London contactless conference

The final version of my presentation at the contactless conference in London this week was slightly different from the one in the conference guide. Here it is.



Download the pdf here.

The videos don't automatically link into the pdf, so you'll have to look at them separately. You can find the Blink advertisment here. The Visa advertisement that shows how magstripe transactions can be as fast as contactless is here.

And here is the little sequence, pulled from an advertisment in the Philippines, that shows how Welcome's technology works. You can see the payment information hidden inside the credit card's chip, which is used by merchants to trigger targeted promotions.

Gartner: payment schemes need to offer merchants new promotional marketing capabilities at the POS to reduce pressure on interchange

Gartner has recently published a report, titled “Banks' Retail Payment Operations at a Tipping Point”, which we found so interesting that we obtained the right for you to view it.

Here are some of the report’s recommendations for banks:

“Introduce PIVAS [Payment Information Value-Added Services] to reduce pricing pressure from merchants and initiate a virtuous circle for retail payment operations. Merchants must actively support card programs and emerging payment solutions, but they are challenging the pricing model for the interchange. It's time to introduce services such as PIVAS to convince them of the real value of bank-sponsored retail payment networks.”

“An EMV-compliant card would store cardholders' shopping patterns on the chip (for example, how many times the cardholder has used a card at a specific retailer or whether the person has shopped at that retailer).”

“As a result, the retailer will have a platform to deliver tailored promotions at the POS that account for its marketing strategy and the activity and preferences of the customer. The promotion or message can be delivered via a POS receipt.”

Click here to view the report now.

National debit scheme fights for its life – is this a preview of SEPA consequences?

Singapore’s NETS debit card scheme issued a response to attacks by the local consumer association a few days ago, explaining why the scheme was forced to adopt the interchange fee model used by Visa and MasterCard. The words used in this press release are quite poignant. Is this the future facing Europe’s national debit card schemes?

“The market has changed considerably in the past 22 years and NETS has to respond to these changes, particularly in the advent of growing competition from international debit cards that provide a more attractive revenue stream to card issuers."

"The reality is that if NETS wants to ensure its future presence, it has no choice but to bite the bullet and re-align its business model to continue operating in a sustainable manner. Should NETS chooses the option of inaction, Singapore retailers would ultimately be left with only a debit payment service run entirely by international card schemes which charge higher rates.

"The Exercise would let NETS continue its mission for the past 22 years – as a homegrown company committed to offering the most competitive cashless payment services to Singapore retailers.”

From NETS perspective, this appears to be a cost management issue, with card issuers demanding more revenue from the scheme, in line with what they would get from Visa and MasterCard. NETS is simply passing the cost on to merchants.

Unfortunately, the payment industry has focused so heavily on costs for so long that it is hard for many people to shift focus and provide substantial new value to merchants. This is also very true for Europe's national debit card monopolies, who could soon be struggling under similar market pressures as NETS.

See the full press release here, and my prior post on the subject here.

Living in a world of credit card surcharges

This is another post on my obsession with how credit card surcharges will fundamentally transform the payments industry.

Here is a bank that’s got the consumer value proposition down right, but with an offer that makes these transactions very expensive for the bank.

Pay with your ABN AMRO credit card and avoid the 10% surcharge on card payments in taxis. This is infinitely better than another bank’s offer of 1% cash back on your taxi fare. Still, there are significant downsides even with this promotion.

The fine print says, “The 10% Admin Fee and GST will be credited back into your account and reflected in your following month’s statement.” So you have to check your statement to see if the amount was actually credited. Worse, this means that the bank is paying for the surcharge. The card issuer is paying for the merchant’s full cost of accepting plastic!

This real-life example demonstrates that in a surcharge world, not only could card issuers see their interchange fee revenue disappear, they could in fact be obligated to pay merchants to accept their cards. In the future, you can expect to see the card schemes innovate to create more value for merchants, so that issuers that use those schemes don't need to resort to these tactics.

First Data, Visa and MasterCard: 1 giant too many?

The First Data buyout by KKR for about $27 billion won easy approval last week from European authorities. Today, MasterCard’s market cap of $13 billion is almost exactly half the amount that KKR will pay for First Data. Although Visa’s upcoming IPO is expected to fetch a significantly higher valuation than MasterCard’s, First Data will still be bigger. For now. MasterCard’s market cap has quadrupled since it’s IPO, and the share price continues to grow much faster than First Data’s. Visa’s market cap could also grow faster.

