Payments Innovation

Payments’ Stranger Things

The payments world could very well be living in the Upside Down.

The Upside Down is the fictional parallel universe controlled by a hive mind and humanoid predators called Demogorgons, made popular by the 2016 Netflix smash hit “Stranger Things.”

The Upside Down looked sort of like the real world, but much spookier and a lot scarier. Some who entered the Upside Down never made it out alive — and those who did were never the same.

The first two seasons of “Stranger Things” were all about the efforts of Eleven — a paranormal psychic — and the townspeople living in the fictional town of Hawkins, Indiana, to keep the hive mind from turning the real world into their upside down.

Over the last couple of weeks, there have been a few developments that suggest there could be some stranger things lurking in our own upside down, payments parallel universe.


Facebook Wants Access to User Bank Accounts

Talk about the upside down.

Facebook has reportedly had conversations with banks about giving Messenger access to user bank accounts. The premise of the ask, according to a Facebook spokesperson, is to give Messenger users a convenient way to check alerts and “not have to wait on hold with the bank” to get transaction information.

At first blush, the reports of this development almost seemed like fake news in my News Feed.

Never mind that Facebook — a company more than half of U.S. consumer now distrust with their personal data and still dealing with the ongoing fallout from Cambridge Analytica — would think nothing of asking banks for a feed to one of the only pieces of private information Facebook doesn’t have: user bank account details.

A recent Ipsos/Reuters poll found that 59 percent of U.S. consumers don’t trust Facebook to keep their personal information private.

And never mind that consumers aren’t sitting on hold for hours these days with the bank waiting to get updated information on transactions and account balances.

Banks have invested time and money into creating their own virtual assistants to give consumers access to their bank account information via their mobile phones. Mobile banking apps are one of the top three apps that consumers use regularly and tens of millions of people use them to check balances, pay bills and send money to each other.

And they get alerts on their mobile phones.

The Fed reported that in 2017 about half of all people with bank accounts used their bank’s mobile app to conduct transactions. That trend is only increasing — and those who may not use mobile bank apps use online channels and even self-service options at ATMs to do those same things.

Facebook’s ask seems driven less by the need for consumer convenience and more by the need to deliver on the promise that Messenger could use chatbots to drive a new revenue stream.

Messenger’s vision, under the auspices of Messenger Chief David Marcus, was to become the yellow pages of messaging apps by enabling more consumer-to-business interactions inside the messaging platform. Over time, those interactions would be monetized.

Today, four years after Marcus left PayPal to ignite the Messenger platform, Messenger has roughly 1.3 billion monthly active users worldwide, roughly 100,000 chatbots and literally zero revenue from any of them.

During Facebook’s Q2 quarterly results last month, Facebook COO Sheryl Sandburg said monetization beyond advertising across all of the platforms that Facebook operates, including Messenger, was still “early days.”

Sandberg mentioned that Messenger was the closest to monetization — but not because chatbots were taking off. The monetization strategy, she explained, was about testing ads inside the app to drive traffic to a business chatbot page in the hopes of getting them to take off.

Financial services is now seen by Messenger as the big chatbot monetization honeypot.

Banks, for their part, seem uninterested.

As they should be.

For Messenger’s chatbots to take off, they need to solve a problem that other apps and ecosystems haven’t or don’t and be a trusted player in filling that gap. That’s unlikely to be transactional banking services — not just here in the U.S., but in large developing markets where other established competitors have a healthy head start.

Banks are the trusted stewards of consumer financial information, and it’s not clear that even before the data privacy scandal the ask of Messenger would have been viable.

But today, and under the circumstances, it’s clearly a very strange thing.


Overstock as Bitcoin/Blockchain Unicorn

Last week, Overstock’s blockchain subsidiary, tZERO raised $270 million from a Chinese private equity firm, valuing the company at $1.5 billion. As part of that capital raise, there was also a commitment to buy an additional $30 million in tZERO tokens to be used inside the blockchain/crypto-enabled ecosystem that Overstock, with its tZERO subsidiary, is creating. That firm, GSR, previously invested $160 million in tZERO tokens during its ICO in June.

On the heels of that news, Overstock’s shares spiked 20 percent.

The token has been in existence since December 2017, when it launched a presale and reported taking orders for more than $100 million in tokens in its first 12 hours. Overstock’s shares jumped to $75.80 a share that day; three months earlier, it was trading at $23.65. A year before that, the stock was trading at $15.81.

Today, at $41 and change, the stock is down from that December high but nearly 3x what it was this time last year. But not because the fundamentals of its eCommerce business are strong and getting stronger. In fact, Overstock CEO Patrick Byrne has said publicly he’d like to sell the eCommerce business.

Why wouldn’t he?

It’s tough slogging it out these days as an online retailer with a value proposition based purely on selling stuff cheap. It’s far easier to talk about how bitcoin and blockchain are more revolutionary then the internet and watch your stock price — and market cap — double and triple in value. All in the space of just a few months’ time.

All of this talk, of course, masks the myth that blockchain and its bitcoin-powered rails have the capacity to “humanize” and “democratize” money.

Bitcoin today has two primary use cases: as a speculative investment and for financing criminal activities. Even Overstock — among the first, if not the first, to accept bitcoin as a payments currency on its site — reports that a measly 0.25 percent of its sales were attributed to that payment method.

