And the Fintech Country of the year award goes to…

If you are not following what is happening in India in the last few months, you will need to wake up and take a look. The demonetization effort launched by the Indian government has shaken this cash based economy to the core.

While everyday folks suffered a lot with trouble in exchanging the 500 and 1000 Rupee notes for the newer 2000 or older denominations, the mobile wallet scene in India saw a sudden interest and growth which was a fortunate side effect.

Companies like PayTM and MobiKwik have seen their user and transaction volumes skyrocket in the past few months. Here is a link to the Paytm growth numbers for their year ending 2016 which is crazy!

As a payments industry observer I find this growth fascinating. I can’t wait for the time when Apple would release its ApplePay numbers in open like this!

The folks in Daily Fintech have done a fantastic job in presenting the case of why India is the Fintech country to watch here in this article. Go check it out!

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2015 is *not* the year of Mobile Payments.

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There, I said it. It’s an inside joke amongst the payments industry folks to guess which year might be the year when Mobile Payments finally becomes mainstream. It may seem with the highly promoted launch of Apple Pay, we may have finally put a rest to the claim that 2015 is the year when mobile payments finally hit mainstream.

Maybe Not.

For all intents and purposes I feel Apple Pay, with its marketing momentum, managed to make the general public take notice of mobile payments. However, with Apple finally decided to get into the ring, it managed to make the other failed efforts combine forces together to finally put up a fight. I see the playing field with four major players.

  1. Apple Pay with NFC
  2. Google Wallet with NFC (Android Pay?)
  3. MCX/CurrentC/PayPal/Paydiant Wallet
  4. Samsung Pay (With Loop’s MST and NFC)

Each of these players have their own strengths to polarize the market in their own way. Lets dive in!

ApplePay:

Strengths: Best User Experience for making mobile payments in the current landscape. Pioneered the concept of tokenization and biometrics to provide a new easy way to pay. Brought all the payment networks and banks to execute a near textbook perfect launch.

Weaknesses: Merchant Adoption. As we see more merchants adopting NFC enabled terminals (and the EMV liability shift in 2015), the number of locations where you use Apple Pay will grow. However, don’t expect to use Apple Pay in your neighborhood Walmart anytime soon.

Not having any rewards programs to brag about is another limitation with Apple Pay.

Add to this the other side of Mobile phone pie, the Android user ecosystem who zealously hate anything Apple Makes. These folks will never use Apple Pay, no matter what.

Opportunities: As more of the newer iPhones get sold, Apple Pay will gain traction and people will try it atleast once to see how this works.

Threat: Industry analyst Cherian Abraham has been blogging about the fraud activities generated by ApplePay. Even though none of this has anything to do with the security measures Apple put in place in designing Apple Pay, the soft underbelly of the whole scheme is the Yellow Path for provisioning cards for users. Banks were forced to launch AP without much time to account for this newer security threats and that may slow some of the momentum.

My take: I would equate the launch of Apple Pay to Tesla’s Model S launch. Both were revolutionary products in their own respect. They broke the convention in their areas where common wisdom dictated that it could not be easily done. However, any first generation product there may be some quality issues which may get ironed out as future versions are released. Apple Pay is surprisingly a solid offering for v1 and it can only get better.

2. Google Wallet with NFC (Android Pay?)

I don’t even know where to start with this. Google Wallet has languished forever mostly due to Google’s approach in not building partnerships with the players in the field. Finally the stars aligned for Google Wallet after the Apple Pay launch and lit up the much needed fire in their back to get their act together. Google was able to broker a partnership with Softcard and provide its new wallet offering as an API.

Strengths: Launching Android Pay as a payment API (See Sundar Pichai’s remarks here) is a wise move. This allows Google to open up the API to device manufacturers and developers to build wallets which may result in mainstream adoption. Apple’s walled garden approach would have never worked for Google in the first place. Android has a healthy user base in US who may try this service.

Weaknesses: Design by committee never produces mind blowing user experiences. Apple Pay set a very high bar(See Tim Cook launch Video here). I cannot imagine how the Android Pay UX can be any simpler than this given the fact that it has to work on a multitude of devices made by different manufacturers. The rev. share scheme Google has promised the Telcos to pre-install Google Wallet in newer handsets sounds like something which needs to be vetted after product launch to see how successful it may be in the long run.

Opportunities: Android has an 80% worldwide market share (source). With an open API approach, Google is betting on sheer volume of its users to make this a success. When you thrown in enough magic potion in the cauldron, you never know what may come out 🙂

Threats: Not having the first movers advantage sometimes may come back and bite you. Apple Pay was able to alleviate this shortcoming with an amazing UX. With Android’s open model and fragmented ecosystem, the success of Android Pay may not be imminent. If history is any indicator, the ARPU(Avg. Rev. Per User) for Android is one quarter of iOS users (according to Benedict Evans analysis here).

My Take: Android Pay maybe late to the party but it surely provides an alternative for Apple Pay. How successful this may be is something we will have to wait to see.

