Apple Pay

CEOs Speak Out On The Future Of Mobile Payments

‘Tis the season for making our lists and checking them twice, to determine which ledgers have been naughty and nice. Earnings’ seasons is here again and payments players didn’t disappoint, reporting the traditional profits and losses and then talking with financial analysts to calmly and rationally explain the numbers. Sometimes, that also meant sending not to subtle shots across the bow at their rivals.

We started the week with Chase, much beloved banker to consumers, lender to businesses, payments innovators and thanks to the cunning ways of the crooks, source of 76 million consumer and 7 million business personal account details to cyberthieves.

During its analyst call, JPMorgan Chase Chief, Jamie Dimon, reminded those attending that Apple is an honored partner and that Apple Pay is something Chase is fully behind, seconds before detailing its plans to offer a rival mobile payment service.

In a nod to the issuer and network friendly scheme that is Apple Pay, Dimon told financial analysts on Tuesday, October 14th, that “We think that we can also be friendly to merchants with data, with pricing, with simplified contracts. So we are trying to make this an ecosystem that works better for everybody and is far more secure. I have customers on both sides and I’m far more secure.”

Chase CFO Marianne Lake argued that developing its own seamless payment capabilities for Chase Pay and Quick Checkout will mutually benefit merchant sales and customer experience. “We are continuing to work on our own proprietary wallet and payment capabilities that will be piloted and then subsequently launched over the course of the next coming months,” Lake said, adding that eventual integration into is the next planned step.

Also discussed Tuesday was Chase’s increased funding for cyber-security. Dimon said that Chase will double its spending for cyber-security during the next four to five years. That would bring Chase’s annual security budget from $250 million to $500 million over the next five years.

“What we are seeing inside the space, not surprisingly, is this relentless constant and evolving set of attacks and we need to be constantly evolving and constantly vigilant in response. So it is entirely reasonable to assume that we will continue to increase our investment over the course of the next several years,” Lake said.

Dimon didn’t apologize for its databreach, but remarked that security is something “we’ve been very good at it until this recent breach, which we are not going to make excuses for.”

When it was time for Google to report its numbers on Thursday (Oct. 16)—its quarterly earnings increased 20 percent to $16.5 billion, but even that required a bit of explaining.  Google, continues to feel the double whammy of more places for people to search for things, like apps on smartphones, and the loss of revenue coming from mobile-generated search. It’s why Google emphasized its success with Google Express’ same-day delivery service, its Amazon foil, which they’ve decided to now begin to charge for. Unfortunately, that decision was coincident with some retailers deciding to bail, which caused Google CFO Patrick Pichette to turn  practical: “And on the partners, I mean we’re really thrilled to have the partners we have. You can expect as we kind of grow through this that we have a few coming in, a few coming out, but overall (Google is) very, very pleased with the trajectory there.”

The subject then turned to mobile wallets and Google execs were asked to explain where Google Wallet stood these days. Google Chief Business Officer Omid Kordestani admitted that Google Wallet had its flaws and that Google would be willing to consider anything to see if I can somehow make its wallet not only work, but to effectively compete against Apple Pay.

“I think we’re going to continue to be open here. So we are trying to get it right and innovating on multiple fronts, as I mentioned earlier. And if partnering makes sense, we’ll take a look at it, as well. And the goal is really to provide this very seamless experience for the users and then get the merchant adoption and hopefully get this right,” Kordestani said. “I’m certainly delighted every time I use this and it works. And I think if we can all get the ecosystem right and there are multiple players in it and partnerships that are making it happen, we’re definitely open to that.”

Reading between those lines, we think that partnerships, and maybe even some very interesting ones, are in Google’s future.

Even American Express got into the mobile discussion when it reported its numbers (third-quarter net income of $1.5 billion, up 8 percent from $1.4 billion a year ago), but with a different point of view. AmEx CFO, Jeff Campbell said that  mobile payments are going to catch on very slowly, despite all of the industry hype and the excitement of the most intense Apple fans.

