Someone once said that even number years are always better than odd number years. If that’s true then 2014 has a lot to live up to! But as we all turn our focus to 2014 after a two week holiday respite, and wave bye-bye to 2013 officially, here are a few reasons why 2013 in payments in commerce was the year of everything – or nothing at all.
Exits and On Ramps
2013 was a year in which several strategic chess moves happened in payments, some taking place in the last six months of the year, and even a few in its last six days.
2013 was the year in which NCR showed its muscle as a key player in the FinTech space. It set in motion a $1.65 billion acquisition of Digital Insights, a global leader in online banking and financial management.It also completed its $84 million acquisition of transaction security company Alaric Systems, and a $650 million acquisition of retail POS software company Retalix. Clearly, not your grandfather’s NCR. It obviously decided that there’s no time like the present to knit together its vast retail and banking assets to form a single technology platform that can help power the omnichannel visions of its banking and retail customers. Who says a 160-year-old company can’t dance? We’ll all be watching with great anticipation to see who else they might invite to their digital dance party in 2014.
Speaking of Digital Insights, it was spun out of Intuit in the Summer of 2013 as Intuit decided to double down on its small business focus (along with its tax focus) and divert itself of assets that didn’t fit the mission of being the “small business operating system.” Intuit is a demonstrated leader in the small-business payments space, launching GoPayment in 2006, and building out assets around mobile and digital that leverage its very sticky QuickBooks user base. Aside from the sale of Digital Insights, things though were relatively quiet on the Intuit payments front. We’ll see if that changes in 2014.
Lemon, one of a long line of wallets that doesn’t enable payment, was sold to for $50M. Given Lemon’s uniqueness around digitizing identity credentials, one can only imagine that some sort of hypersecure wallet with digitized credentials is on the roadmap. But finding a use case that’s interesting enough to enough people will be the challenge. I admit I’m dubious, and never thought that naming a product after a fruit that was associated with a grossly defective product was a wise move to begin with, but $50 million later, go figure. Hey, I’m still sticking with the “no vowels” naming convention as the secret sauce for a big valuation.
And, in what has to go down in payments and commerce history as the fastest flip on record, Yub launched in November with $12 million in funding and sold a month later for $30 million, to Coupons.com. Yub, an offline affiliate network linked to cards, was incubated and then spun out of TrialPay, which innovated the way in which consumers get items for free (stuff that they might like but wouldn’t necessarily pay for) in exchange for getting a promotional offer. In the immortal words of Kenny Rogers, Yub demonstrates that you gotta know when to hold ’em, and know when to fold ’em.
Amazon let us peek inside its highly secret payments playbook by buying GoPago. Well, truth be told, they really didn’t buy GoPago, they licensed its technology and took a few key hires. (The POS and merchant assets went to Doublebeam.) GoPago, as most of you know, is an integrated point of sale solution – one of the 100 or so that are in market. This odd acquisition came on the heels of the launch of the Pay with Amazon service that will embed a checkout button on merchant sites, an interesting experiment to watch given (a) Amazon’s very obvious position as a competitor to merchants and (b) its announcement of a virtual currency, Coin, for use with its tablet products. So, we all now know what we’ve suspected for a long time, Amazon will enter the mobile payments space but how they’ll connect these dots is still just speculative.
One of the biggest and most impactful acquisitions was by PayPal when it acquired Braintree for nearly $1 billion in September. This move gives PayPal access to a software-based development platform that will accelerate innovation in commerce and make it easier to extend PayPal’s reach into non-retail commerce sectors. Already, we’ve seen PayPal accepted by Uber (a Braintree customer) as a payment method, and that’s likely the tip of the iceberg. It’s also worth noting that two of the most significant near-billion dollar acquisitions in payments in the last decade – BillMeLater and Braintree – were done by PayPal. I, for one, can’t wait until they move out of the “B’s” and we see what other acquisitions await.
Signals and Suppositions
Square made a few moves in 2013 that sent tongues-a-wagging about its future plans. Its acquisition of Evenly and Viewfinder are two peer-to-peer apps that help consumers split checks at restaurants and swap pictures but were mostly about acquiring the team rather than the underlying technology. The real news was the launch of Square Cash, which enables the sending of cash to people with just an email. The media focus was on how simple it is to do, but the real story is the clever way in which Square is racking up registered debit card accounts as a result. Yes, Virginia, there is a PayPal competitor story here in the making.