3. MCX/CurrentC/PayPal/Paydiant Wallet

Its hard to analyze a wallet only a few have used in Beta. However, the PayPal acquisition of Paydiant came as a surprise and caught most of us off guard. We well knew MCX was working with FIS/Paydiant to use their QR code technology to payments. The QR-Code premise was very promising when all of the industry pundits declared NFC dead (including me). Add some Apple juice and suddenly we see a re-animated NFC becoming the de-facto payments standard.

The QR-code method of payments is still not bad. We use it in Starbucks everyday and most people do not have any issues paying using QR-Codes. However the entire premise of CurrentC wallet which tries to remove payment networks from the picture (atleast in the first iteration) seems like a dicey proposition for a successful launch.  From a consumer point of view, I do not understand why a customer would be motivated to link their bank accounts to save interchange fees for a merchant.

4. Samsung Pay (With Loop’s MST and NFC)

Talk about bad timing and possibly some buyer’s remorse. Samsung acquired LoopPay which would provide out of the box support to use existing POS terminals using the Magnetic Secure Transmission technology. While many rumored a marriage between these two companies could have provided a great mobile wallet in Samsung phones, this comes a year too late. With the EMV liability shift fast approaching, many merchants are upgrading their terminals. The concept of swipe as we know may go the way of dodo pretty soon. (This reminds me of Blu-Ray as a technology. I wonder how many people still buy Blu-Ray players now that streaming is becoming the most preferred way to consume content?)

Naming this technology as Samsung Pay is also not a great move in my opinion. For the hardware chops they have, Loop technology could have been made into a hardware chip which Samsung could then sell to any of the device makers thereby securing their investment and guaranteeing a longer shelf life with strength in numbers . With Google announcement of Android Pay API, I am just not sure how Samsung would promote their offering when they will also have to install Google Wallet.

Conclusion:

So, I hope, my dear reader, if you have come this far, you probably know how big of a cluster is the current mobile payments landscape in US. I don’t even want to imagine the free technical support we have to provide our families and relatives once every one of them gets their hands on a pay with a phone thingamajiggy. So good luck.

For my money, I can surely bet 2015 is not the year of mobile payments 😉

Mobile Payments – Are we there yet?

Mobile Payments is the hottest topic in the market now. If you are following the payments industry you would be pleasantly surprised to see the amount of interest in this area from various players which include Financial Institutions like Banks, Card Networks, Processors, Telecom providers, Silicon Valley Giants,  small payment startups, retailers and pretty much everyone you can think of.

It’s all Steve Job’s fault:

The iPhone for all we know started a mobile revolution where upgrading the latest OS firmware is something you see customers discussing at coffee shops in the morning. (Did you upgrade to iOS7? I hate the color themes. I am still at iOS6 and love it!). Not to digress too much, but the iPhone opened up a cottage industry of all the things you could do with the device and Google couldn’t sit there and let Apple have all the fun. Thus Android was born (which opened up its own industry of phone makers). The latest browser stats show Chrome and Android browser leading the pack in usage while Firefox, IE and opera losing market share.

Facebook was fun with mobile, so was Instagram, Twitter and all the lifestyle apps which “made” you more productive. It was quite natural  that mobile devices evolved to add payments as the next killer app – except the existing payment initiatives in mobile have quite underestimated one fact.  The customer didn’t find the idea of paying with a plastic card too hard on the first place. What is the mobile wallet value proposition? Just replacing the leather wallet with a mobile wallet app which can store payment and other credentials does it for customers?

The mobile payments landscape is quite fragmented with a lot of confusion of what really constitutes the ecosystem. Here are the major categorizations:

Mobile at the Point of Sale (Pay using your phone)

–Consumer payment method utilizing NFC, QR Code etc.

–Google Wallet, ISIS, Square Wallet, PayPal Wallet

Mobile as the Point of Sale (Accept payment with your phone)

–Merchant utilizes mobile device to process transaction(POS)

–Paypal, Square, Intuit, ProPay

The Mobile Payment Platform

–Broader mobile payment  platform, typically a mobile wallet

–Utilizes NFC, Cloud, QR Code, GeoLocation,  GeoFencing and Proximity

–Google Wallet, PayPal, FIS Paydiant, Level Up, Dwolla, Square

Direct Carrier Billing

–Purchases made via mobile phone – charged through wireless carrier

–Zong, Boku, Mopay, Any Telco issued payment app.

Closed Loop Mobile Payments

–In-store only transactions

–Utilize QR codes, Proximity payments

–Starbucks, Level Up, Square Wallet, PayPal (Closed Loop Offers)

What does this mean to the average consumer on the street who wants to pay with their mobile? A lot of confusion.  Most of this arises from the fact that there is no standard way to make a payment from the phone.  If the GPS technology we use on the phone was similar to what we have in mobile payments today, we probably won’t have most of the location aware apps which make our lives easy(Maps, Yelp, Offers, FB, the list goes on). A good Fintech friend (Matt West) once said he will validate the success of any consumer technology if his mom finds it easy enough to use. Do the Mobile payments solutions today pass the Matt West’s mom test?

