Payments and Identity in a Fog of devices

This week, Chase Partnership ends up a Hail Mary pass for MCX, and the 94 Million preloaded cards constitute the single most benefit. Elsewhere, Apple Pay looks to Amex as it rolls out to Canada and Australia – a partner who has sufficient margin in interchange to stomach a toll fee, but smaller market share in comparison. Finally, the platform moves from Mastercard to extend MDES and Express to the Internet of Things is interesting less because of payments, and more when you view it against the backdrop of name-centric identities giving away to algorithmically derived ones. This post is part of my November Newsletter. You should email me at cherian(dot)abraham(-at-)experian(.dot.)com to be added

MCX’s relatively conservative guess of network payment volume, once shared with industry participants – puts them at 4-5% on the 5 year mark from launch. However you slice it, that is still tremendous volume that pins its hopes on a frictionless and convenient onboarding experience and a clear communication of value to the consumer. As a partner, Chase promises 94 million cards pre-loaded in to wallet – a massive boon – until you reconcile that with the reality of the number of cards so far loaded in to Apple Pay (and that is with the immeasurable marketing clout of Apple, Visa, MA, Banks and everyone in payments). So preloaded or not – Chase still has apathy and consent of the consumer to deal with – and with the announcement more than six months ahead of the launch, much is still in play. Meanwhile, Chase seems eager in playing up the “Apple Pay rival” angle – not the least to send the unambiguous message to merchants – that it’s hard to compete with Free.

Apple Pay roll-out

In an attempt to break the logjam in rollout for Apple Pay in both Australia and Canada – Apple has announced that it will enter these markets with American Express. With no other bank partners lined up, for Apple – this demonstrates a lack of willingness to budge from the 15bps transaction fee that it levies on the bank (which at times is almost half as the bank’s take per transaction). For Amex – this shows both a sufficient margin in these markets to stomach Apple’s fee as well as an intent to differentiate and scoop up payment volume from others. Banks in these markets continue to toe a steady line that Apple do not deserve a premium for the services it offer, while privately worried that more than half of their customers are on iOS – and a portion of them fully expect banks and Apple to work together. But Banks in AUS and Canada find themselves wedged between an interchange ceiling that is far lower (and regulated) in those markets when compared to US – and consumers who are already adept with contactless terminals and usage. It remains to be seen how long a blockade would work.

For Apple, breaking the logjam in AUS and Canada will help it to use that clout as rolling issuer agreements expire in US (and correspondingly with networks forcibly expiring the 15bps advantage) to sign up US banks to a similar arrangement. If Apple manages to rack up enough differentiation from retailer loyalty to serve as a counterbalance to the lack of such on the payments side – then it can convince just enough to extract a toll fee in the future. A bit of what such differentiation would translate to, was unveiled to bank partners in Vegas last week – showing loyalty integration with Panera. Consistency in experience to the consumer and merchant – in how loyalty cards are added to wallet, and then used in a payment transaction will dictate utility and usage.

Panera loyalty integration seems to be unique in how the customer is prompted to add their loyalty card to Apple Pay. If in the past this was customer initiated, in Panera’s case – it is wholly prompted after the customer has used her loyalty card and their Apple Pay wallet at the check out. If the customer acts on the prompt and chooses to add the loyalty card to wallet, all subsequent payment through Apple Pay will transmit payment and loyalty information together. Seeing that the Walgreens integration does not mention a similar on-boarding process, I am assuming that Panera experience may be unique and possibly proprietary.

And finally – Payment widgets and IoT

Payments and the Internet of things has been colliding for a while now – and it surfaced again recently with Mastercard announcing that it is working with an array of partners including Capital One to launch payments in connected devices. The thinking here seems to be that payments is a function in the Marlow’s pyramid of needs for any new consumer device. I am conflicted on this point – not that I don’t believe the internet of things isn’t important, but that we may be overthinking in how payments is important to be shoved inside everything that has a radio baked in. And not everything will have a radio in the future, and the role of a smartphone as the center of the connected device commerce universe isn’t going away.

It is important to keep perspective here – as the announcement is less about coat sleeves hiding NFC chips with tokenized cards – rather it’s the commerce enablement of devices that we may carry on our person so that they can be armed for payment. Though I may disagree on whether a coat sleeve or jewelry are essential end-points in commerce, a platform of capabilities to challenge, authenticate and verify, and ultimately trust and provision a tokenized representation of something, whether its a card or a fragment of the consumer identity, to a device that itself represents a collection of radios and sensors is very exciting.

It is exciting because as device counts and assortments grow, they each have their own residual identity as a combination of things and behaviors that are either deterministic or probabilistic. The biggest shift we will see is that the collective device identities can be a far better and complete representation of customer identity that the latter will be replaced by the former. Name-centric identities will give away to algorithmically arrived ones.

Today my Fitbit’s claim to make a successful payment is validated way before the transaction, when I authorized provisioning by authenticating through a bank app or wallet. What would be interesting is when the reverse becomes true – when these class of devices that I own can together or separately vouch for my identity. We may forget usernames and passwords, but we will always be surrounded by a fog of devices that each carry a cryptographically verifiable signature.

So this is why I believe the MasterCard effort in tokenizing devices is important when you view it in conjunction with the recent launch of SwiftID from CapitalOne.

As you may have gathered by now, I am less excited of pushing cards in to devices (least of all – cars!) and more about how a trusted framework to carve out a tamper proof and secure cache, along with the process to securely provision a token or a signed hash of something can serve as the foundation for future device – and by extension – user identity.

On that note, here’s a bit about pushing cards in to cars, and mistaking them for connected cars. To me there are only two connected car classes today. One is Tesla where each car on the road is part of the whole, each learning separately and together as they examine, encounter and learn the world around them to maneuver safely. The other is a button in an app that I hit to have a car magically appear in front of me. Other than Tesla and Uber, there are no other commercial instances of a connected car that appeals (Google has no cars you can buy, yet).

Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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