Through The Mobile Payments Looking Glass

“Curiouser and curiouser” is perhaps the best way to describe the mobile payments landscape here in the U.S., now one week since Chase Pay threw its hat into the ring.

That phrase, of course, was originally uttered by Alice (of “Alice In Wonderland“ fame) after she fell down the rabbit hole, drank stuff that caused her to shrink, and then ate a piece of cake that caused her to grow 9-feet tall. Her reaction to those events is described by author Lewis Carroll as one of awe and confusion.

A bit of an understatement, perhaps, but much like the buzz throughout payments land last week.

THE AWE PART

Mobile payments, in the U.S. and worldwide, has been in a state of hyper-kinetics ever since Apple Pay launched last fall as an in-store and in-app mobile payments solution. When that happened, just about everyone (besides us here at PYMNTS) publicly declared that it was “game over” for anyone else with any mobile payments ambitions – past, present or future.

Since then, we’ve seen Android Pay and Samsung Pay launch, Visa Checkout and MasterPass gain more merchant acceptance and registered users; PayPal make acquisitions, separate from eBay, and go public — and lots of new and niche players have fought for attention.

And consumers almost always continue to use plastic cards, and not mobile phones, to pay for stuff when they shop at physical stores. 

Apple Pay usage at the point of sale seems to have plateaued at about 5 percent of those with iPhone 6’s and now 6s’, according to our latest Apple Pay Adoption Tracker Study — that means about 5 percent of iPhone 6 series iPhone users use it at places where they can use it, which isn’t very many places. That makes the actual share of transactions made with Apple Pay a small speck. That also suggests that it’s anything but “game over” for mobile payments players, with plenty of opportunity for “winners” to emerge and be crowned.

Android Pay and Samsung Pay are just getting started.

PayPal reports mobile transaction volume is zipping along as are its registered users, now some 173 million as of their earnings call last week. Of course most of that is online and in-app and not at physical stores.

Speaking of physical stores, Starbucks is just crushing it with mobile order ahead, and it’s driving the acquisition of new mobile app customers. In its earnings call last week, Starbucks reported that more than 20 percent of its transaction volume (as in all of it) is coming from its Mobile Order & Pay product which was just introduced nationally less than two months ago, on September 22, 2015. It’s absolutely remarkable.

[BTW if you ever wondered what ignition looked like in mobile payments, look no further than Starbucks. I’d also watch the whole entire mobile order ahead space which I believe will follow in its little spark-filled ignition footsteps. As I mentioned last week, mobile-initiated payments solves a bunch of frictions for consumers and merchants at the same time it introduces a number of new business and technology dynamics that will alter how mobile payments happen in-store.]

THE AWE AND THE WOW

But the “awe” emotion that was triggered last week was related to the entry of a potentially powerful new force in mobile payments: Chase Pay.

People who now understand how Chase plans to approach mobile payments had mostly one word in response: “wow.” 

Its mobile/digital closed loop network of merchants and consumers will use QR codes at the physical point of sale to enable payments and the Chase Pay “buy button” to initiate payments in-app and online. Chase Pay will include a number of features and functions that leverage Chase’s massive base of 94 million consumers and merchant services capabilities via Chase Commerce Solutions. It promises a merchant-friendly business model that includes a fixed processing fee (not zero fees as some have reported), the integration of existing merchant loyalty programs into its Chase Pay app and the indemnification of the merchant against any consumer-initiated fraud.

Gordon Smith, CEO of Consumer & Community Banking at JPMC Cards, described Chase Pay as a “true omnichannel” payments experience since the same app can be used by the consumer across all shopping channels: in-store, in-app and online. He also described his consumer base of 94 million as highly engaged, visiting Chase.com an average of 16 times a month.

But the real kicker/showstopper/game changer and real reason for the “wow” reaction is that all of those 94 million consumers will be auto-enrolled into Chase Pay with the card that they use most frequently. That means that 94 million consumers will be (potentially) walking around with their smartphones, a Chase Pay app and a Chase card as their top of wallet, go-to card for payment across any channel, including in-store. 

