with us there, as our diaries are filling up fast.
- Money2020 – October 22-24, Las Vegas. It’s a new event on the calendar, but considering the list of speakers and companies attending, it promises to be exciting few days.
- ATM, Debit and Prepaid Forum – October 23-25, Phoenix, AZ. Another “must-go” on the events calendar; I will be moderating a panel discussion on merchant-funded rewards with senior executives from Affinity Solutions, Cardlytics, FreeMonee Network and Linkable Networks on the panel.
- CARTES – November 6-8, Paris. Ian Hermon from Thales and I will be presenting at the Mobile track of Day 1 on “Who will Win in the Era of Mobile Payments?”
May 25, 2012 by Leave a Comment
Just as PayPal in the US was gearing up to challenge the established order of payment networks (see my previous blog), on the other side of the Atlantic, MasterCard (MA) received news that the European General Court upheld a decision by the European Commission (EC) that the scheme’s multilateral interchange fees (MIF) violate EU antitrust rules. MasterCard said it would appeal again, but if upheld, the decision could have profound consequences for card payments not just in Europe, but also globally. For those who haven’t followed this closely, back in 2007, the EC deemed MasterCard’s MIFs for intra-regional cross border transactions illegal, and ordered MA to withdraw these fees within 6 months. MasterCard appealed, and in the interim, reached an agreement with the EC which allowed it to establish cross border interchange rates, provided they do not exceed 0.3% for credit cards and 0.2% for debit card transactions on a weighted average basis. This week’s decision only applies to cross-border fees within Europe, which are “fall-back” rates when either bilateral agreements or multilateral domestic agreed rates do not apply. However, it’s been watched closely by all the interested parties, and already variuos domestic retailer bodies, such as the British Retail Consortium, are calling for the ban to extend to the domestic arrangements as well. Also, the court’s decision does not aply to Visa which has already cut its cross-border debit fees. The European Commission is now likely to turn its attention to Visa’s credit fees. In other words, while the decision’s immediate scope is limited, it sets a precedent and gives ammunition to the “anti-interchange brigade”. What makes this decision particularly dangerous is that it appears to be challenging the actual concept of interchange, rather than the level of fees or the approach by which they are calculated. As reported by Finextra, the court said that it “does not accept the arguments relating to the objective necessity of the MIF to the operation of the MasterCard payment system“. There is a big difference between arguing for a reduction in fees and banning them altogether. The ruling changes little in practice in the immediate term. MasterCard’s stock started the day of the decision at $426 and was trading at $416 just over 24 hours later, a 2.3% drop, which implies it was not unexpected news to the investors. Also, the story isn’t over – MasterCard already said they would appeal and I expect the pro-interchange lobbying efforts would only get bigger. The concept of interchange has been a cornerstone of four-party card schemes and many would say it’s worth fighting for.
May 25, 2012 by 1 Comment
The readers of this blog and Celent clients with access to our reports will know that when we talk about “mobile payments” we are careful to specify what we mean by it. While many talk about NFC payments, we prefer to discuss “mobile at the retail point-of-sale”, recognising the diversity of ways how a mobile could be used to make a payment. Last year we predicted that the biggest rival to the emerging NFC solutions (and a threat to the banks and card issuers) would be PayPal with its “wallet-in-the-cloud” approach to in-store mobile payments. This week PayPal announced two massive steps in that direction – a deal with two large POS manufacturers, Verifone and Equinox, and new relationships with 15 retailers, including household names, such as Abercrombie & Fitch, American Eagle Outfitters, Barnes & Noble, Foot Locker, JC Penney, Office Depot, and Toys “R” Us among others. This is in addition to the last year’s pilot with Home Depot, which has now seen the solution rolled out to 2,000 stores. Some of the press has already called PayPal the “world’s fifth payments network.” In case you are not familiar with PayPal’s in-store vision, essentially, you are checking out with your PayPal account rather than your Visa/ MasterCard/ Amex card or cash. You may have a PayPal card, but it’s simply a way to identify and communicate your PayPal account credentials. The same could be achieved by entering your mobile phone and a PIN into the terminal. The solution does not rely on NFC, so the consumers don’t have to purchase NFC-equipped handsets and merchants don’t have to do hardware upgrades to their terminals. Usually, software upgrade is sufficient, which is why the deals with POS manufacturers as well as POS software developers are crucial to make it easy to the merchants. Of course, the merchants still need to have a commercial agreement with PayPal to accept it as a payment method, which is why securing relationships with the US leading merchants is so important. However, PayPal understands very well that scaling up the merchant relationships on a global basis is going to be the hardest task in creating a truly universal payments scheme. That could be one of the reasons why PayPal continues to position itself as a “bank’s friend” – it understands how difficult it would be to achieve the necessary global scale on its own. However, that would require to “open up the scheme” and go from a three-party to a four-party model. Would PayPal be prepared to do that? Would banks be willing to join in?
