While our mother’s told us that it doesn’t matter who wins or loses, (only how you play the game), as adults we realize that our mothers only told us that because we were children and we needed to build our confidence. As it turns out, how you play really does matter an awful lot, despite the great ambition that everyone shares to be a winner.
And while everyone has wildly divergent views on what makes a winner in payments and how long it will take to win, one of the big boxes to check has to be how much value is delivered to consumers and merchants. And while some of the names of the winners-in-waiting are both familiar and obvious, there were many initiatives, perhaps less talked about, that we believe stood out because of what they did to make the world of payments a much more interesting – and in some cases – disruptive – place to be.
The “Sharing Economy”
“As big as Uber and Lyft are, there are going to be companies I predict that will be as big or bigger that will also disintermediate the public-bus system…Ever been on Virgin America? Imagine you have a shuttle that felt like Virgin America—it had Wi-Fi and baristas, and it costs less than a city bus.” | Brian Chesky, CEO, Airbnb
It’s a pretty good year to be Uber. The ride-sharing service is now valued at $41 billion, thanks to its latest billion dollar-plus round of funding. Ridership is up, new services have emerged and the service is available in 53 countries. And itsbank account is flush to expand geographically and strategically.
“We have just raised a financing round of $1.2 billion, with additional capacity remaining for strategic investments,” CEO Travis Kalanick wrote in a blog post Dec. 4. “This financing will allow Uber to make substantial investments, particularly in the Asia Pacific region.”
Which may not be entirely welcome, at least by some of the countries in that region. India isn’t particularly happy with Uber right now, nor is South Korea which has indicted Kalanick for violating its taxi laws – a violation which is said to carry a two year jail term if he’s convicted. And, there are many other countries and jurisdictions standing up and protesting Uber’s successful challenge to the entrenched taxi industry, shutting down the service or threatening to.
But, despite all of its regulatory woes – an outcome to be expected given the massive popularity of the service and the competition that it introduces to an industry that isn’t used to any – on balance 2014 was a very good year for Uber.
But not just Uber – as it turns out. One of Uber’s biggest wins is its use now as the generic term used to describe anymobile/internet-enabled platform that brings together suppliers with capacity and consumers with demand. Many participants in what has also been called the “sharing economy” saw big gains. The “Uber of lodging,” Airbnb now boasts over 1 million rooms on its site and a valuation north of $10 billion. The “Uber of grocery delivery” Instacart is in the midst of a $100 million funding round and is valued around $2 billion. WeWork, the so-called “Uber of office space” is valued at $5 billion.Thumbtack, the services marketplace that brings together tradespeople with capacity and consumers with leaky faucets raised $100 million last August three months after raising $30 million and no real need for capital.
And surely many more Uber-esque platforms in 2015.
“Say hello to a new set of payments rails, folks, and a platform that could give existing payments rails a migraine.” | Karen Webster, CEO, PYMNTS.com
It’s possible that not many in the U.S. paid much attention when Paym – a British mobile payments plan that enables registered users to send money to each other via funds that are drawn from their checking accounts – launched in April of this year.
But they probably should have, says Webster, since the potential success of Paym could mean an awful lot for a lot of payments players.
“Paym connects via ACH everyone, at least potentially, with a bank account in the UK – everyone. Now, of course, consumers have to opt-in and register their account to use the service, and a recent survey said that many UK consumers were a little squeamish at the thought. But, Paym and the Payments Council has created the infrastructure, the rules, and the platform to enable payment among anyone with a bank account – people and businesses. Use cases are the usual P2P ones like paying the babysitter but could conceivably expand to include those P2SMB use cases like paying the math tutor, handyman, dog walker, piano teacher, landscaper, electrician and just about every small business owner who’d like money deposited directly into their bank accounts without having to mess around with card acceptance and/or mPOS solutions and network-mandated merchant discount fees,” she said.
By August 2014, Paym had signed on 1 million users and seen £6.5 million (a little over $10 million) sent over the platform in its first four months.
“It’s hugely encouraging that one million people have chosen to register for Paym already, but this milestone only marks the start of growth in the service,” said the U.K. Payment Council’s Jemma Smith at the time.
By late November the service had expanded to another 600,000 users and was making its first foray into business payments. HSBC announced that its Business Internet Banking customers would, going forward, be able to use the Paym service to receive payments from customers using only a mobile phone number and without the need to provide full account details.
Paym’s expansion among U.K. banks is also expected to continue in 2015. Currently Bank of Scotland, Cumberland Building Society, Barclays, Halifax, Nat West, HSBC and Yorkshire Bank are among those currently working closely with Paym. Next year Metro Bank, Nationwide Building Society, Ipagoo, and Tesco Bank are expected to join the fold.
