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- Strong Fundamentals Buoy the Prospects of Emerging Market Sovereign Debt Issuers, Says Market Vectors’ Fran Rodilosso
- Heartbeat Ideas’ Bill Drummy Appointed to Google Healthcare Advisory Board
- Nationstar Mortgage LLC and Nationstar Capital Corporation Commence Registered Exchange Offers for 9.625% Senior Notes Due 2019, 7.875% Senior Notes Due 2020 and 6.500% Senior Notes Due 2021
- Demandbase Named to JMP Securities Hot 100 List of Best Privately Held Software Companies
- Demand Media Promotes Jeff Dossett to Chief Revenue Officer
PYMNTS Voice
Commentary » PYMNTS Voice
New Global Payment Schemes: Imitation, the Sincerest Form of Flattery?
Throughout the 1980s and 1990s payment network consolidation in the US and Europe, resulted in a world with only 3 global credit card brands – Visa, MasterCard and American Express, supported by a host of regional/ local debit solutions. However, the desire to avoid the dominance of US brands and expand their domestic card markets, has driven players in China, India and Europe to contemplate their own competitive card schemes to compete with the global dominance of Visa, Mastercard and American Express.
Facebook Faces Payment Feud Down on the Farm(ville)
There’s a feud taking place on Facebook. And, it’s about money. And, like most feuds over money, it’s about who pays whom and how much. And, just like the Hatfields and McCoys, the party that fired the first shot may have aimed at the wrong target and for all the wrong reasons.
You may have read over the last week about two decisions that Facebook made recently and that were directed to Zynga, which developed the popular Farmville game. These decisions were to (1) limit the number of notifications that can be disseminated about Farmville activities via the status updates, and (2) to force Farmville farmers to use Facebook’s payment method to buy stuff for their virtual farms.
The first is controversial given Zynga’s stature as one of Facebook’s biggest advertisers, spending tens of millions last year to drive more farmers to Farmville. As a non-Farmville fan, I secretly applauded this move by Facebook since I was getting pretty tired of having my news feed constantly co-opted by friends’ Farmville updates (I don’t play and never have tried.) But, setting aside my personal bias, Facebook has grown its business because it has been able to attract developers who want to leverage its awesome social graph. It touts, as a selling point, its power to drive messages virally and with great velocity. The notion now that developers have embraced the platform, only now to have Facebook limit how viral applications can become in order to drive their advertising revenues higher seems pretty short-sighted.
It’s the second decision related to payments that I think is the most interesting and potentially the most problematic, but not for Zynga. Facebook wants Farmville farmers to use Facebook Credits exclusively since it wants to charge Zynga a 30% fee for the revenue that flows through Credits. I get that Facebook wants to drive adoption and usage of their payment product. And, when drawn on a whiteboard and subsequently put in a powerpoint deck, the notion of picking one of the most popular applications on their platform as a strategy to make that happen probably seemed logical. But, as many a failed payments company will attest, adoption and usage of new payments products doesn’t happen because someone decides to force it, and especially when the one doing the forcing has picked the wrong side of the platform to strong-arm.
Let’s look at the Facebook payments ecosystem for a minute as it relates to Zynga. There are Farmville fans, who play the game on Facebook and who want to keep their farms pretty and buy stuff to do that. We have Zynga that has created Farmville, and has brought to Facebook a huge base of people now who play the game on Facebook and because they are on Facebook, are available for Facebook to monetize in many other ways, like selling advertising to merchants who want to reach these people and enticing Farmville farmers and their friends to buy other things that are for sale on the site. In fact, Zynga’s games brought with it more than 80 million monthly active users. This was, until recently, a happy little ecosystem. Everybody got something of value.
Now, Farmville farm owners have to establish a Facebook Credits account if they don’t want their artichokes to wither and die. That means that they have to move away from whatever they are doing now and do something they have never done before – create a new account. Some people will probably be okay with doing that but some people might chose not to, for a lot of reasons, including privacy and security. That means that Zynga will lose customers at the same time they are being told to pay up on the advertising side and to pay up on the payments side. In platform speak, this has the potential to become a death spiral, where customers leave, and then their friends who used to plow their fields leave, and then more people leave, and soon, everybody loses, including Facebook.