March 29, 2012 by Leave a Comment
Earlier this week, Payatrader announced launching a card processing service aimed at the UK small businesss across a broad range of trades, including builders, carpet cleaners, locksmiths, pest control, window cleaners, mobile mechanics and decorators. The home service providers and traders market has been underserved by the payments community in the past and is often quoted as an example target market for new payments innovations, so it’s good to see an actual live solution aimed at that market. This market segment was identified by the UK Payments Council as an important user of cheques, and while there is no longer a formal commitment to get rid of cheques in the UK, all efforts to move away from paper-based instruments are welcome. Of course, the competition is heating up – P2P solutions, such as Barclays’ PingIt, can be used in this context. The likes of Square and other US-based players with “dongles” are designed to work with mag-stripe cards and are therefore less suited in the EMV environment, but the corresponding EMV solutions, like iZettle are also coming to the UK. And Celent has had a number of discussions in the market about potential mobile invoicing and payment solutions targetting the traders. Payatrader is a different kind of a card acceptance solution. It aggregates small merchant transactions and enables the merchants to accept cards without monthly fees, one of the barriers for merchants with relatively low volume of transactions. However, monthly fees are not the only barrier – for someone who is used to cash and cheques, suddenly paying per-transaction is a big mental obstacle to overcome. How quickly the traders get the money is another concern – cash is instant, whereas with Payatrader they have to wait on average 10 days to settle. And it’s no secret that customers often get quoted a significant discount for paying in cash. So, while all solutions that can help this market segment migrate away from cash and cheques are welcome, it will be interesting to see how quickly Payatrader can get to a critical mass of merchants and consumers.
March 27, 2012 by Leave a Comment
I recently published a report titled “In Search of a Third European Card Scheme: Time to Move On,” in which I claimed that most of the initiatives aimed at establishing an alternative to Visa and MasterCard were unlikely to deliver a viable solution any time soon. I also said that the arguments for having such a scheme in the first place are simply no longer there. Some arguments never really stacked-up to begin with, and others are being destroyed by the emergence of new technologies (e.g. mobile) which provide stiff competition to the card schemes in a different way. The report seemed to strike a chord with many, as it generated a lot of interest from clients, press and others in the industry. It was interesting to see vindication of these ideas at a conference I attended in Barcelona last week, Cards and Payments 2012, organised by the Axiom Grouppe. I chaired Day 1 and also presented on payments innovation. We also heard from Visa Europe on the progress of its V Pay product and a very interesting case study from Luxembourg, one of the latest examples of a trend of banks in a given European market deciding to shut down their local debit scheme and migrate their debit portfolio to a different product. Banks in Luxembourg did exactly that during 2011 – decided to stop supporting bankomat, their local debit scheme, and migrate to V Pay instead. They said they did a thorough investigation of various available options and found that none of the potential contenders for an alternative scheme could deliver on their requirements. Conferences such as this are also a great reminder (if one was needed) of the diversity of Europe. For example, V Pay is based entirely on chip and PIN with no magstripe compatibility. In other words, it doesn’t work at non-EMV POS terminals or ATM’s. Personally, I would be mortified if I couldn’t use my debit card to withdraw cash in the US or anywhere else in the world, as I would be charged an arm and a leg by my credit card issuer if I made a cash advance on a credit card. Many Europeans pay annual fees for their credit cards, but get different services, such as cash withdrawal allowances as part of the package. They are quite happy to know that they have a very secure debit card for their day-to-day needs across Europe and rely on credit cards elsewhere. V Pay has been designed to be a debit product exclusively for Europe right from the outset. However, it’s relatively modest progress (16.6m cards issued, 68.9m cards committed almost 5 years since launch) only serves to higlight the difficult, and often political, decisions banks have to make when determining the future of debit for their market.
March 12, 2012 by 1 Comment
Last week American Express announced that it would be offering its cardholders the ability to sync their plastic cards to Twitter. When the customers tweet using special offer hashtags, couponless savings are loaded directly to their cards. This seems to be the latest in a number of developments by established players as well as new companies, all aimed at making it easier for merchants to offer relevant discounts or gifts to consumers by linking them directly to their existing payment instruments, most often cards. This clearly has benefits to the merchants who are able to better target their marketing spend. It also benefits the financial institutions which are able to offer their cardholders tangible rewards without significant expenditure on their part. In fact, sometimes, they even see the direct revenue benefit from participating in such arrangements. And the evidence to-date seems to indicate that consumers like it as well. Is this the way forward for card rewards? Will these merchant-funded rewards replace cash back, “miles” and other more traditional card loyalty schemes? How should banks think about these programmes? Which partners should they be working with? There are a number of companies in this space, from established players such as FIS and First Data, to relative newcomers, such as Cardlytics, Cartera, FreeMonee, BillShrink, Offermatic, Linkable Networks (formerly Clovr) and others. However, even though they appear to be offering similar services, they often have subtle, but important differences in their value proposition to at least one of the key parties (merchant, bank, and consumer.) And we suspect that they differ in their customer reach as well as technical or servicing capabilities. Merchant-funded rewards will be on the research agenda for Celent in the next few months. We intend to conduct a detailed review of the key players in this space. If your company is offering relevant services and would like to be reviewed in our research report, please don’t hesitate to contact me at email@example.com.