“I would define Amazon by our big ideas, which are customer centricity: putting the customer at the center of everything we do. Invention: We like to pioneer, we life to explore, we like to go down dark alleys and see what’s on the other side.” | Jeff Bezos, CEO, Amazon
It was undeniably a big year for shopping online and some of the biggest players in that game had a remarkable year.Amazon signed on 10 million new Prime members, Alibaba had record-breaking year in sales — including its $25 billion IPO, and $9+ billion performance on Singles Day, India’s Flipkart has raised almost $2 billion this year – as more of the world is getting web access and going mobile, the siren song of e-commerce is calling and eBay’s revenue surged quarter after quarter.
According to eMarketer, Global e-commerce sales will reach $1.316 trillion this year, up 22.2% from $1.077 trillion in 2013. Online sales, will account for around 4 percent of all global retail sales in 2014, and while that does leave 96 percent happening in physical, as opposed to digital marketplaces, those numbers are expected to keep climbing.
By 2015 eMarketer forecasts that worldwide web sales will increase nearly around 21 percent to $1.592 trillion and account for 6.7 percent of all retail sales around the world. By 2018 the number is projected to be around to $2.5 trillion, with web sales accounting for 8.8 percent of total retail. Now all of those sales don’t happen on marketplaces, clearly sites that aggregate products and services – the more traditional players such as eBay and Amazon and new players like Farfetch and ShopRunner – are emerging as convenient one stop shops for consumers looking for a convenient and curated shopping experience
And, where the growth is happening is also significant, particularly for China-based Alibaba. Though only 43 percent of Chinese consumers have purchased via the web, about 17 percent of all of all retail dollars will transact via the Web (as opposed to the U.S. where 70 percent of consumer have purchases on the web, but only about 9 percent of sales come through digital commerce).
Over the next five years, Chinese e-commerce purchase are expected to more than double – from about $425 billion to over $1 trillion, while in the U.S. e-commerce is projected to grow from slightly over $305 billion to around $500 million.
“The service leverages our footprint and large scale to enable a low-cost service. There is a large underbanked population in the U.S. that uses money transfer as a primary method.” | Daniel Eckert, SVP, Walmart U.S
In April Walmart announced a new service called Walmart-2-Walmart Money Transfer Service, putting them into direct competition with services such as MoneyGram and Western Union.
Walmart’s move is intended to further solidify its general mission to provide its customers with the right services at the right price. Walmart-2-Walmart rounds out its financial services portfolio which includes low cost check cashing and bill payment services, the Bluebird prepaid product that functions much like a DDA product, complete with paper checks and a mobile app to track transactions.
The P2P solution allows consumers to send up to $900 in cash to anyone in the US via its network of 4,000 stores. By doing this, Walmart has created its own branded cash in/cash out network, an asset that most pooh-pooh as lunacy in a digital age where the war on cash is in full swing.
“Walmart’s customers like cash and use it. In fact, Walmart says that a lot of them use a lot of it in their stores. That’s consistent with the research that me and my colleagues did at Market Platform Dynamics last year. We found that the total demand for cash in the US and elsewhere isn’t going down—in fact it’s going up,” noted Karen Webster in acommentary on the news when it broke. “In fact, one of the greatest needs globally is for more cash-in/cash-out networks because more people want to use mobile to put cash in and take it out of accounts, especially in developing markets where cards are not at all practical. By running toward cash instead of away from it Walmart is making the smart play.”
Walmart-2-Walmart, then, is what any good customer-driven company would create – an easily affordable new service that responds to a customer need. It’s also a pretty smart way to recycle the cash that it has on hand in its stores. Rather than paying armored cars to haul it away, with Walmart-2-Walmart, it has created and now monetized a cash-based P2P service. It’s also worth noting that this isn’t the first service that Walmart has launched that’s focused on cash. Its “Pay with Cash” service introduced in April of 2012 allows customers to shop on Walmart.com and settle that digital transaction in cash at its stores.
“You’re going to see much more innovative thinking and flexibility from the issuers in the networks because of these tokens. And so you will see tokens in a head unit of a car. You will see tokens for in-app payments. You will see tokens powering our QR-based solutions. Token is a center of our HCE specification. And so I think it’s a bit of a game changer.” | Bill Gajda, Head of Global Head of Strategic Partnerships
The world fell in love with the security token in 2014, a feat fairly amazing since before September no one but the most technical payments devotee had any idea what a token was, other than something they used when riding public transportation.
Most fundamentally a token is the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, that has no extrinsic or exploitable meaning or value. The benefits to payments is obvious – bad guys get nothing of value even if they manage to hack into a point of sale.
