While you might have missed it, this week the finest tool designed by man to predict the future made its triumphant return to the market in digital form. We are referring, of course, to the Magic 8 Ball, which is now available to help you answer all of your important life questions, as long as you download the app. PYMNTS decided to give our virtual Magic 8 Ball a shake and apply it to the 20 biggest payments stories of the week. As always, the 8 Ball knows all.
It is easy to dismiss the magic of the 8 Ball and ascribe its success to randomness of a quirky fad – sort of like the Hula-hoop. But predicting the future is hard – and as earnings week demonstrates, even people who do it for a living miss the mark and often by a lot when it comes to predicting the future. While it’s not fair to say that a Magic 8 Ball would do better – it does seem fair to state that with looking at some of the biggest misses it is hard to imagine a Magic 8 Ball doing worse.
So we thought in honor of the Magic 8 Ball’s re-emergence we would consult it in order to get its answers to the top 18 stories covered on PYMNTS this week.
Q: “Will our big ambition of driving invisible payments be our undoing?
Magic 8 Ball: Signs point to yes
As MPD CEO Karen Webster pointed out in her commentary that kicked off the week, Square debuted on the market a few years ago as THE company that was going to change the face of payments with its out-of-the-box thinking. Flash forward a couple of years and Square is realizing that you really have to understand the inside of the box before you start thinking outside of it.
“Dorsey said something a few years ago that I thought was incredibly insightful – that the future of payments is making it invisible. And, he’s right,” Webster wrote. “But, that’s been Square’s biggest fail. Today, Square is about as far away from making payments invisible as one gets. Its core business is enabling payments via cards primarily for merchants that use their Square POS products (tablets or dongles).
“And since Square doesn’t control the consumer side of payment, it also has no ability to make payments invisible…What’s more, Square is pretty vulnerable to anyone else who decides to make payments invisible by embedding payment in an app wrapped around an integrated payments POS solution."
Q- Are we about to dominate travel?
Magic 8 Ball: Ask again later…
Babe Ruth hit 714 homeruns over the course of his career – and though Amazon hasn’t hit quite that many, it is easy to imagine that lots of travel sites this week feel a bit like a pitcher seeing Babe Ruth striding up to the plate.
This week the eCommerce giant launched Amazon Destinations. Branching out from Amazon Local, Destinations allows users to book hotels, resorts and bed and breakfasts to advertise there and for users to sort by location. Think of it as a cross between Expedia, Booking.com, Hotels.com, Airbnb and Hotel Tonight with a twist – capitalizing on the 1 to 3 day driving trips that 40 percent of people who travel in the U.S. at least take a few times a year.
However, it bears mentioning that Babe Ruth also struck out 1,330 over the course of his career. And like Babe Ruth, watching Amazon come to the plate means that the only guarantee is a big swing.
Home Depot –
Q- Does the year need two Black Fridays?
Magic 8 Ball:It is decidedly so…
Historically, consumers do not buy friends and loved ones home improvement or gardening supplies for Christmas – which means that home improvement and gardening-oriented retailers like Home Depot don’t get to feel the full thrill of the most wonderful time of the year.
So they innovated – creating a new Black Friday and stretched it out over the course of the week. And while some were concerned that having a holiday like Black Friday in April would scare off consumers, it turns out that consumers don’t care what you call it as long as they are saving money on DIY project essentials and perennials.
“There’s probably a debate on whether Black Friday is the right terminology, but it’s been working for us,” Kevin Hofmann, Home Depot’s president of online operations, told Bloomberg.
Q- Are we going to be stuck being a Systemically Important Financial Institution forever?
Magic 8 Ball: Very doubtful…
There are some things you just don’t see happening every day in payments – like big firms trying desperately to be less important. But that is just what GE Capital is shooting for with its negotiations to sell off its $74 billion middle-market business lending unit to Wells Fargo.
The move – especially when combined with GE Capital’s work to sell its $16 billion private-equity lending business; $31 billion international commercial-lending business; $9 billion vehicle fleet-management unit; and an international consumer bank with $37 billion in assets – makes it seem increasingly likely to shed its designation as a SIFI. Which is not all that nutty since regulators impose higher capital requirements on them.
Q- Are we better off without Costco?
Magic 8 Ball: As I see it, yes!
“It’s not easy to see a longstanding partnership end, but when the numbers no longer add up it’s the only sensible outcome,” said AmEx CEO Ken Chenault in February when his firm’s longstanding relationship with the nation’s second largest retailer came to an abrupt end.
