January 22, 2015 by 4 Comments
Apple Pay continues to provide excitement to many in the industry who are looking for signals indicating that Apple Pay is either doomed or is becoming a mass-scale success. In reality, it’s neither at the moment – it’s still early days. A few recent stories also caught my eye. At first glance, they seemed a little surprising, although I don’t think they should be. The first was the InfoScout blog discussing their research that 90.9% of iPhone 6/ 6+ users have never tried Apple Pay, and only 4.6% of those who could use Apple Pay during Black Friday, actually did, which has prompted some commentators to announce the death of Apple Pay. Considering that smooth consumer payment experience is one of the major Apple Pay’s attractions, low usage might appear a little surprising. However, if you think about the shortage of merchant locations, lack of awareness which merchants would accept the transactions, general stress of shopping on Black Friday and the fact that we are talking here about “normal” consumers (albeit early iPhone 6 adopters), not payment geeks, it starts to make more sense. Various other surveys found that consumers who have used Apple Pay, compared it highly favourably to using a traditional plastic card. And according to the same InfoScout blog, of those who have not used Apple Pay, 31% said they didn’t know if the store accepted it and 25% said they simply forgot – factors that will fall away over time with more training, communication and experience. Bank of America recently said that 800,000 of its customers have signed up with a total of 1.1 million accounts. The second was a recent story in Digital Transactions that there are now 54 banks and credit unions supporting Apple Pay. Only 54? Didn’t the announcement from Apple in October state that it signed up another 500 FIs in addition to its launch partners? Well, there is clearly a difference between signing the paper and actually supporting customers and their cards from technical and operational perspective. Still, it is encouraging to see that the number of institutions continues to grow and includes issuers across the spectrum, from the largest banks to small(-ish) credit unions. My final surprise was data from research that ACI Worldwide conducted at a recent National Retail Federation (NRF) show. ACI surveyed 200 participants, 85% of whom were based in the US and over half represented merchants. 47% of respondents expected that Apple Pay would “win the mobile wallet war” with Google and PayPal being other main contenders; only 6% opted for MCX. In our last year’s report assessing Apple Pay’s prospects, we predicted that the US merchants would be the most likely major barrier for Apple Pay’s success. However, if merchants start to believe in Apple Pay, they might start switching on the contactless capability on the new terminals they are installing as part of EMV migration. And if that happens, then mobile payments might arrive sooner than even the most optimistic of us expected.
March 21, 2014 by Leave a Comment
Last week I had the pleasure of attending BAI Payments Connect. It is one of those events that has always been on my radar but for one reason or another I never had the opportunity to go. And I was very impressed with it all, particularly with the quality of the conference sessions, which seemed to have been well curated by the organizers. The event was just the right size – not too big to be overwhelming, and not too small. It also had the right balance between “new and shiny”, i.e. things that will matter tomorrow and “down to earth”, i.e. issues that matter today. With four parallel tracks, there was no way to attend all the sessions. As a result, I didn’t attend too many sessions in the fraud or payments operations & check image tracks. So below is definitely not a full summary of the conference, but just a few of my personal key takeaways:
- Real-time payments are firmly agenda for the US. There is still much debate about what ‘real-time’ really means and what is the best way to achieve it, as indicated by Bob Meara’s blog about the same-day ACH initiative. At the conference the Fed representatives shared the results of the public consultation on payments system improvement. The Fed received about 200 responses. More than three quarters of respondents agreed that ubiquitous participation, confirmation of good funds and both speedy payment settlement and delivery of information would be important. However, many also suggested that near real-time confirmation of good funds and notification are more important than near real-time posting to end-user accounts and interbank settlement. And opinions certainly were divided on how to achieve near real-time delivery of payments. Some advocated limiting any future faster payment options to credit (push) payments to help prevent fraud. The Fed is going to work on defining and prioritizing the US payment system improvement initiatives and expects to communicate these plans in a paper to be published in the second half of 2014.
- PIN debit networks are continuing to promote PIN-less debit transactions, including at the POS. Visa and MasterCard implemented signature-less transactions at merchants a few years back and raised the limit to $50 in 2012. PIN debit networks responded by also allowing PIN-less routing for transactions under $50. PIN networks tend to have lower interchange rates, but also lower overall fees to stay competitive for the issuers. Nevertheless, it was intriguing to hear one credit union CFO saying that their revenue per transaction declined from 114bps to 94bps. While some of the decline can be attributed to a rising share of PIN-less debit transactions, another reason is PayPal. Having managed to convince a large number of customers to register their bank account as a funding source, PayPal now tops the ACH transactions, above billing, for that particular credit union. Which is related to the next point below…
- Decoupled debit is not dead. While some decoupled debit initiatives, most notably Tempo, have disappeared off the market, PayPal and ACH cards, such as Target Red, are arguably very similar products. With retailer-led mobile initiatives coming into play, such as MCX, “decoupled debit”, i.e. replacing a card transaction with direct debit on a bank account, may have a meaningful impact on the growth of card transactions.
- Bitcoin: forget the currency, focus on technology. This is the same message I already highlighted in my recent report on Top Retail Payment Trends, but was reinforced again in a hugely informative and entertaining presentation at the conference. Blockchain, a distributed open public ledger with appropriate cryptography, could be used to prevent “double spending” of any digital asset, not just money.
February 7, 2013 by Leave a Comment
In my recent report on Digital Wallets, I discussed a number of players which while still keeping their cards close to their chests, have a potential to significantly influence the payments market. One of them is Apple, which made headlines recently with their patent for cash distribution without ATMs – see Bob Meara’s excellent blog and my related comments for more details. Another one is MCX (Merchant Customer Exchange), a joint mobile wallet initiative amongst a number of the US retailers. The initiative was announced in August 2012, but the details have remained scarce since. The participating retailers have been talking about their desire to have a collective voice in shaping the future of mobile payments, and protect their data and customers. They have talked about developing a wallet, but it hasn’t been clear if they also had ambitions to create a new payment scheme or would rather rely on the traditional cards in their wallet. So I was intrigued to come across an article that appears to shed a little more light on MCX ambitions in payments. Citing sources close to MCX, the article suggests that MCX is indeed planning to build a new payment system based on QR codes and ACH payments cutting the transaction costs to 4c. Two cents would go to the FI for processing an ACH payment and the other two would go to the technology partners and towards future MCX development. If it is indeed a confirmation that MCX are inclined to build alternatives to cards, then it is very interesting. However, it is still not clear how such a payments system would work:
- Would the QR code identify the customer, the merchant’s payment request or just the merchant?
- Would the customers be asked to register their bank account details with MCX wallet in the cloud? I can imaging this would be a big stumbling block for many consumers.
- Will the transaction be based on ACH debit or credit?
- If it’s debit, how will the authorisation happen? If there is no authorisation, will the fraud costs just become unacceptably high negating any savings on the interchange? There is speculation that consumers would be asked to register their debit card, which would be used for authorisation over card network rails, and then the transaction would convert into an ACH debit for clearing and settlement. If that’s the case, the overall transcation costs need to include the authorisation fee as well. And it sounds very similar to many decoupled debit propositions, most of which have failed to ignite the market so far.
- If it’s credit, the authorisation challenge turns into the authentication challenge. One way to solve it would be to ask a customer to log-in to their bank account (e.g. through a mobile banking app) and authorise a payment to the merchant. Somebody would also need to pass a token to the customer’s bank with the payment request details. This is pretty much how Online Banking ePayments (OBeP) networks work; however, attempts to build such a network in the US (e.g. NACHA’s Secure Vault Payments) have again had limited success so far.