That’s the kind of stuff you can do when you’re a closed loop network, which is, of course what Chase Pay is. Chase has been laying the groundwork for this move for the last two years. Its sweetheart deal with Visa to run transactions over VisaNet at favorable economics is why Chase can extend favorable, “on-us” economics to its merchants. And its Chase Commerce Solutions is why it can enable a bunch of stuff at the POS – including integration with merchant loyalty programs.

Smith also announced a portfolio of technology providers that will integrate with Chase Pay, including P97’s retail fuel solution that enables app-based payments at the pump, and LevelUp’s mobile-initiated payments platform that enables mobile order ahead for more than 340,000 locations today.

Closed loop network. Favorable merchant economics. Integration of merchant loyalty programs. An installed base of 94 million consumers at the jump who will automatically have access to the Chase Pay app. App-based QR code technology that’s compatible with all smartphones and all merchants (since all merchants have QR code scanners).

The mobile payments landscape got a whole lot more interesting last week. 

THE CONFUSING PART

But then there was the part of the Chase Pay announcement that caught most everyone off guard – the Chase Pay partnership with MCX.

Yes, as in that MCX that has taken five years to get its CurrentC pilot off the ground and a scheme that everyone (especially me) thought was pretty much dead, dying or irrelevant. 

Specifically, the Chase Pay announcement said this about the partnership:   

“Chase Pay will be ‘progressively rolled out’ to MCX merchants starting in mid-2016. Chase customers will be able to use Chase Pay wherever CurrentC is accepted – either directly or through the CurrentC app.”

As I said, curiouser and curiouser.

And now that the news has had a week to settle in, Chase’s announcement and a “partnership” raises four questions:

INQUIRING MOBILE PAYMENTS MINDS WANT TO KNOW

Question #1 – Timing

Why did Chase announce a new mobile payments scheme six to nine months (or more) before it would have something in market?

Chase isn’t the first company to announce a product before it was ready to be used in market — and it won’t be the last.

The motivations for doing so are numerous: to unsettle competitors, to reassure investors, to derail potential customer’s product and investment decisions. But it seems unusual for an announcement to precede a product in market by half a year (or more), especially a market as fiercely competitive as mobile payments and when strong competitors are already in-market with products that they can use to their advantage in that period of time. 

As Osborne Computers taught the world in the 1980s, there’s a fine line between prepping the market and disappointing it. Osborne’s announcement of its new product a year before it was to be in market had the unfortunate consequence of customers canceling orders for their existing product line, which crippled company cash flow, which contributed to product delays, which drove customers to alternative products, which ultimately contributed to the bankruptcy of the company. An extreme example, of course, and not really parallel with Chase Pay and mobile payments more generally, but nevertheless a cautionary tale of what happens when one gets too far out in front of reality.

So, there must have been a really good reason for Chase, a buttoned up company with an execution-oriented team known for checking all of the right compliance and business process boxes to get out in front.

Maybe it’s because merchant systems are locked and loaded for the holiday and there’s no risk of getting an announcement into the market since merchants are hamstrung to move forward with anyone or anything until after the holidays.

Maybe it’s because there’s a ton of technical and integration work yet to do. (There probably is, regardless!)

But then again, maybe there’s something else going on.

Which leads me to the second question …   

Question #2 | Intent 

Was the MCX/Chase Pay deal the graceful swan song for a scheme that had no future – OR a strategic play by MCX’s Brian Mooney to create a little bit of competition that could breathe new life into it? 

My initial reaction to the Chase Pay “partnership” with MCX was that it was a Google/Softcard analog – a graceful exit to a stalled scheme that allowed everyone to save face. And that MCX/CurrentC would fold into Chase Pay – lock, stock, and barrel.

A week and some quiet think time later, I’m not so sure.

If one reads the Chase Pay statement literally, one walks away with the assumption that Chase Pay is both a payments option inside of the CurrentC app and a standalone payment option at CurrentC merchants.

Could it be that one of the reasons that Chase Pay told the world about its mobile payments intentions nine months ahead of being in market is because the CurrentC app, powered by Paydiant, which was acquired by PayPal in March of 2015, was gaining traction or about to make a move inside of the 100K merchant locations that are part of the MCX/CurrentC coalition?