“The mobile wallets have had the potential to change consumer behavior for some years but it’s unlikely to be an overnight shot. It will take time even with Apple’s innovative technology and customer base,” said Jeff Campbell, Executive Vice President and Chief Financial Officer. “The pace of consumer and merchant adoption will depend on the benefits, protection and overall value proposition that participating issuers and networks can provide. That plays to our strength.”

Apple Pay was the topic of conversation at Capital One, as well. After Capital One top brass reported their numbers (third quarter net revenue increased 3 percent to $5.6 billon), they gave credit to Apple Pay—and specifically its security approach of a secure element along with tokenization—for truly pushing the payments community to a more secure neighborhood.

Capital One Financial CEO Richard Fairbank said the iPhone’s new secure element and its tokenization is “a very important breakthrough” in that “card numbers are not going to be embedded inside the secured element on a phone. Instead, one-time single-use or a few times use tokens will be in a sense, sent to the phone. So that the risk of extended fraud is massively reduced.”

He also saw Apple’s effort as a catalyst for moving various existing industry security efforts forward.

“Visa and MasterCard are creating a vault and there is other activity that’s going on of some alternative approaches, as well just in the nature of an evolving industry. I think people aren’t leaving single solutions as the only way to go,” Fairbank said. “But whether it is coming from Visa and MasterCard or from a banking industry, vaults are really actually from individual issuers vault. There’s work going on in all three of those dimensions, but the big story there is, this tokenization is a game changer in terms of security.”

eBay CEO John Donahoe reported on some healthy growth for soon to be separate PayPal. Third-quarter earnings climbed 20 percent to $1.95 billion and  they gained 4.4 million new active registered accounts to end the quarter at 157 million active registered accounts—14 percent growth from last year and its  mobile payment volume grew 72 percent to $12 billion. Donahue also said that PayPal is well positioned against Apple Pay, even if it has embraced the technology that Donahoe once upon a time said was “Not For Commerce.”

“PayPal has always been sort of technology agnostic around how a consumer wants to pay. For quite a while, we thought NFC was not going to get very fast adoption. Now with the recent industry changes, with localization, I think that will be accelerated. Although it’s important to understand (that) accelerated may be (moving) from a three- to a five-year horizon to a one-to-three-year horizon. This is not something that’s going to happen in months,” Donahoe told analysts.

“In Australia, there is a fair amount of NFC use and consumer adoption and there are times where they tap their phones, there are other times they tap their cards in an NFC format. So our goal is to have PayPal to be enabled for however our consumer wants to pay and so that’s what we’re doing. And as I said, anything that increases digitization of payments I think expands our addressable market.”

When Citigroup reported its earnings on Tuesday (Oct. 14), it disclosed third quarter net income of $3.4 billion, on revenues of $19.6 billion. This compared to net income of $3.2 billion on revenues of $17.9 billion for the same quarter a year ago. A refocusing has caused Citi to exit its consumer business in 11 markets: Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary, Japan, Nicaragua, Panama and Peru, as well as the consumer finance business in Korea.

“I am committed to simplifying our company and allocating our finite resources to where we can generate the best returns for our shareholders. While we have made progress optimizing these 11 consumer markets, we believe our Global Consumer Bank will achieve stronger performance by focusing on the countries where our scale and network provide a competitive advantage,” said Citi CEO Michael Corbat.

The next day (Oct. 15), Bank of America reported its third-quarter results, with a profit of $168 million, compared with $2.5 billion from the prior year’s identical quarter. Oh, what a difference a $4.9 billion fine for a mortgage securities settlement makes. Revenue fell 1.5 percent to $21.21 billion.

“We continued to focus on optimizing the balance sheet this quarter so we can best serve the core financial needs of our customers and clients and still be in a position to meet new capital and liquidity requirements in an evolving regulatory framework,” said Chief Financial Officer Bruce Thompson. “We also made significant progress on our cost structure, staying on track to meet the goals we established three years ago, and our credit quality metrics reflect both the improved environment and our risk underwriting.”

Next week, we’ll hear from Apple itself and Amazon, among others. What tales will they tell?

Tune it next week to find out or visit for the as-it-happens coverage throughout the week.


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