ShopRunner, the online mall of branded retailers with a two-click payment method, received a huge infusion of capital from Alibaba in 2013. As I mentioned in a piece I wrote on ShopRunner earlier in the year, it’s probably one of the most underestimated players in payments. Characterizing it as an “Amazon Prime” challenger given its free shipping proposition is the equivalent of thinking that Wal-Mart’s Bluebird product is just another prepaid card. ShopRunner’s deal with AmEx (they are also a small investor) made it really simple to register a card (and very affluent cardholders) and their placement on retailer’s sites is interesting (“Hey, don’t you want free two-day shipping? If you do, sign up for ShopRunner) is pretty ingenius since even sites with free shipping don’t promise delivery in two days. But, the real play, as I wrote in my piece, is its potential play for Alibaba’s gazillion (okay, slight exaggeration – 850 million) AliPay cardholders who love buying branded merchandise and can’t get it in China to have the world’s brands as their oyster in ShopRunner’s mall. And, Alibaba’s late-year investment in a logistics company makes that notion a lot less crazy than it sounds.
PayPal also did a deal with Blackhawk to leverage its gift card network to redeem gift cards for payment in PayPal wallets. That announcement generated very little media fanfare, but it was a very clever way for consumers to digitize gift cards and be reminded that they have gift card balances to use, and for merchants to push promotions to motivate that spend (and more) and to even leverage the Blackhawk cash in network to top up gift cards if they so choose. Now, what will be very interesting to watch is whether this arrangement can morph into a network that enables unused gift cards to be converted into some form of an alternative currency or even cash to be spent at any retailer. Time will tell.
Of course, a look at 2013 that doesn’t include Apple would be like living in Boston and not owning snow boots – a huge faux paus. Apple made some game-changing moves in payments. First, it introduced biometric authentication on the new Apple iPhone. It’s slick, simple and gets consumers over the “what happens if I lose my phone and I have my payment credentials on it” hurdle. Linked now only to iTunes, the big question is whether that’s by design (and not just as a beta test strategy) and another pointer to Apple’s intention to position iTunes as a widely used and accepted payments brand. At least as importantly, it also launched iBeacon, its in-store technology that enables iOS devices to communicate with each other. Already, it has ignited innovation by PayPal (Beacon), QualComm (Gimbal) and a whole host of innovators who are using it to create in-store ad networks and other apps that add value to the merchant and consumer interaction at the point in time that consumers are ready to buy. And then of course, there’s the mystery associated with just what Angela Ahrendts will do at Apple. Her title is something like Head of Retail, but that’s vague enough to mean anything. It’s not likely that #53 on the Fortune Most Powerful Women’s list left a CEO gig at Burberry to redecorate Apple’s retail locations. Apple has the assets to become a very powerful payments and commerce player, and now has an executive with the retail and retailer acumen to help see it through.
MCX hired a CEO, a seasoned mobile-payments executive who started building his team, brought on a few new merchants (up to 50 now) and started to buff up his plan. In an interview we did in November of 2013, Dekkers Davidson more than hinted at a strategy that would see MCX emerge as a network in the true sense of the word, FI partnerships that would enable distribution beyond member merchants and a business model that delivered low cost acceptance and customer and data ownership to its members. The big conundrum now is what to do in light of the Target breach, and the potential consumer backlash against merchants that ask consumers for bank account data to establish what we all believe the MCX product strategy to be – decoupled debit. Whether consumers attribute the Target breach to Target or all retailers remains to be seen, and will likely influence the MCX go-to market strategy in 2014.
Walmart released numbers in 2013 that showed the positive impact that Bluebird had on capturing the mindshare and wallet share of the “unhappily” banked. Bluebird, which rides the Serve platform, is a mobile-banking product that looks like, smells like and functions like a bank account, including issuing paper checks to its customers to use. Walmart/Bluebird, along with several other non-traditional banking entities, has reaped the benefits of the unintended consequences of the Durbin Amendment in reducing the interchange available to issuers to subsidize checking accounts, driving consumers used to free checking accounts into the arms of alternative players. Walmart also launched a number of mobile initiatives designed to drive more in-store spend, including a mobile app that changes completely once a consumer enters a Walmart store. Since, according to Walmart, more than 245 million customers visit Walmart each week, and $1 out of every $4 grocery dollars in the U.S. is spent there, Walmart has a lot of very important and lucrative mindshare and wallet-share to control.
And, speaking of Durbin, 2013 was the year in which Judge Leon became a payments household name when he caustically tossed the Fed’s Final Rule on Durbin out the window and told issuers that they needed to eat their spinach and be happy about it. The Fed appealed, as expected, and the final, final decision and impact won’t be known for many years to come – in fact some say – maybe not even until the next decade.. In the make lemonade out of lemons camp, this gives issuers time to devise a new business model, since it’s quite clear that these fees have only one way to go and that’s lower. Of course, Judge Leon finished the year by moving on from beating up banks to taking on the President and the NSA over snoopergate. He’d better watch out for those drones – and I’m not talking Amazon Air either.
