Market Watch Mindset Payments

Iphone 5, NFC and the payment experience: scenarios and implications

In recent discussions, the Iphone 5 NFC technology was often mentioned as a key move: see Brett King’s post on Iphone 5 and posts on Apple recruiting an NFC specialist. I agree an Iphone integrating NFC technology will be significant, but for me contact-less is just the technology that would allow all transactions to be electronic, with strong implications in terms of analytics, identity.

First some quick thoughts on the Iphone 5 NFC. Several models seem to be possible (feel free to add yours in comments).

1. NFC is integrated in the Iphone 5 the same way the camera or the motion sensors are. Developers, including for contact-less payment apps, have access to the module through a set of API. Apple in that case would be completely agnostic to a payment identity, network, partner. Apple could control its user experience by reviewing the apps using the module for security.

2. Apple is partnering with the carriers and payments done through the NFC module are billed by them (Billing technology is one of the forte of carriers). Rumours of Apple (and Google) talk with Boku seem to support this scenario. Apple could share revenues with the carrier on transaction fees. On the other hand Apple could also partner with payment networks to support its NFC transactions.

3. Apple is making a major step in the financial services world and links the NFC module to the Itunes identity (and credit card numbers or additional payment means). All payment done through the NFC module are debited through the Itunes identity. Apple may charge a fee per transaction for the apps using the module (in line with the way developers have to share revenues with Apple on the App store). Or as mentioned in recent patent applications, retailers would load their product details, offers in a database on Itunes to allow payment with Iphone 5 and pay a fee to Apple for that service.

However, on top of the ability to use your phone as a electronic wallet, there are strong opportunities to for this significant shift in behavior to change the payment experience.

As of now, the offline payment experience  can be defined as flat and even detrimental to the customer but can be fundamentally modified:

– Retailers most likely don’t know who you are.
In truth, even if you are coming regularly to a shop, chances are they will have a hard time identifying you as a recurrent client and build a special relationship with you. Retailers understand that and have tried to compensate for it, using customer cards (but you need to bring them back and often they have been attached to credit products), requiring information from you (what is your email, telephone number?) and now monitoring your checking on location based services. In all cases, this tracking needs a specific effort from the customer and because of that is a flawed experience.

What is the solution for retailers? Most likely in the single event that is defining any transaction: the payment experience. A payment through an NFC enable Iphone 5, could allow for each transaction to include: the identity of the customer and the retailers (maybe through Facebook if done with Credits), information based on the recurrence of such transactions leading to special offers. It could also include details on the product that would help generate recommendations in the same way Amazon is doing it online. It could help generate tips to friends, for clothes style recommendations with products already bought. The possibilities are endless.

– The receipt is the perfect example of a broken experience, as defined by Seth Godin.

Seth Godin at Gel 2006 from Gel Conference on Vimeo.

Look at any typical receipt and you would have a hard time understanding most of it. Batch numbers, RRN, Terminal Id, Merchant #, and other random pieces of numbers and letters. In most cases the product name is not even recognizable and the merchant name is broadly defined. If you try to remember where you bought a product, how much it was etc, chances are a typical receipt will not help you because it is not designed for the customer.

One of Square key point is to produce the best receipt possible. As said by Jack Dorsey:

So what if we could really turn the receipt into more of a publishing medium, into something that lives on and something that is actually clickable and useable, and something that just exposes the various end points of the transaction.

A typical Square receipt will give a clear definition of the product bought, maybe an attached text and photo, a GPS map of where you bought something and the number of transactions you had with the vendor.

A NFC enabled Iphone, if open enough to support innovative companies and models, could help support these changes. However, if kept as a new medium for a typical card transaction, the status quo would stay.

Market Watch Mindset

Sorry US and Europe, but chances are you will be second for innovative financial services

Two interesting pieces of information echoed in the recent days:

First Oliver Wyman published an extensive report on the Future of Banking. It gives a good overview of how macroeconomics/demographics trends will impact banks and signals the end of Golden Era and the reallocation to emerging countries.

As seen in the graphs above, the most important GDP growth is expected to come from developing countries (especially in Asia). This translates in an important increase for financial services as there is a direct link between GDP per Capita and Household Liabilities. On the other end, the economic and regulatory situation in Europe and the US is not as positive for financial services: the deleveraging of US households as well as stress of the economic crisis in both US and Europe will negatively affect the growth potential for banks.

Investment Mindset

Will financial information become the next “commodity” data?

Bernard Lunn of SemanticWeb, wrote a great post on XBRL and the impact it can have on the different layers of the stack using financial information. His article is greatly detailed  so if you haven’t done it yet: read it!

As quoted in this other article on XBRL Financial Information :

“Anyone can get the information [from the online SEC XBRL filings] and read it, but how to make good use of it is another thing,” Rong says. Today a lot of money is spent on services from companies like Bloomberg and Thomson Reuters to help them summarize and understand the data. “What we do as a business is to make the consumption of the XBRL based digital financial information easier, faster and automatic. That’s the fundamental idea or value

1 .The basis of financial analysis was a time and resource consuming job of data gathering, input in Excel models and analysis. With the introduction of open financial data format, this work will disappear and automated models will be able to run high level comparative analysis. The commoditization of financial data will make it possible for small companies and small shops to efficiently provide financial analysis. (For parallel, the same process happened when ETF commoditized the base of Fund Management by automating strategies and reducing the role of the Fund Manager).

