Commentary

Picking Yelp's Future Payments Partner

August, as it turns out, is the second most popular month for weddings, coming in a fly’s eyelid second to June. This bit of summer trivia got me to thinking about a possible payments industry marriage. So I thought I would introduce the “PYMNTS: The Bachelorette” series, where we pick a potential blushing bride and guess who the potential suitors might be and who might pop the question. So let this episode of the show begin.

I’ve picked Yelp as my first Bachelorette. My choice is inspired by Yelp’s recent announcements that suggest that giving Yelpers the ability to actually transact with Yelp merchants within the Yelp application is one of its highest priorities.

Let’s begin by talking up why Yelp is just one luscious partner.

Yelp’s been around since 2004 when a couple of PayPal alums, including Max Levchin, gave its founders $1 million dollars to launch a web portal that would make it easy for users to ask friends for their local business recommendations via email. It’s come a long way since then: it’s now live in 21 countries (thanks in part to the acquisition of its largest European rival, Qype, in 2012), available in 12 languages and reports 102 million monthly unique visitors. Yelp is to local businesses what Google is to websites- a searchable index of local businesses. That makes it very valuable since it provides an easy way for consumers and local merchants to find each other, and importantly, when those consumers are in a purchasing state of mind. Yelp’s always made its money from advertising. Its review feature has given it such great merchant and consumer utility, albeit sometimes at great controversy. Yelp’s impact on local businesses was quantified in 2010 by two UC Berkley economists who correlated the Yelp ratings of 300 San Francisco restaurants with their 7PM reservations’ bookings. They concluded that a restaurant with a 4-star rating was 19 percent more likely to have a sellout at 7PM than one with a 3.5 rating (of course this is proof that economists don’t think too much about cause and effect either.)

Yelp made known its intentions to be more than just a local search/discovery/advertising platform with the announcement of Yelp Platform right before the 4th of July in 2013. Limited geographically (San Francisco and New York) and by merchant category (food delivery and pickup) to start, Yelp Platform will allow Yelpers who use its mobile app to make purchases from participating merchant’s Yelp listings. A couple of weeks later, Yelp announced its acquisition of SeatMe (gotta love the name), a two-year old San Francisco-based mini-OpenTable that claims it’s cheaper than its well-established rival (and also making Yelp’ partnership with OpenTable all that more interesting now). Yelp CEO, Jeremy Stoppelman, characterizes Yelp Platform as a way for consumers to shop and transact with the entire portfolio of Yelp merchants without ever having to leave Yelp. Yelp has obviously gotten the memo that online/offline via mobile is a powerful commerce combination and believes that it has the necessary endpoints for ignition.

So, nine years after its initial launch, that’s what may make Yelp an attractive bride. There are likely a long list of potential suitors who might very well like to pop the question. This bride would even come with a dowry - Yelp’s net revenues for 2013 are projected to be ~$216M range: 58 percent higher than 2012 revenues. They’re not profitable yet, but at least they’d be contributing something to the family income. Given Yelp’s market cap ($2.75B) and forward trajectory, they’ll probably need a really, really big ring and a pretty ironclad prenup to even consider a proposal.

So, what suitor would Yelp find attractive enough to give a rose and who would want to keep it? Just like all good marriages, the sum of the parts has to be greater than the potential of each individual. And, to live happily ever after in the online/offline world, the sum here has to engage a critical mass of consumers and merchants, come with on and offline mobile transacting capabilities for consumers and merchants and leverage location-based search via a mobile device.

So, if you’re Yelp, you’d first have to be convinced that you’d be better off with a committed partner versus living the rest of your life as your own walled-garden plus branded digital wallet/payments single that likes to play the field. To make that decision, you’d have to weigh the pros and cons. You’re thinking that you have mobile momentum, especially since as of November 2012, 45 percent of Yelp’s user traffic came from mobile devices and by the end of Q1 2013, it was accessed by 10 million unique devices. And, that you have engaged merchants and consumers since Yelpers have written 39 million reviews, and there are lots of merchants on the platform. But what you still may not sure about is whether consumers are using the Yelp app to get to Yelp or being directed there secondarily via organic search. (I know that when I search for local merchants, I start with Google - even on my mobile devices - and end up at Yelp based on search returns for businesses as a result of that organic search. I’m just not in the habit of using Yelp for local search.) So, for Yelp to recognize the great potential of on/offline as envisioned, Yelpers are going to have to get into that habit and come to use Yelp not just as the one-stop local/mobile/search platform that Stopleman envisions, but as a first-stop experience.