This week the wider world got a peek into why that it seems unlikely that AmEx and Costco could have gone on together. Costco has secured terms for its new cards that provide the retailer with everything it could wish for, Bloomberg reported. The deal will allow Costco’s acceptance costs to be close to zero as opposed to the .06 percent transaction fee Costco pays to AmEx.
Q- We are better apart from PayPal, right?
Magic 8 Ball: Outlook not so good…
PayPal’s growth in revenue, transactions and mobile volume over the last 3 months helped the eCommerce company post a better-than-expected first quarter, while eBay’s Marketplace performance sagged for the first time since 2009.
“I feel very good about the performance of our teams at eBay and PayPal. Each business is executing well with greater focus and operating discipline as we prepare to separate eBay and PayPal into independent publicly traded companies,” said PayPal CEO John Donahoe in the company’s earning statement.
Of course, after the split, eBay will remain PayPal’s largest customer and will retain “most favored nation” status in terms of pricing. And although PayPal and eBay can both expand their relationships to include those with all but “named parties” neither PayPal nor eBay can set up competing businesses. In eBay’s case, why would it want to?
Q- Is the EMV rollout going to go smoothly?
Magic 8 Ball: My sources say no!
“I think, more broadly, I expect that this is going to be a somewhat rocky rollout for the industry. This is a huge change for consumers, for people at point of sale. Consumers are going to have to start dipping their card instead of swiping it. Some merchants are going to be different,” Discover CEO David Nelms said during a first-quarter call with analysts.
Nelms also noted that it is important that the entire payment industry get on board with educating about EMV – with a realistic idea of what the challenges are going to be.
“I think that it’s important that we all try and hit the October date. This has been a long time in the works. This has been a date that has been set quite some time ago, and as an industry we know we need to do something to better control security and fraud losses,” Nelms said.
“And frankly, we could issue all the cards we want with chips, but if there are no terminals to use them it would actually cost us money — there would be zero fraud savings. I think it’s in the merchant’s best interest to get there — if anything, more than it is for the issuers when you look at some of the breaches that have happened."
Q- Did we just get breached?
Magic 8 Ball: It is certain.
Just when you thought the POS breach was becoming out-of-fashion in favor of spear phishing attacks – point-of-sale technology provider Harbortouch Payments was hit with a security breach, the company confirmed this week.
“The incident involved the installation of malware on certain point-of-sale systems,” the company said in a statement. “The advanced malware was designed to avoid detection by the anti-virus program running on the POS system. Within hours of detecting the incident, Harbortouch identified and removed the malware from affected systems."
The company said that it does not store or possess cardholder data, and that only a few of the merchants using Harbortouch POS systems were affected, though they have not as of yet released specific numbers on how many cards might have been compromised.
Q- We just did a partnership deal with Capital One – do we get to take over the world yet?
Magic 8 Ball: Reply hazy try again…
Will there be a week where Uber does not announce succeeding at something? Perhaps, but it won’t be this week.
Uber and Capital One officially announced a deal that allows Capital One cardholders to receive 20 percent back on their credit statements on all Uber rides for the next year.
“We’re thrilled to partner with Capital One, a company that shares our vision of creating elegant, simple solutions to meet important consumer needs,” said David Richter, Vice President of Strategic Initiatives for Uber. “Together, we’ll provide a meaningful combination of savings and convenience to millions of customers."
Q- Is it time to start selling cross-border?
Magic 8 Ball: Without a doubt!
Forrester estimated that the 2014 global online retail market would reach over $1 trillion, and it forecasts that the global market will double by 2018 with fastest growth rates in China, the rest of Asia and Latin and South America.
According to a new report from Digital River, companies achieving a large portion of revenue from global markets see further expansion as a key strategy for growth. Businesses with an international online presence are, on average, generating 45 percent of their revenue through their eCommerce channels, and 40 percent of this is international. In the next year, 67 percent of respondents consider expanding into new international markets to be a high or critical priority.
Q- We’re doing OK with this EMV thing right?
Magic 8 Ball: My reply is no!
This fall, 575 million cards – about 75 percent of credit cards and 40 percent of the nation’s debit cards – are expected to flip to chip cards in what is the largest card rollout in decades.
The problem: Only a few very large retailers (Walmart, Target, Costco) actually have the terminals in place to allow consumers to pay with them. Others, particularly smaller merchants hit harder by the costs of an EMV upgrade, are now starting to say they simply will not make the deadline for the liability shift by October. The other problem? Small banks, many of which will not have finished issuing their new EMV cards until after the liability shift has come and gone later this year.