Apple Pay, with its specialized token-based security platform kicked-off the the mass enthusiasm, and since then, tokens, and their ability to reshape the payments landscape has been an ever popular topic of conversation.
“Apple Pay is a catalyst, and is the implementation that allows people to visualize and understand a lot of what we’ve been talking about,” MasterCard’s Ed McLaughlin told Webster.
2015 will be the year that tokens come into their own, giving consumers the confidence that their sensitive data is protected and kicking the door open for safe, secure transacting using mobile devices, wearable or any device that’s connected to the internet.
“The customer is driving innovation. She or he is increasingly expecting a seamless experience between a digital and in-store environment.” | RB Harrison, Chief Omnichannel Officer, Macy’s
Though Macy’s has been incrementally building its omni-channel capabilities for years, 2014 was the year that omnichannel really took off for the eponymous department store chain. By the end of 2014 Macy’s had become one of the most active large omnichannel retailers, with the chain now getting about 10 percent of its sales from online orders,
With the high-profile rollout of the new Apple Pay mobile payment system in Macy’s and Bloomingdale’s stores in October, it was easy to lose track of how far (and how quietly) the relentless Macy’s omnichannel machine has come in several other areas.
Beacons also broke big at Macy’s this year and has been one of the chain’s biggest mobile-retail rollouts to date, all Macy’s stores nationwide are getting Shopkick’s implementation of Apple’s iBeacon technology, which lets customers receive personalized discounts, rewards and recommendations on their mobile phones.
And Macy’s has more on deck for 2015 – same-day delivery will start in test mode at Macy’s and Bloomingdale’s stores in Chicago, Los Angeles, San Francisco and San Jose, along with additional Macy’s stores in Chicago, Houston, Seattle, New Jersey and Washington, D.C. The deliveries will be made by crowdsourced delivery service Deliv, but they’ll build on the store-to-door capabilities that Macy’s started growing three years ago.
“While that figure has been growing almost 50 percent a year, the real growth is yet to come. Starbucks Coffee has cracked the code to tying mobile payment to loyalty.” | Howard Schultz, CEO, Starbucks
When the history of the ignition of mobile payments is written, Starbucks may go down as the unexpected catalyst that got the world to go mobile. During the company’s third-quarter earnings call in late October, Schultz noted that Starbucks is close to hitting an average of 7 million transactions a week, 16 percent of which are made on mobile devices. Due to its early entry to the market with its mobile version of its payment card, Starbucks was able to capture 90 percent of mobile purchases made over mobile devices in 2013.
“Allowing consumers to conveniently conduct their lives and complete commerce from wherever they have to be was actually occurring as a cultural shift in time allocation away from retail experiences. Starbucks is uniquely well positioned to benefit from this convergence as a destination experience,” he said, and further noting that Starbucks is “an uncontested leader in mobile.”
But, according to Schultz, the best was still yet to come, with the launch of Starbucks’ mobile order and pay app in December. He described said launch as “the single-most important technology innovation introduced by the company this year.”
Starbuck’s mobile order and pay app in December in the Portland market that allows consumers to place an order ahead of time via Starbucks’ mobile app and pick up in the selected store without waiting in line. Once a consumer pays, the order is sent to the chosen store and an approximate wait time is sent back through Starbucks’ app. Customers have to wait for that response but they won’t have to wait in line. The app works by using the phone’s GPS to show the closest location that offers Mobile Order & Pay. The option is only available on the iPhone app for now, but will be released to android users in 2015.”
“Starbucks is the only local, national or global business of any kind to succeed in crossing both the most difficult and the most critical case in standing between mobile payment and transforming consumer behavior,” Schultz said. “I can assure you Starbucks will have a major role to play both inside and outside our stores as the recent mobile payment industry evolves. We are playing offense here. We understand that there is a macro issue in the consumer shift. We are playing offense and we began that last year right after the holidays and come this holiday come 2015 we are going to be in a position to win.”
The ongoing run of Starbucks’ mobile success has perhaps persuaded the company it can stand on its own payments–wise. In December, Starbucks announced it wiill no longer accept Square’s app for mobile payments, as Square officially pulled the plug on its mobile wallet during the last month of 2014. Though Square has reintroduced its 2.0 version of its mobile wallet, Starbucks has decided not to accept it.
“Starbucks is not adopting Square Order in our stores,” said Maggie Jantzen, a spokesperson for Starbucks. “We opted to build our own mobile ordering solution, leveraging our own mobile app and world-class loyalty program.”