What is the primary issue in adoption?

Really the primary issue here is – Do you want one wallet to store all your credit cards and hope that the POS terminal merchant has a way to recognize it? Or do you want to have individual closed loop solutions like Starbucks Mobile app? (Rated as the #1 mobile payments app).  An average customer would probably have certain shopping preferences of where they would shop. Existing usage trends have shown that customers download and use Starbucks app and Target RedCard app  more due to their  richer closed loop experience.   A generic mobile wallet can still be a attractive value proposition in locations where they shop infrequently (A gas pump for example).

In a twitter conversation I had with Guillaume Lebleu and Brad Leimer about payments Guillaume mentioned the idea that The mobile wallet is your “transaction browser”, something you’ll use for transactions you don’t have a dedicated app for.  I agree with his idea of having dedicated apps for most frequent use and have a generic payment wallet for merchants who do have a native app combined with a wallet.  Brad mentioned the fact that there should be a unified backend to make payments simpler.

Integrating Mobile Payments at the Mobile OS Layer:

A truly well thought out mobile wallet would arise only if the major mobile OS players decide to build that as part of a new payments API.  Currently these providers (Apple, Google, Amazon, Microsoft) have provided ways to do in-app billing(mostly used for games and digital subscriptions) but to my knowledge they do not have a way for a closed loop wallet application to securely process a payment. All of these successful closed loop systems have their own cloud based payment/auth mechanism which are custom built.

Unified Payments API hooks:

If the mobile OS can provide a payment API hook that an app can utilize, retailers can build their version of a closed loop rich app similar to Target or Starbucks that can be customized with their specific offers and loyalty programs. To make something like this to work, the mobile OS has to provide a payments API infrastructure which is present in the cloud (and not on the device). This may use the Secure Element or shouldn’t have to. It can store most of your wallet information in the cloud and let you manage the cards in the cloud (Similar to Google Wallet or PayPal). This card on file information can be represented as a secure payment token within the mobile device (not the actual card details themselves, but a reference to the card in the cloud store). In case of Apple, this could be iCloud, Wallet for Google, Xbox Live for Microsoft.

When a retailer built closed loop custom app wants to utilize payment information,  it requests access to this wallet from the underlying OS. (Similar to how they now request permission to use your GPS, Microphone etc).  The OS provides a list of payment methods to the app which can be selected by the app’s payment handler (either set that card as a default mechanism or allow to change payment as required). If the workflow is built with the right hooks for extension, providers like Wallaby can inject value by recommending the the most optimal payment card which maximizing the user’s loyalty options. (Eg. Use the Discover card at electronics store to get 5% cash back type schemes).

An app built in this manner can enrich the in-store shopping experience  by providing a view of the full inventory. What if an item you are looking for is not in that store? The mobile version of the retailers app may allow you to order and pay for it from the app and have it shipped to your home directory. The primary difference between what we have now in the likes of Amazon and iTunes app is, the customer gets to store more than one primary card on file, as well as have the liberty to choose where their wallet will reside and the OS will secure the storage and provide a uniform way to access payment apps within its platform.

Generic Wallet: 

Many consumers may still find the generic mobile wallets like Google Wallet, ISIS, PayPal and Square quite attractive for their usage patterns. Any merchant who may not have a closed loop scheme can decide to be part of one of these generic wallets to accept mobile payments. Even these generic wallets can start utilizing the underlying OS Payment API hooks in a similar fashion explained above. Google Wallet already has a great way to inject Offers and Loyalty programs for merchants who decide to go through this route using their Wallet Objects API.  Other players are offering their own way of launching these value add-ons to the generic wallet.  (Level Up  has launched its white label, PayPal  with its Beacon, Dwolla with its POS payment option).

So who gets to manage this cloud wallet?

This is an interesting question. The payments landscape is big enough to accommodate more than few players.  Some people are comfortable with their Banks storing this wallet information. Some are comfortable with Apple, Google, Paypal, Amazon handling this cloud store. Some may trust Visa/MC/Amex/Discover with this function. This will once again be a turf war where once you get locked into an ecosystem of Apple or Amazon or Google, you may decide to stay with them due to the convenience factor.

The next generation Payment API/Wallet?

Add the ability to store Bitcoin and other alternative digital currencies in this infrastructure and we maybe truly looking at a next generation wallet which can be the payment wallet of the future.  A lot of innovation is happening at the payments space and its a gold rush. The OS providers wield a considerable amount of power by acting as the gatekeepers of mobile commerce which are facilitated through the mobile devices used by consumers. As long as they can keep the payments functionality simple and pass the Matt West’s Mom Test, we should see mobile wallets playing an integral role in the future of payments.

The latest Android edition (KitKat) has released with new Host Card Emulation (HCE) feature which is a great first step in providing OS level integration for Payment apps. Read more about it here.

Update 2:

Cherian Abraham has done it again with an excellent analysis of Android/Google’s strategy on HCE. You can find it here.