Cash, Charge or Data?
David Birch
International keynote speaker, author, advisor, commentator and investor digital financial services. Recognised thought leader around digital currency, digital ID and digital assets. Follow dgwbirch.bsky.social
Six years ago JP Morgan announced a deal to incorporate Chase Pay into the Starbucks mobile app for payments at more than 7,500 Starbucks locations. As I noted at the time, integrating a new payment mechanism into physical stores is a hassle. Point-of-sale (POS) systems need upgrading, staff need training, deals need making. But adding a new payment mechanism into a retailer's app is, by comparison, trivial. Hence I thought that new payment mechanisms (eg, direct from account instant payments, deferred payments and so on) would have an advantage in that world and that retailers would use the opportunity to expand the range of payment options in a less expensive and more controllable way. This was hardly a wild guess, since at the same time I could already see that early experiments from major retailers were bringing together payments, loyalty, personalised offers and other services into their apps.
The conclusion that I drew at the time was that I thought retailers were going to push consumers away from traditional payments at POS and move them toward payments inside their own apps that they would use to deliver better customer services. Or, in the bumper-sticker version:
"we're going from check-out to check-in".
This movement has now been accelerated by the combination of pandemic and phone. Indeed, this particular payment trend has accelerated since the very start of the pandemic: in 2020 retailers saw a 36% increase in mobile app downloads and a 54% growth in in-app purchases during COVID. Now both super apps and retailer apps are looking to exploit new opportunities in the post-pandemic payments world. As The Economist noted last year (26th March 2021), the techfins are throwing resources into payments at the same time that retailers are building out their own wallets.
PayPal, meanwhile, is steadily building out its own potential "super app" while Square's Cash app builds out a variety of financial services. And behind them there are a gaggle of players that can offer financial services to extend retailers offerings. These guys are in a good position, frankly, because one of the key lessons from Asia is that super apps need to own their users' wallets. But super apps are are also about the consumer's identity. The "Connect with PayPal" service talks about providing a "commerce identity", which I think is a good way to think about the key element of competition in a space in which the super apps must find ways to make their partners successful. Taking away the aggravation and errors of identification and authentication is certainly one way to do that and, as I frequently observe, almost everything in my physical wallet is about identity not payments.
Europe lacks a super app along the lines of China's Alipay, so the main focus for retailers who want to integrate payments outside of the existing card networks is a combination of open banking and instant payments. I think that the use of new open banking-enabled services, and in particular the implementation of Request-to-Pay (R2P) and Variable Recurring Payments (VRP) services, will give retailers a tool kit to develop cost-effective and efficient payment models.
In essence, R2P has the merchant send a bill to the consumer's phone and the consumer will authorise the payments by entering a PIN or a thumbprint or whatever and then the payment is instructed (e.g. apps for plumbers and market traders). In VRP, the merchant requests a payment from a payment provider that the consumer has already authorised e.g. utility providers). In both cases, the fact that the payer and the payee are identified, authenticated and authorised using modern cryptography in secure environments means that these payments will be cheaper than traditional card payments that price in fraud and a variety of guarantees.
What the super apps want most of all is, of course, the consumer data that is the catalyst for value-adding. The lifetime value of their users is much greater than that of social media apps because they have access to a much wider data set: not only payments, but travel, health, hobbies and who knows what else.
(I don't expect the social media companies to take this lying down, of course. Sooner or later they will use open finance to broaden their services.).
领英推荐
I'm not smart enough to know whether the super app strategy (ie, the third-party wallet using a variety of banking-as-a-service players) will win out over the open banking orchestration strategy (i.e., the retailers using a variety of banking-as-a-service players) but I stand by my original assessment that unless the banks do something radical with their wallets, they can't compete. As to what that radical strategy might be, I wonder if there is still an opportunity for a "bank identity" in the mass market? If banks were to monetise their investments in know-your-customer (KYC) systems, in authentication platforms and become trusted attribute providers then they might have a strong case to remain party to consumer transactions of all kinds even when they are not providing the payments themselves.
So, where are we now? Well, I think I detected which way the wind was blowing when, after some $100m of investment, JP Morgan threw in the towel and killed off Chase Pay, advising customers to use "their preferred merchant apps or PayPal".
Book Dave
Are you looking for:
Hi Dave, there's a very interesting question here as to whether super-apps and indeed retailers need to own the wallet. Historically I'd agree, but as we move forward the ability for retailers etc.. to issue their own debit cards against customers existing bank accounts, I believe changes the game. Organisations can get the engagement they want through a payment instrument (loyalty etc..) without the need for their customers to have the friction of top-ups and running second balances. As the UK's first CBPII under open banking, we're already doing this with our own product (Currensea) - and are seeing an increasing level of interest in doing this for others...watch this space..!
Director Cyber Analytics, Leidos - Global Fellow, Wilson Center
2 年Like so much of the rest of the world's push towards entropy, the payments world's opportunities to unify identity have failed to be executed on. The banks and other FI's miss opportunity after opportunity to provide value in what seems to be a natural, and likely rewarding way, for all involved. I guess payments eBalkanization in the West continues while the Chinese consolidate power in the east (AliPay and WePay chiefly) and prepare for the future with their CBDC. Sigh...
Chairman at WebMobility Ventures
2 年Good read and I think you are right on with these predictions which are visibly happening right now. You did not mention Apple Pay or Google/Android Pay. Or facial recognition. They seem to be pretty much ubiquitous globally now, in part due to the Pandemic. Where do they fit in the hierarchy of Payments and Identity? How can positive Identity plus privacy of consumer purchase information be achieved?
Payments Geek - Building and Supporting: Payments, Identity and Networked Businesses
2 年Fun thoughts Dave.. agreed until the end (on data). eCommerce and mobile/inApp data has always been widely available (as other companies like Stripe/Shopify owned the C/O page). There were no data gaps here. These data sets were also combined with mobile location data to determine preferences and WHEN to reach you with an advertisement. Today in the US, most retailers have developed Customer Data Platforms (CDPs) that unite payment data, POS data and Advertising channel data. Even McDonalds has a customer view of what you purchase.
margaris ventures I #VentureCapitalist I #StrategicAdvisor I #BoardMember I Global No. 1 #Finance, #Fintech & top #AI Thought Leader
2 年As always a great read. Thanks David Birch for sharing it.