Bubbles, Question Marks and The Sounds of Silence
2013 was the year that the alternative currency bitcoin became THE girl that every payments player wanted to take to the dance. Started in 2009 by someone whose identity has yet to be revealed, bitcoin is the darling of Silicon Valley where some of the largest and smartest VCs have invested tens of millions of dollars into entities that promise to legitimize the notion of a currency suitable for transacting in a global, digital world. Now, we all know that bitcoin ignited because the bad guys finally found a perfect medium for engaging in bad behavior (bitcoin’s biggest assets are that it is anonymous and untraceable) and creating a global market for doing so. And one country after another is giving it the boot for that very reason. But advocates say that the underlying technology is what makes bitcoin the digital killer app for global commerce, regulated of course, so that it isn’t the go-to currency for illegal trade. Which brings this circular argument about bitcoin and its merits right back to where it started in 2013 – once regulated, what’s so different about what exists today. But, in 2013, bitcoin wasn’t the only alternative currency that made news. Ironically, Facebook shuttered Credits, its alternative currency earlier in the year, owing to the fact that the market for Credits was only accepting merchants on Facebook and not large enough to sustain interest (and liquidity), Amazon launched Coin, and eBay/PayPal expressed interest in alternative currencies as an arrow that they might likely want to put in their payments quiver.
Google Wallet heaved and weaved in 2013. It launched a plastic card in the Fall of 2013 and a P2P scheme to seed Wallet accounts to be used in their app store. But the big news was that it all but gave up its original strategy of NFC in favor of a cloud-based card emulation model that’s still NFC but without the secure element. But, the operative phrase here is, well, it’s still NFC. Google Wallet did launch a mobile app that allows consumers to upload their debit and credit card into their Google Wallet by taking a picture of them with their smartphone camera, but repeat after me, Google Wallet is still based on NFC technology. Unless the sun starts rising in the West in 2014 and dogs and cats start getting along, NFC as a strategy isn’t likely to ignite Google Wallet.
Taking a page out of the software industry PR handbook, ISIS issued a press release in July stating that nothing was really new BUT it would launch nationally later in the year, three years after it said it was going to launch. Well, to be fair, they didn’t say that last part. In November, ISIS announced that some Coca Cola vending machines were now ISIS-enabled as were some Jamba Juice locations fueled by a $2 million Jamba promotion. I guess technically that was a national rollout since the vending machines and Jamba Juice outlets were in different states but the November announcement left most in the industry wondering why the big tease.
Two innovations that share the same letter of the alphabet – Coin and Clinkle – are among the biggest question marks in 2013. Coin is the payments card version of a chameleon in that it assumes the identity of whatever card a consumer wants it to be at any particular merchant. This throwback to prior efforts in years past is a puzzle since innovating around a device that doesn’t leverage a mobile device seems about as appealing as investing in VCR technology today. Clinkle got the payments industry all jazzed up when it announced its $25 million capital raise and plans to innovate at the point of sale using sound waves emitted by the mobile device. Yes, setting all of the jokes about the industry “payments whisperer” aside, almost as quickly as Clinkle raised its round, it axed half of its team and now appears to retrenching for a new focus in 2014. We’ll have our ears peeled.
And then in perhaps the biggest head scratcher in payments, there’s Visa. Either Visa is either the new Apple, in that it’s so secretive that we’ll never ever hear from them until we see stuff in market, or things are a bit in flux in San Francisco. V.me, the initiative that was touted as the future of Visa, is all but invisible, as are any announcements about its innovation in payments. Aside from its mPOS readiness program and a few cryptic remarks from Charlie Scharf at Visa’s investor day in 2013 alluding to the need to double down on wanting to make doing business with Visa more attractive than ever before, it’s crickets. And compared to MasterCard, which is cranking out initiatives and new products like there’s no tomorrow, and Discover, which is rolling out the red carpet to innovators who want to leverage their network, they seem, well, a bit on the sidelines. Now, to be fair, Visa, as the biggest dog in the payments hunt, could probably go into hibernation for the next 10 years and see very little, if any, impact to its volume or performance. But that’s not the issue. It’s the 10 years after that and the 10 years after that that they need to be thinking about. Then again, maybe they are, and we’ll know when they’re good and ready to let us know.
2013 was also the year that the industry lost a great friend and payments innovator, Mike Duffy. Beloved by his Paymentech team, he was a fierce competitor who loved the payments business and valuable mentor to those with a passion and curiosity about the business. His vision for innovating in the online space created new opportunity for consumers and merchants and spawned new and exciting innovations along the way. While he is deeply missed by those who knew him and worked with his, his presence lives on through the many people he touched in payments and the example he set for all.
So, that’s a wrap. 2013 is in the history books now. It’s onward to 2014, which, by the way, is the Year of the Horse in the Chinese Zodiac. According to Chinese tradition, innovations born in this year will be clever, cheerful, and stubborn. Sounds like just the kind of year in payments that we can all get behind.
Here’s wishing everyone in payments a happy, healthy, clever and cheerful 2014!