Paydiant, as you might recall, signed a contract in February 2014 to power MCX/CurrentC. Presumably, those contracts are still in force. If they are and they are two-year contracts, contract renewal talks may be underway. Perhaps the Chase Pay announcement was intended to let MCX merchants know that there will be options in 2016 for them to consider beyond what they have in front of them today. In addition to introducing competition, such a move would put pressure on PayPal/Paydiant to sharpen its merchant-facing pencils. 

Of course this is purely speculation on my part – I have no inside knowledge and if I did, I’d surely not be writing about it. But what I initially thought was a “thank goodness someone finally put MCX out of its misery” play, may be something more. 

And, with it, lots of possibilities for PayPal/Paydiant. Its established user base of consumers with DDA accounts already registered across a variety of issuers could give it a baseline position to do something pretty interesting in the nine months between Chase Pay’s announcement and market readiness.

Keep in mind that Dan Schulman told investors that its PayPal users are also pretty engaged, using PayPal’s app 27 times a month, up from 24 times a month. That’s 60 percent more engagement than Chase says it has with its consumers.

Prompting yet another question …

Question #3 | POS technology direction

Could the Chase Pay announcement – and its reverbs — throw a wrench into the NFC-at-the-point-of-sale-fait accompli thinking that’s taken over mobile payments?   

Chase Pay with its QR code and turbo-charged mobile order ahead capabilities with LevelUp – combined with whatever PayPal/Paydiant might be cooking up – sure do suggest that NFC as the way the payments will be done at the physical point of sale is no longer a safe assumption. And, ditto the OS-based payments-as-smartphone-utility assumption.

That suggests that those with NFC and OS-based mobile payments strategies exclusively — and who don’t have a critical mass of consumers demanding acceptance at the places they shop — might need to start honing their Plan B.   

Because if merchants are able to leverage what lots of consumers have (smartphones with mobile payments apps), what consumers already know how to do (use “buy buttons” and/or QR codes to pay), what merchants already have in their stores (scanners that read QR codes and/or POS integrations with mobile-initiated payments), and see tens of millions of consumers start to use that method of mobile payment, they’ll probably be less enthusiastic about prioritizing NFC-enabled mobile payments.

As we see this play out, NFC may find it was dealt a bit of a setback last week.

But, is PayPal/Chase the mobile payments version of “The Hunger Games” – or something more?

Question #4 | Long-term implications  

Does the Chase Pay/MCX and PayPal/Paydiant/MCX tie-ups give us a sneak peek into what a future mobile mega competitor might look like?

One theory is that we are about to watch the curtain rise on Act One, Scene One of a larger and longer-term play for a PayPal/Chase combination of some kind.

Chase isn’t global and would like to be, PayPal is. PayPal isn’t a digital bank that is making a play to get into digital financial services, Chase is. PayPal has significant online and in-app merchant acceptance – globally – and Chase needs both to ignite. PayPal has a hook into millennials with Venmo, and Chase needs to have Generation Venmo warm to them. PayPal and Chase both fashion themselves as network alternatives that are bigger than just retail payments. MCX is now something they both share. Instead of the mobile prize they each fight over, could it be the entry point for something that brings them closer?

Or PayPal closer to someone else? 

Another theory is that Chase Pay becomes a catalyst to a PayPal combo with another player that might also want to hedge its long-term bets. Maybe a player like Visa. Visa, of course, gets paid for transactions that run over the Chase Pay network – for the next eight years. Would some sort of a PayPal/Visa combination give Visa more leverage with Chase down the road and more options to accelerate how its issuers capitalize on mobile payments and digital financial services in the next eight years?

Yes, curiouser and curiouser.

But interesting – and unlike Alice’s adventures which played out in her dreams, our reality.

Alice survived her chaotic trip down the rabbit hole and lived to experience another adventure through the looking glass. That looking glass gave her the change to enter a new, alternative world and live in it for a time. Some right now might wish for a magic looking glass to walk through and see the future. But that suggests it’s already been decided – and, thankfully, it’s anything but.

It sure seems a whole lot more interesting to shape the future than to live in one that someone else has already created.