Then if you’re Yelp, you have to have an easy way for consumers and merchants to actually transact once they’re in the Yelp app, recognizing that payments is a hard. Mobile is clearly the ticket here but merchants will need a way to accept payment online from Yelp and “redeem” payment offline. Since many food services merchants probably don’t have online payment capabilities, that will require point of sale integration of some sort. And, of course, it will also require that consumers have an easy way to transact with those merchants in the Yelp app.

So, given all of that, if Yelp wanted to look around for a good partner, who might fit the “ideal partner profile” and have a big enough bank account to put a ring on it? Of course the other way to look at this is, who might be eyeing Miss Yelp right now and thinking about how to get her to the altar?

EBay, to be sure. Adding Yelp to its arsenal of assets almost seems like a no-brainer given eBay’s focus on mobile and PayPal’s capabilities to enable online/offline commerce using the mobile device. An eBay/Yelp matchup would enable Yelp to give its consumers a convenient way to pay using PayPal’s digital wallet at the jump and provide PayPal with a way to acquire new consumer wallets. Yelp could also instantly leverage PayPal’s online/offline ordering capabilities in the food services arena since it’s doing that today with Jamba Juice, McDonalds, others and could even help it to scale it more rapidly (PayPal would still have to enable that capability at the point of sale for the merchants that don’t accept it.) At the same time, PayPal would get access to a one-stop entre into local businesses - a segment that is otherwise economically challenging to access given the fragmented nature of the massive local merchant market. Such a match up could be attractive to new and existing Yelp merchants outside of the food services sector that might find PayPal’s broader commerce capabilities, such as price and inventory checking, etc. attractive, and the opportunity to list in its eBay marketplace appealing. According to Arbitron, eBay is the most popular shopping app in the US, with smartphone users spending almost 95 minutes a month in the app.

Thinking even bigger and more broadly, there may also be interesting ways to leverage the physical point of sale mobile payment capabilities made possible via the PayPal/Discover partnership as well as the POS platform partnerships that PayPal has kicked off as part of its “cash for registers” program for existing physical merchants. EBay also has a strong track record of acquiring companies and keeping founders and executives in the tent. In an interview earlier this year with Bloomberg, eBay CEO John Donahue stated that he likes to acquire companies with a “strong vision” and with management teams that want to take their vision to a higher level inside the company. He’s proven he’s done that effectively with acquisitions like Zong, Bill Me Later, Magento, RedLaser and Milo.

Facebook also seems like a logical suitor and would bring more than a billion consumers to the wedding, who would all probably be posting pictures to their newsfeeds during the ceremony. Facebook is the most popular mobile application in the world, has millions of merchant and brand pages, and now has search as an easy way to find anyone, including merchants. Users routinely ask friends for recommendations on local merchants and share their experiences while out and about at those merchants on their news feeds. Merchants also use the newsfeeds to promote products and metrics and have reported that Facebook is effective in driving traffic to their web sites. So, for Facebook, a matchup with Yelp could provide an interesting alternative to advertising for merchants to ignite commerce, especially for those small, local merchants for whom advertising is expensive and who now understand that “likes” don’t necessarily convert to the ability for fans to see postings on their news feeds. It would also provide a more robust local search capability for users and all of the possibilities that on and offline transacting can provide. The sticking point is payment, which is what Yelp needs. Facebook could conceivably leverage its existing payment platform, which enables payment online and at the physical point of sale via a multi-purpose plastic prepaid card that runs over the Discover rails, but that is clunky and won’t scale. To get Miss Yelp interested, there would have to be a better payments mousetrap as part of the prenup.

If I were Visa or MasterCard, I think I would be sending the tux to the dry cleaners. Both card networks are eager for ways to get consumer and merchant adoption of their digital wallets and more opportunities to directly connect with the consumer. Not only would Yelp give the card networks the merchants and consumer endpoints they desire, but the incentive for consumers to populate a V.me or a PayPass wallet with their issuer’s cards. Both also have the budgets to subsidize offers and promotions to induce trials. But what they lack is digital wallet acceptance and that could keep them from getting to the altar in the near term.

In the “seems like a real stretch but who knows these days” category there are two more.