“The large issuers are very sophisticated and we have been working on this for years, but there are some people that are just scratching the surface,” said Steve Montross, chief executive officer of CPI Card Group.
Q- Does Brazil just scream payments and commerce opportunity?
Magic 8 Ball: Yes!
Nearly two years ago, mobile transactions made up about 4 percent of Brazilian eCommerce.
By January of this year, they were approaching 10 percent, says Daniel Cohen, SVP of Emerging Payments for MasterCard Latin American and Caribbean, a compounded growth he called “impressive."
“Innovation is happening everywhere, and we wanted to get to as many places as possible and power the next generation of commerce applications. We knew we wanted to make a stop in Latin America, and we chose Brazil – it’s recognized and a relevant global economy worldwide. It’s the second largest market in terms of volume for MasterCard, and it’s a very innovative market in Latin America,” Cohen told MPD CEO Karen Webster in a podcast interview about how MasterCard is capitalizing on the emerging opportunity in Brazil by hosting one of its Masters of Code Hackathons there.
Q- So we shipped the card – does anyone actually want this product?
Magic 8 Ball: Better not tell you now.
The good news for Coin this week is that at long last their Coin card has started to ship, giving its users access to as many as eight payment cards on a single mag stripe card. That comes after Coin was overwhelmed by the 350,000 pre-orders when it unveiled its product just about a year ago. Since then, it’s said that it went through 42 separate test designs.
But now they get to come to market as conquering heroes right?
Coin still faces two large problems. One is a wave of direct competitors, including Stratos and Plastc, whose devices are scheduled to ship soon (although it’s worth remembering that Coin was also “scheduled to ship soon” more than six months ago). The other is the EMV transition that will begin making the current version of Coin obsolete in October (their CEO says that test version 43 under production includes EMV).
The American Consumer
A- Is someone going to embed or inject my future passwords?
Magic 8 Ball: Cannot predict now.
The next wave in biometric ID for mobile payments will be devices that can be embedded, injected and ingested, according to a PayPal executive who’s collaborating with developers working on the problem.
PayPal is currently working with partners to develop vein recognition tech and heartbeat recognition bands, the company’s global head of developer evangelism Jonathan Leblanc told The Wall Street Journal. But he added that PayPal is also working with developers who are building prototypes of futuristic ID verification techniques.
“I ground a lot of my talks in reality, but toward the end of the presentation things get a little strange,” he told The Journal. Leblanc said behind every idea or product he talks about, there’s a company working on that problem.
He also said that just because he talks about a new biometric verification technology doesn’t mean PayPal is signaling that it’s thinking about adopting it. His company is instead positioning itself as a thought leader, Leblanc said.
Q. If we put fingerprint ID in our phones, will we get compared to Apple?
Magic 8 Ball: You may rely on it.
Samsung revealed new plans to launch its own fingerprint scanning technology in its support of its digital payment efforts. According to reports released Monday (April 20), Samsung’s IT service unit Samsung SDS said it is working with South Korean payment gateway firms KG Mobilians and KG Inicis to introduce a fingerprint digital payment service. While the tool will first launch in South Korea, reports said Samsung is planning an eventual global rollout.
A Google search of “Samsung+Biometric” pulled up an entire front page’s worth of articles on this topic – 100 percent of those articles referenced Apple’s Touch ID at least once.
Visa And MasterCard
Q- Are we going to be allowed in China?
Magic 8 Ball: Outlook Good.
In a big reversal from previous policy, Chinese authorities have announced that they will open China’s market for clearing domestic bank card transactions – allowing players like Visa and MasterCard direct access to a $6.84 trillion market (as of last year) that they have heretofore been almost entirely locked out of.
“Opening up the market for bank card clearing will help improve the country’s card-clearing services through market competition,” the People’s Bank of China said in an online statement on Wednesday. “[The State Council announcement] fully represents the principles of opening up the Chinese financial system and achieving a fair and competitive market environment."
A spokesman for China Union Pay – formerly the only payments player in China able to process card transactions – responded to the news of his firm’s assured dominance of the card market end positively – noting that Union Pay “supports and will firmly execute” the government’s decision.
Ready to let the virtual Magic 8 Ball predict your future? You can get it in Apple’s App Store or the Google Play Store.
Though we at PYMNTS from time to time poke at the lighter side of payments and commerce – today is not one of those days. We would like to offer our condolences to the Fredinburg family and his extended Google family for the loss of Dan Fredinburg – a Google X exec who died in an avalanche on Mt. Everest this weekend. Our thoughts and prayers are with all of you as you grieve this most tragic loss.