As I said, I get that Facebook wants to monetize payments on their platform. Who doesn’t? But I don’t understand this strategy. These two decisions have managed to alienate one of their customers – Zynga – and has the potential to alienate their other customer – the Farmville farmer and their friends. The offline analog here is a mall owner telling their store tenants that their customers can only use wampum to buy the stuff that they sell in their stores. And, that they’ll take a third of their revenue. And, that this decision gets a couple of years into the lease period without any prior warning. All of a sudden, customers that were used to using money to pay for things now have to go find wapum, or more likely, find stores that still accept money since that is what they have and that is what is accepted everywhere else they like to shop. Playing this out, it’s not hard to see how the mall owner loses in the end since customers find other places to shop. Stores, logically, follow customers as soon as they can exit – and those who can’t go belly up. The mall loses because stores and customers will find each other again in a more convenient platform where the transactions costs are not as high for either side.
So, I think this is a risky move for Facebook to make. There’s talk that Zynga is looking to create its own gaming social network which doesn’t seem all that far-fetched given the network they have built and the affinity that people have to the game. They just might be able to pull that off. The big question for Facebook is how many developers, entrepreneurs, and merchants - all important customers of their platform, are now looking at this decision and making new plans. We won’t know for a while. What we do know is that we’ve seen this movie on social networks before. The first movie was titled Friendster, the second was MySpace.
Why the MasterCard and Visa IPOs Were the Most Significant Development of the Last Decade
Why the MasterCard and Visa IPOs Were the Most Significant Development of the Last Decade
What Has a Bigger Head and Longer Tail? Card Issuing
Its head has gotten bigger and the tail longer and skinner. I'm not talking about a scary monster but about the distribution of purchasing volume for the credit and debit card issuers in the United States.
Shanghai Surprise
China emerged in the last decade as a major force in payments. Coinciding with the enormous growth of the economy, China has rapidly increased the acceptance of cards by merchants and the use of cards to pay by consumers. Chinese banks have expanded their issuance of debit cards and have moved aggressively into credit cards. In 2008, there were 16.7 billion card transactions that resulted in a total spend on cards in China of 127.16 trillion RMB ($18.75 trillion). More than a million merchants accepted cards that year.
Collateral Damage from the Financial Crisis: Consolidation and Regulation
The decade ended with the start of the most severe financial crisis the world has faced since the Great Depression of the 1930s. In many respects the payments industry was rock solid during the meltdown. The payment systems processed transactions without losing a beat. While consumers faced a real risk that they would find their retirement accounts dry, and not a banker in town would be willing to give them a loan, they had full confidence that they could pay merchants with any tender type that merchant usually took. Pure payments companies such as MasterCard and Visa not surprisingly held their value while most other stocks crashed.
How the World War on Interchange Fees Transformed the Card Industry
A global war on interchange fees raged during most of the decade and will continue into the next. We'll have to wait until next decade to find out who wins the war. But the war itself has already led to massive ramifications for the card business around the globe.
GAO to Congress on Interchange Fee Regulation: Yellow Light
Last week the General Accountability Office (GAO) released it much awaited report on interchange fees. Congress had asked the GAO, the respected investigative arm of Congress, to wade into this battle between merchants and cards systems earlier this year when it passed the CARD Act. There's something for everyone in this report which is why both merchant and cardholder advocates are claiming that it backs their positions. Here's what GAO finds:
PCI Compliance – To Whom Are You Compliant?
A few years ago, in response to a growing number of data security breaches, the major credit card brands formed the Payment Card Industry Security Standards Council (PCI SSC). Since then the PCI SSC has developed a set of security requirements for all businesses that handle payment cards.
The Invisible Engine Wars: Amazon and PayPal’s App Strategy; Will MasterCard and Visa Fight Too?
Amazon and PayPal have both announced aggressive efforts to persuade developers to use their payment technologies. Each of them has opened up a gateway into their payment platforms. They are providing developers with tools for writing applications that use their payment technologies. And they are "evangelizing" their payment platforms to encourage lots of developers to take them up on this.
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