More than that is the narrative that somehow blockchain, with bitcoin as its processing platform, will become the world’s financial operating system — more or less the internet of money. This ignores the fact that the processing rails for this system — bitcoin — is concentrated in a handful of miners in China and the exchanges used to turn bitcoin into the real money that people can spend are routinely hacked.

It can also take days to get that crypto converted into spendable, fiat currency — all while the value of bitcoin swings in the wind.

This narrative also glosses over how the internet really works — something I detailed a few years back — but nevertheless people use it as a comparison to hype the impact they say a bitcoin-powered blockchain can have on moving money around the world.

Ten years after the world wide web and http was introduced, we had a powerful internet economy driving trillions of dollars in positive economic activity.

Ten years after bitcoin and blockchain, there’s not much to show for it other than a spike in cybercrime financed by bitcoin.

Blockchain-based systems have little value outside a reliable, secure, regulated infrastructure to process transactions.

To think that it is or could be bitcoin is pretty upside down.


Scooters as Billion-Dollar Babies

Speaking of unicorns, who’d have ever thought that motorized scooters would become our next multibillion-dollar business sector?

Well, they are, according to venture capitalists in Silicon Valley who’ve collectively poured tens and tens of millions into companies like Lime and Bird. And these young businesses — young as in less than a year old — have now raised capital based on multibillion-dollar valuations.

Bird, a motorized scooter company based in Santa Monica, California, raised $400 million in just four months and is now valued at $2 billion. Uber invested in Lime in July as part of a $335 million capital raise that valued the company at $1.1 billion.

Investors say that motorized scooters, and Bird in particular, will fundamentally change how people navigate that hard-to-travel last mile. Comparisons to Uber and Lyft abound: a disruptive way to reimagine transportation.

“Genius” is how one Bird investor described the company and its business model.

“Nuisance” is how most cities now describe these motorized scooters.

Scooter graveyards litter cityscapes as riders paying the princely sum of $1.50 to ride a few blocks think nothing of tossing scooters wherever they feel like it, whenever they feel like it. In some cities, helmetless riders take to riding them in bike lanes in the streets — serious accidents waiting to happen.

Scooter companies came into cities without permission with thousands of scooters to spread around. Cities, unprepared for the urban blight, absent any regulatory framework to guide their conduct, have shut things down or restricted the number of scooters dramatically that these companies can bring into a city.

Some cities are even rethinking how or if they belong at all.

Even China, the birthplace of shared bikes with a serious urban mobility problem to solve, is now grappling with mountains of abandoned bikes that are no longer used but a very and new flavor of urban landfill. A “disruptive” innovation that birthed a few billion-dollar babies, but whose future is also uncertain.

As for that last mile and those motorized scooters, outside an alternative way of scooting around college or corporate campuses in good weather, what problem do these scooters solve at scale for consumers?

It seems that now the stranger thing is walking, driving or taking an Uber or Lyft or the commuter rail that last mile.


Putting Caps on Innovative Companies

While city planners are properly examining how to best navigate the pros and cons of motorized scooters, New York City has decided to put a cap on transportation’s real innovation — and in one of the world’s busiest cities.

Last week, under pressure from taxi unions and under the guise of wanting to study road congestion and driver pay, New York announced it would halt the number of new ridesharing licenses granted for the next year.

The stories of the big dent that Uber and Lyft have put into the taxi universe are well known.

A medallion that once sold for $1 million in New York in 2014 now fetches a little more than a tenth of its value. A recent batch of medallions at auction there averaged $175,000 each.

There’s a very good reason for that: Uber and Lyft provide a better service, and people like using them.

And that’s because, until they entered the scene, getting a taxi in New York — or anywhere — was a big ball of uncertainty.

Would you get a cab between 3:30 PM and 4:30 PM to make it to the airport, or would dozens whiz by with their “out of service” light on?

Would you get a cab on a rainy day without walking blocks or waiting half an hour on the street waving your arm?

When you finally got one, would you get into a cab that smelled like last night’s garlic-infused dinner?

Would that cab have a “broken” card reader and make you pay cash?

Or would the driver get huffy and argumentative when you refused and called their bluff?

With Uber, then Lyft, not only did people know they’d get a car, they knew when it could come, they knew it would be a nice car and they knew that they could call the driver if they wanted a more precise ETA.

And, of course, using the app gave users that magical experience of getting out of the car without the friction of payment at the end of the trip.

The taxi union didn’t like Uber cutting in on their turf. Some independent drivers didn’t like the competition from other drivers.

The stranger thing here is thinking that caps on ride hailing services and studying the situation will make taxis more innovative or consumers want them more. Or reduce the demand by those consumers for more on demand ride-hailing services. The appeal of on demand is, being able to reliably get a car on demand.

If the competition from Uber and Lyft didn’t inspire innovation over the almost 10 years they’ve been in existence, a cap is unlikely to be the taxi’s magic elixir in the next 12 months.

As for the upside down?

That could be New York commuters’ daily life for the next year unless something else happens.

Like taxi drivers accepting bitcoin payments and launching an ICO to fund the tCoin. They expand into the Yellow Scooter business and decide to brand Lemon. They build a bot on Messenger and connect to user bank accounts to enable payment and get alerts.

Overnight, the value of taxi medallions could supersize and the taxi business could turn into a multibillion-dollar unicorn.

Everything, then, would be fine, and they could leave Uber alone.

Only then would we know for sure we were living in the Upside Down.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.