Dumb pipes and Wide moats: Networks and Tokens

For Apple Pay, tokenization is the process by which card information is protected and subsequently shielded from the merchant and other parties in the transaction flow – till it reaches an entity equipped to reverse the translation and submit the authorization for bank approval. With AP – this role is entirely owned by the card schemes, even though the specification put forth by EMVCo places no such stipulations and allows third party “Token Service Providers” to exist. Apple is said to have welcomed “non-card scheme TSP’s” to operate within Apple Pay for a couple of reasons – the ability to support non-payment tokens as well as a hedge against putting all its eggs in one basket. For network TSPs like V and MA – tokenization represents a real advantage that dis-incentivizes disruption, while opening their rails to far more potential than just payments. Continue reading

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Digging a wider moat: Apple shifts to loyalty

Wallet

Apple eschewed banks for a retailer focus onstage at the WWDC when it spoke to payments. I sense this is an intentional shift – now that stateside, you have support from all four networks and all the major issuers – Apple understands that it needs to shift the focus on signing up more merchants, and everything we heard today drove home that note. That includes Square’s support for NFC, as well as the announcements around Kohls, JCPenney and BJ’s. MasterCard’s MDES (opposite Visa’s VTS) is the tokenization service that has enabled these partnerships – specifically through MA’s partners such as Synchrony – their press release linked – (former GE Capital) which brought on JCPenney, Alliance Data which brought on BJ’s, and CapitalOne which enabled Kohls. Continue reading

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Apple Pay and MCX – Misunderstood dynamics

When BestBuy chose sabre-rattling and reject Apple Pay from its stores, it made little sense that it will reduce its righteous anger to be about something that is transitory – as the state of a radio on a phone. And now that NFC has found a path to acceptance in BestBuy’s own payment terminals – we can put that chapter behind us. And treat it as the correct decision from a merchant, whose future on a quarterly basis is entangled with the products it sells on behalf of Apple. As Apple experiments with the highly personalized and curated retail experiences of products like the Watch, it is important for channel partners like BestBuy to appear to be more aligned than before, to smooth over any appearance of a conflict. Continue reading

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Rampant: Explaining the current state of Apple Pay Fraud

Two quick notes before I trade a chilly 36 for a blistering 96, and spend the next few weeks in India. First up is on Samsung’s acquisition of Loop Pay. Second is a followup on Apple Pay Fraud that has now graduated from an itch to a raging infection. Continue reading

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Apple Pay : What happens when it hits 100%

lucy

What happens when Apple Pay hits 100%? I am not talking about 100% merchant acceptance, as much of that is driven by an alignment of merchant interests – cost reduction, potential for increased sales and marketing etc. Instead, I am talking about coverage – the share of total available cards across US banks that can be provisioned into Apple Pay. Today, partly due to the diligence of networks in signing up banks for AP, cards that are responsible for 90% of total retail payment volume are now ready to be provisioned. Separately, I am told 90% of issuer portfolios will be tokenized by end of 2015. (Forget/Ignore Private Label and Discover, for the moment) Continue reading

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Smart Mouse Traps and Lazy Mice

“Building a better mousetrap merely results in smarter mice” – Charles Darwin

Credit card issuers in general have a good handle on fraud. They manage it under 10bps (i.e. losses of $0.10 or less per $100 of transactions) on transactions made with a dumb plastic card lacking any additional context. So Issuers wishing for Apple Pay fraud to fall between 2-3bps was not totally out of character, considering the protections in place by Apple and Networks to keep fraud away – including Issuer support during provisioning, NFC, Tokenization, a tamper proof Secure Element and TouchID. But fraud seems to have followed a different trajectory here. About a month post-launch, it seems like fraud has come to Apple Pay. (in one case – as high as 600bps for an issuer that I cannot name). Though what follows was written in the context of Apple Pay, much of it translates to any other competitor – irrespective of origin, scale, intent, or patron saint. Continue reading

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Why do Merchants hate NFC?

Through all the rather “invented conflict” of MCX vs Apple Pay by the tech media these last few weeks – very little diligence was done on why merchants have come to reject NFC as the standard of choice. Maybe I can provide some color here – both as to why traditionally merchants have viewed this channel with suspicion leading up to CurrenC choosing QR, and why I believe its time for merchants to give up hating on a radio. Typing this up on my iPad, so excuse any lack of editing on this one.

Why do merchants hate NFC? Continue reading

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Apple Pay: First Observations And Closing Thoughts

If rumors hold true, Apple Pay will launch in a week. Five of my last six posts had covered Apple’s likely and actual strategy in payments & commerce, and the rich tapestry of control, convenience, user experience, security and applied cryptography that constitutes as the backdrop. What follows is a summation of my views – with a couple of observations from having seen the Apple Pay payment experience up close. About three years ago – I published a similar commentary on Google Wallet that for kicks, you can find here. I hope what follows is a balanced perspective, as I try to cut through some FUD, provide some commentary on the payment experience, and offer up some predictions that are worth the price you pay to read my blog. Continue reading

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From Chip to NFC: A necessary evolution

Consider this: Over its Sept 19th launch weekend, Apple has effectively shipped over 10 million EMV cards. Maybe these weren’t actual cards – rather, containers that could end up being a host to over 80M issuer cards eligible for Apple Pay. So how many among those will knock on a retailer’s door at launch? Initial device sales are to a loyal fan base. Should be easy to guess. Should be easy to spot too, as the aggregate NFC payment volume in US has never been more than a whimper. Continue reading

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The Bullet that you dodged: Apple Pay and CNP

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There has been a lot of focus on the Card Present rate rebate Apple has been able to extract from the Issuers, and continue to extract from banks lining up behind networks who are signing them up for Apple Pay. Networks are finally finding use for the “Issuer Provisioning Service” they hastily put together during the lost decade (the “Isis years”). Term sheets are blunt and non-negotiable, they don’t provide a lot of clarity other than demanding absolute acquiescence. There are traditional bankers sitting in wood paneled rooms wondering – “How on earth did we get here?” “Well Ed, you finally lost control of the form factor and now all you have is borrowed time, to play in someone else’s playground!”.

But beyond the CP win, apparently Apple almost got their way with CNP transactions as well – in finally affording parity to Card Present and Card Not Present transactions through Apple Pay. And if issuers hadn’t finally rejected it – I believe there would have been ripple effects beyond Apple Pay and even mobile payments – with far reaching repercussions for traditional players. Banks and Networks don’t fully understand what it is that they just dodged. Continue reading