CROSS BORDER PAYMENTS
“The market for online payments and cross border payments is growing at speeds that continue to surprise people. At the end of the day, all merchants want to do is sell more of their products to more people. Their business is not about figuring out a way for someone to pay them for something. Their business is about having better products, or having products at a lower price or having different products –whatever their business model is.” | Aaron Goldman, Principle, General Atlantic
It’s been a big year for cross-border payments, especially on the investment side. In September, Ingenico finalized its billion-dollar plus acquisition of Global Collect. About a month later, cross-border payment firm Digital River announced it was walking away from Wall Street in favor of being privately acquired by an investor group led by Siris Capital Group for $840 million. Finally, rounding things out Amsterdam-base Adyen announced a $250 million funding round in December, led by global growth equity investor General Atlantic. In between, there was BlueSnap’s ~$50 million raise intended to help this cross border platform scale more rapidly.
The interest in cross border is simple. Enabling merchants to sell their goods to a rapidly globalizing consumer-base—a task made more accessible thanks to the rapid diffusion of mobile devices—is big business and getting bigger by the day. More important, better cross-border opens up a new world of consumers for retailers, but is now technologically supported well enough that it doesn’t up open up a world of hassles for merchants.
And, cross-border transactions are a potent revenue stream, are on the rise because international shoppers are opening their wallets in a big way. PayPal’s senior director of global initiatives Anuj Nayar told MPD CEO Karen Webster November 2014 podcast interview. Nayar explained to Webster that their survey (conducted along with IPSOS) of 17,600 consumers in 22 countries found that cross-border shoppers (those for whom more than 10 percent of their online spend is cross-border), spend approximately twice as much as consumers who only shop domestically.
“The emerging middle class is eager to take advantage of the opportunities that buying online from merchants in the U.S. or U.K. or Germany will offer to get exactly what they want at a price that is great,” she noted.
And as more consumers around the world have more devices that allow them to access the internet and engage in commerce, cross border volume will only increase.
“Commerce is really important and is a growing important part of our business. The more people buy online, the more people buy things they discover through their mobile phones, the more people discover things from News Feed and go on to purchase, the more important we are in driving e-commerce, and I think we are increasingly important.” | Sheryl Sandberg, COO, Facebook
2014 was the year that social media players may poke their heads out of their foxholes and start staking out their turn in the payments and e-commerce space. Twitter added a “Buy” button to help use Tweets to push sales. Facebook, MPD CEO Karen Webster noted is “dipping its toe back into the commerce waters with its group selling app and buy button.” Facebook also notably recruited former PayPal CEO David Marcus away from PayPal earlier during the summer of 2014.
“Marketers have been putting a lot of real estate on social media, so they are going in with reasonable expectation that these channels will drive sales,” Haucke says. WHO IS HAUCKE? “With substantial order totals, they’re seeing these efforts really pay off during this big shopping weekend,” he adds
Though social media outlets trying to jump directly into commerce saw lots of expansion in 2014, it still has its doubters – as some question whether over time users will really take to shopping in places where they heretfore have come to socialize.
“What’s really important is that we go to these [social] platforms with specific intent. So there’s been a lot of talk in the media about Twitter commerce and Facebook commerce but none of those efforts have ever reallyimpacted commerce in any meaningful way,” Deena Varshavskaya told Karen Webster in a fall 2014 interview. “The reason for this is we just don’t go to these platforms to shop and I think that’s really, really important.”
Varshavskaya is the CEO of Wanelo – a commerce focused social media site, which may color her opinions some – but her comment is well taken. Though selling should be, as Webster once noted, “as easy as shooting fish in a barrel,” it has not always worked out that way. But in 2014 it became clear that selling the goods was not the only way to use social media to enhance retail purchasing.
For example, 2014 was the most social Black Friday ever, as conversations about the year’s biggest shopping day have more than doubled year-over-year on Twitter. The big winner there was Kohls. While the 2nd and 3rd place Tweet-getters during the holiday shopping weekend (Walmart and Apple/Amazon, respectively) both brought in less that 10K Twitter mentions, Kohls brought in 22 thousand on Black Friday alone. Earlier in the week they began tweeting out trivia questions, with certain correct answerers to be rewarded with gift cards and free swag. That had to be picked up in store. In a similar vein, Instagram became known as a“virtual mall” despite not having a buy button, because it’s the place where online shoppers go to browse for good ideas.
2014 may not have shown that people want to buy directly from social media, but it also demonstrated just how much consumers are willing use social media to inform their purchases.
And that, as they say, is a wrap.
Will everyone start paying for Starbucks via their mobile phones in 2015? Will Apple Pay still be analyst and crowd favorite? Could MCX rise to steal its thunder? Will cross-border payments continue to explode and will it be lead by the Chinese consumer? So many questions and so many different points of view. But as always PYMNTS will be watching and keeping you up to date on all the best (and not so best) ideas in commerce and PYMNTS.
Happy New Year!