How long will First Data remain significantly larger than the payment networks? Should First Data leverage its size to create a competing payment brand? Or should First Data buy up one of the existing networks? Is there enough cash in the investment community to fund a First Data buyout of MasterCard? How fast would that need to happen before the acquisition becomes too big? And at what price premium, given the market’s positive exuberance for MasterCard?

The Welcome trilogy: end of book one, the start of book two

We have just completed a management buyout of Welcome, in partnership with AXA Private Equity (see the press release here). Looking at the history of Welcome since it’s founding in 1996, and considering our objectives for the next few years, I see this buyout as the closing event of the first major book of a trilogy. The themes of this first part: building the company, achieving profitability and growing beyond the startup phase. In the second part of the trilogy, we will work at consolidating our current growth of 50% per year, grounding it on solid structural elements and a powerful business model. The final book of the trilogy begins with an IPO to raise the funds to help us grow even faster as we reinforce our leadership position as the most exciting provider of high value payment software in the world.

We have added a number of shareholders over the years, starting with High Co (a publicly traded marketing agency in France, part of the WPP advertising group) followed a few years later by Gemplus, Avenir Telecom and Dassault Multimedia. Then came the financial investors, Technology Fund in Singapore, BNP Private Equity in France and Quest for Growth in Belgium. They have all remained faithful to the company over the years. They all believed in me and in Welcome, and for that I give them my deepest thanks and appreciation, even though I know that this is not nearly enough. Thank you.

Today we have one single, major shareholder, represented by a group of individuals that were able to put together a complex deal that is really very exciting for Welcome’s people. Bravo to Laurent Foata, Jean-Marc Fiamma and Arnaud Dufer of AXA Private Equity. I am excited about beginning our board work together as we start with our brand new corporate governance structure built from scratch.

The one person with whom the management buyout would not have been possible is our CEO, Sebastien Guillaud. He has proven his value to many of us over and over again, and I am sure this success is just another in a long line of accomplishments he will achieve throughout his career. My deepest thanks to you Sebastien.

My deepest appreciations as well to Philippe Vinci and Craig Bennett, both newly appointed directors to Welcome’s executive board, and to the whole team at Welcome. Every single one of you helps turn the vision into reality.

I look forward to writing the second and third parts of our trilogy with all of you. The adventure is only going to get better and more exciting.

Debit card competition forces Singapore’s NETS to increase interchange fees – will SEPA have the same effect in Europe?

Europe’s SEPA debit card initiative is intended to create competition between debit schemes and break up the old national debit card monopolies. Something happening in Singapore right now could give an idea of what might soon happen in Europe.

Currently, Singapore’s national debit scheme, NETS, charges merchants between 0.35 and 0.55 per cent of purchases. Starting next month, this will be increased to 1.5 to 1.8 per cent to bring it closer to Visa and MasterCard debit card fees.

In an article today in The Strait’s Times, Chief executive officer Poh Mui Hoon said NETS will be squeezed out of the market if it does not raise its rates, because banks may no longer issue NETS cards, opting instead for the more lucrative debit cards.

The president of the Consumer’s Association of Singapore is angry: “What happens when other debit and credit cards adjust their fees upward? Will Nets do the same?” (see "Nets fee hike: Case of unfair monopoly?")

I briefly mentioned the NETS fee hike in my earlier blog post, “Will SEPA unleash the genie of spiraling interchange fees?”

The basic payment service has become a commodity. Merchants want to pay as little as possible for it and consumers don’t want to be surcharged. Merchant and consumer associations will fight unilateral price increases, and the authorities in many countries will probably side with them.

At the same time, higher interchange is irresistible to card issuers, who will clearly choose the payment scheme that provides the highest interchange, whenever they have the choice. The schemes need to innovate and create significant value to justify the fees that merchants pay. In the case of NETS, merchants will be paying three or four times more than in the past, so NETS must provide MUCH more value than before. What a bind!

There is a way to solve the problem: the payments data hidden within each transaction is very valuable to merchants if it can be exploited at low cost and without raising privacy concerns. This has become Welcome’s core competency over the years. All of Welcome’s bank customers use our software to make their cards much more valuable for merchants. Until recently, our customers were the (too few) banks that agreed with our vision. Now, increased competition between payment schemes and increased pressure from merchants is causing a larger number of participants to seriously consider adopting the same outlook.

Sources:
Consumer Association of Singapore concerned about impending NETS fee hike

Nets fee hike: Case of unfair monopoly?

Case slams NETS fee hike as a ‘great disservice’ (also see the accompanying video clip)

Nets fee hike means more will use cash, credit cards