From my understanding, Trefis is a perfect example of this evolution. Built by MIT students and finance specialists, it provides detailed financial analysis for several companies within a small startup structure, which would not have been possible before. It also allows users to modify the values of key hypothesis to verify how models would evolve under different circumstances and propose their own numbers. The commoditization of financial data has clearly made possible the emergence of new services providing financial analysis for free or a fraction of the price it would have cost before.

Another company aiming at the financial analysis market is ValueCruncher, which provides a platform for interactive analysts reports.

2. On the other hand, other players could benefit from this evolution: Yahoo and Google mainly. Yahoo and Google Finance have made the basic access to stock market information free (ad sponsored) and could continue to attack the markets of companies such as Bloomberg, Reuters.  ValueCruncher has a great post on what opportunities this disruption in Financial Information provides to Yahoo. Even if I believe it might not be the most fitting candidate for disruption, I agree with the overall run toward complex information due to the commoditization of Financial Information:

“The traditional financial information providers are worried that on-line finance sites could do to them what Craigslist did to newspaper classifieds. Take a multi-billion dollar industry and make it a multi-hundred million dollar industry – with the benefits flowing to consumers of financial information. Financial information market disruption.

The consequence is a push toward value added information for companies like Bloomberg and Reuters. However as seen in the first part of this post, other competitors  are willing to change this market too. What do you think will the traditional financial information players do to address this new competition? (Reuters free platform and move towards blogging show they are willing to challenge these competitors directly)


Skeptics have it wrong: there are great opportunities for disruption in financial services

“You have a great UI, but this is never going to work: people don’t trust startups with their money”

This was a comment often heard during the presentations of the two following financial startups during the Tecrunch Disrupt conference in New York: Plantly and Betterment. It appears that most(?) people in the industry seem to believe these skeptics/realists (depending on your point of view) are right. In the FastCompany article on BankSimple a journalist noted the following:

Online personal finance has proven to be a difficult business to master. Witness the fall of FiLife last month. has not seen a significant increase in unique visitors since it sold to Intuit for $170 million in September. Thrive was sold to Lending Tree in February of 2009 in a rumored fire sale. And Geezeo dropped its consumer facing service in January. And while online banking works, for the most part, no one raves about innovation in that space.

On the other end, during the Techcrunch Disrupt conference I saw these guys presenting:

disrupt on Broadcast Live Free

Skeptics have it wrong, there is something great happening in the financial services industry. Plantly may not be the best company, may not succeed, may not have a crazy business model but here are two guys (one somewhat related to Finance) building something in their “garage” to solve one of their issues, making investment decisions understandable to them through technology.
Everyone knows the famous Bell Curve of the technology adoption lifecycle

On the left side of the graph you find the Plantly, Banksimple creators; it is probably an obvious statement but innovation comes from entrepreneurs trying to solve their or others pain points. The fact that we see more and more people on that left side of the curve in financial services innovation makes me believe that there will be new viable key disruptive companies in financial services soon.

Market Watch Mindset

An Exchange Boom?

These last weeks have been busy with events, announcements and new startups! Great material for future posts but this one is on markets and how new exchanges have become an interesting field in financial services innovation. Recently Exchanges have had a poor reputation. The flash crash has highlighted the multiplicity as well as complexity of stock markets. But since its creation in the 13th century, there is no better system that allows liquid, transparent, risk free (default on transaction) exchange of virtual goods. It’s therefore not surprising to see that innovative start-ups in financial services are trying to create exchanges to address the transaction needs of new goods.


Fake it till you make it! A model for integration in banks?

On Bankervision, I read this great post Using people as glue. It is often the case, when you move from a legacy system to a new system that you have to face the struggle of moving your data and user experience from one to the other. As described by James Gardner:

You know that, even if you mandate a new systems approach, you’re always going to have to spend piles of money doing legacy integration, because that’s where the data is. It is data on which the business relies, so it has to be available, and, obviously, the job of moving it all, and the business rules and all the rest, to a new system in one go is far to large and politically charged.
And then, you wake up one morning and realize on top of everything, you have the "die or retire problem". Everyone who knows the guts of legacy is either dead or about to retire.
You have to do something about legacy, so you sigh, and sign up for truck loads of integration anyway. (emphasis added)

Gardner proposal is to use people to do these tasks instead:

What about, for example, using people as glue? Why can’t they look up data in both systems and perform appropriate updates?


Now, I’m not suggesting that anyone put people back into systems permanently. But as temporary, good enough, solution while something better is worked out, surely it makes sense to at least consider the option.

Actually, that’s something that startups are sometimes doing and that has been worded by GigaOM writer Liz Gannes as Fake it till you make it in an article on Aardvark.