A marriage to Yelp might also be a pretty interesting way for Chase Merchant Services to explode some fireworks around its three-party system possibilities. Boom! Chase, as the largest credit card issuer in the U.S., could bring in more consumers to the Yelp Platform who would in turn deliver it local physical merchants that may not be served by its Paymentech acquirer today. Chase has a mobile banking and QuickPay app, which enables P2P payment but would have to enhance those capabilities in order to enable payment via mobile on and offline. In the interim, they have lots of plastic cards accepted at lots of places on and offline and a deal with Visa that would enable it to offer local merchants better deals if they wanted to use that to incent merchant adoption and/or introduce a new business model. JPMC has more than enough in the bank to make such an acquisition if they wanted to but since it hasn’t invested in anything like this in the past so may not meet their acquisitions criteria.

Then, there’s Intuit. An acquisition of Yelp would be a big bite, but they have $1B in cash now since the sail of Intuit Financial Services and a stated focus on delivering “products for consumers and small businesses.” Their $242M 2011 acquisition of DemandForce also gave them a direct link to Yelp. DemandForce is a SaaS company that provides local businesses with a variety of services including online appointment settings and reminders, feedback, and reviews. DemandForce syndicates those reviews to sites that accept its content, and that includes Yelp. Last year, it drove $3.7 billion in revenue, 4 million reviews and touched 47 million consumers. In terms of endpoints that Yelp would find appealing, Intuit has a ton of small business relationships already, is the small business financial management software king, has a merchant acquiring business and a mobile point of sale operation that could power its digital wallet ambitions. The question for Intuit is whether Yelp's ability to give it a consumer and local business platform into which other products and services could be sold and monetized is anything they care about.

In the “might be interested but would probably be rebuffed” camp is Google, I think. Google clearly has the cash, and the incentive to want to want to walk down the aisle. The combination of the web index of content plus the web index of merchants is certainly compelling, but Google more or less left Yelp at the altar once before in 2008. At the time, Google offered $500M to buy Yelp, but Yelp wanted more - 50 percent more. At the same time Yahoo threw its hat into the ring, Google refused to pony up the cash and Yelp and Yahoo couldn’t agree to terms so all of the active engagements broke off. (Boy, I’m sure that both of those guys regret that.) Google’s 2011 Zagat acquisition might also give Yelp a bit of pause, too. You’ll recall that Marissa Mayer masterminded an acquisition of Zagat that year for $125M, and had a number of plans for taking the eponymous restaurant recommendations guide to the next level. At the time, I even speculated that I thought it would be the beginnings of a local merchant payments launch pad for Google. But, unfortunately, none of those best-laid plans ever materialized and a few months ago, most of the Zagat staff was told that their contracts wouldn’t be renewed. In theory at least, Yelp would be a powerful platform to ignite Google Wallet accounts, while enriching local search capabilities on the mobile, but it’s hard to know whether merchants would find the combo platter of transaction data and Google Wallets any less onerous with Yelp in the mix (I would doubt it).

Others who might be interested but probably couldn’t pull the trigger, at least in the near term?

Groupon (who wouldn’t have the money and has ambitions of its own to best Yelp) and Square (for whom this would be a natural complement to what it is trying to do in local merchant commerce but would need someone else’s very deep pockets or a IPO to fund).

And, what about Apple? Well, they clearly have the biggest cash stash of any tech company ($141 billion) and are in an acquisitions frame of mind. With their 525 million iTunes accounts, Passbook capabilities and increasing penetration of iPad POS devices at local merchants, if Apple wanted to get into mobile payments and commerce in a big way, this could be one way to ignite it. But payments increasingly seems like “small ball” for Apple and their investments in the past have always been related to technology that makes their products better. Yelp would be doable, but might not be desirable.

There’s obviously a whole lot more to any of this, including the business model and technology implications of any potential matchup. And, I have no inside knowledge of any of this, just thought it would be fun to think about a few of the payments summer romances that could turn into serious relationships down the road.

I’ll leave you with this. If June and August are when most people get married, December and February is when most people get engaged. December 2013 and February 2014 might be too soon for this payments Bachelorette to be taken off the market, but I’m sure we’ll see some relationships established and even flourish over the next year as this plays itself out. I’m not sure how long Yelp will stay single but I don’t see it growing old alone.

Who do you envision getting Yelp’s rose? Let me know!

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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