The Empire Strikes Back, Connected Carmerce And Why Citi Just Can’t Get It Right With Costco

Summer is coming to and end, which means that minimally speaking the whether outside will stop sizzling sometime soon. Theoretically anyway.

But payments and commerce, there is no such thing as a chilly season. Something is always either sizzling, or making a very honest attempt at it anyway. Some did better than others. Citibank can’t seem to get the Costco situation under control and Uber hasn’t quite cracked the code on profits yet.

But there were some legit entries into Sizzle territory as well – cars got connected and banks got into the competition.

So what what the hottest of the hot and the nottest of the not.

 

 

SIZZLE

Contextual Car-merce

Americans, at least, seem to be buying cars. Sales in July were robust and exceeded analyst expectations. And where there is an appetite for spending, there are players hoping to make life easier for them to do it. Enter Amazon and Chase – two giants that are approaching car-merce in a very different way. Amazon wants to be the central portal for consumers to visit to get the scoop on the cars they might like to buy. And since Amazon is the central portal where lots of consumers start their shopping these days, it’s not that far a leap. But you gotta think that this is just the first step to getting into the sale of cars via a third-party marketplace deal. Why not? eBay Motors has proven that people buy cars – and a lot of them – online. So getting into car purchasing is (a) logical – since consumers already trust Amazon to buy and pay for things, and (b) this is how Amazon spells omnicommerce — and strikes fear into the hearts of investors. TrueCar and Autobytel stock tanked yesterday on the news.

Chase also threw its keys into the car-merce ring when it announced not only that it would make auto loans available online, but it would also enable potential borrowers to use the Chase portal to look for a car – new and used – and then when one is found, apply for a loan on the spot. This move is after Chase CEO Jamie Dimon told CNBC that the market for auto loans was a bit stretched, that someone was going to get hurt, and that it wouldn’t be Chase. Now, apparently, we understand what he meant.

FIZZLE

Uber

What’s a billion between friends? Or riders, drivers and Uber? Last month Uber clocked its 2 billionth rider, adding a billion riders in just six months. It also hit another billion milestone in that same period of time. Bloomberg reported that Uber lost more than a billion dollars the first six months of the year. That’s a lotta dough. Since we know so little about Uber’s financials – other than that is has raised a lot in debt and equity capital — we don’t know how bad the bleeding is and how far Uber is from making money on its own. We have a sense of how much of its funds are funneled into legal challenges as it takes on the regulated taxi industry, but losing money outright month after money is a lot different than showing losses as a result of plowing profits back into the company.

Citi/Costo

What was a rocky beginning continues as a rocky middle. The switch over to Citi from Amex has been anything but smooth, as we recently reported. The migrations of tens of millions of cards from one issuer to another is bound to have its hiccups, but there have been more than a few. The latest this week was in the form of emails inadvertently sent to Costco members suggesting that their memberships had lapsed, naturally causing all sorts of confusion on the part of members and Citi. Let’s hope that this latest series of hiccups ends soon. No one wants to see someone break the Guinness Book of World Records for continuous hiccups, which lasted 68 years.

 

Big Banks Breakout Weak

The problem with Big Banks, conventional wisdom has run of late, is that they are just too big. “Too big to fail” is certainly the “too big” that has gotten the most public exposure since the financial crisis.

As it turns out, however, that is just the loudest and most politically inflammatory refrain in the Banks Are Too Big Chorus; there are a lot of other verses in that particular refrain. Other favorites over the last several years have included “too big innovate,” “too big to pivot,” “too big to keep up with the modern world,” and “too big to ever attract Millennials.”

Conventional wisdom shifted to support that song. Those too-big banks, with their too-old legacy systems and too-outdated way of doing things, were spending too much time and treasure trying to be too many things for too many people. Younger, more cutting-edge financial service tech startups could provide the same services faster, cheaper and in a way more in line with consumer expectations. No individual app or finserve entrant needed to take on “The Banks” as a whole since death by a thousand cuts is a also a valid way to take down a giant.

Even Jamie Dimon was worried — he told his investors for multiple years in a row that the tech firms were coming to “eat our lunch.”

Intervening time however made two things clear.

First, providing bank-like services as well as banks provide them without being a bank isn’t all that easy. Between bitcoin exchanges continued looting at the hands of hackers, LendingClub exploding spectacularly with a variety of scandals swirling around it, marketplace lenders in general suffering in a changing credit environment and the variety of other pressures like profitability hanging over the heads of finserve startups these days, it’s becoming clear that just showing up and eating the banks’ lunch isn’t as easy as deciding to do it.

But beyond the stumbles the competition is going through, this week made it clear that the Big Banks aren’t ready to surrender the innovation ground to the upstarts. Because the Big Banks also think they are “too something” — like MC Hammer before them, the Big Banks believe they are just too legit to quit. So they’re putting the pressure on instead.

Will it work? Depends on how well they execute.

The Big Moves

It’s been a big week for Big Banks making moves into areas until recently considered the natural stalking ground of startups. The biggest push of the week came out of the consortium of big U.S. banks behind the service formerly known as ClearXchange.

The consortium of banks behind Early Warning will release Zelle into the world, reportedly during a payments industry conference in October.

What is Zelle? It’s a P2P money transfer app that will allow users to tie their bank accounts to the app and easily zip money to each other. Precise details about how it will interact with the banks’ current branded P2P offerings, such as Chase QuickPay, aren’t clear.

What is clear is that Zelle offers a direct challenge to PayPal’s popular Venmo app, and a move on its young, hip and discretionary income-having user base.

And Zelle wasn’t the week’s only big overture to innovation in financial services.

The blockchain — the underlying technology that powers the digital currency bitcoin —got a big thumbs up from four of the world’s biggest banks.

BS, Deutsche Bank, Santander and BNY Mellon banks will work collectively to develop a new form of digital currency intended to become a financial industry standard for making it easier and faster to move money around the world.

“Today trading between banks and institutions is difficult, time-consuming and costly, which is why we all have big back offices,” said Julio Faura, head of R&D and innovation at Santander. “This is about streamlining it and making it more efficient.”

And more cutting-edge.

Will It Work?

The announcements of the week go with recent developments like Goldman Sachs’ move into marketplace lending. The Big Banks are starting to shop the best of the digital services and figure out how they can offer their own versions, which would come with the added assurances of being highly regulated and under high compliance requirements, which in the aftermath of LendingClub detonating looks pretty darn good.

But it’s not enough to just build it and hope “they” will come. The banks have to do the services they offer not only well, but probably better than the smaller competition. People may Zelle each other with the enthusiasm they current Venmo each other — but people really like to Venmo each other already. It remains to be seen whether Big Banks can offer something consumers like nearly so much.

And while we’ve heard a lot about the mainstream applications of the blockchain coming soon, there remains the problems that the most avid bitcoins fans in the world are professional criminals, and bitcoin exchanges keep losing millions of dollars into the ether. It may be hip to embrace it; it remains to be seen if it is practical.

But the Big Banks are are clearly playing for keeps — and thinking creatively about how stay in the game. While it’s too early to call a definitive sizzle on the programs, the scope of the effort surely deserves a sizzle rating.