Payments innovation canadian institute final

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Read Mark Sibthorpe/MSBA, author of "A Merchants Guide to Credit and Loyalty Transformation A-Z, Case Study: Will Google Win the Wallets War?

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Payments innovation canadian institute final

  1. 1. Case Study: Will Google Win the Wallets War? 1
  2. 2. About Mark Sibthorpe/MSBA  Signed 14,000 parking entities though Parking-Info partnership  2012 Published book: A Merchants Guide to Credit and Loyalty Transformation A-Z  2010-12 built merchant strategy for coalition credit and loyalty program for 10 big box retailers. Estimated $4 bn in transactions per year.  2009-2010 in partnership with John Anticoli, revolutionized payments in the Canadian bankruptcy trustee industry by migrating 900 trustees from cheques to electronic payments. Estimated to save several forests and generate $2 bn in deposits for partner bank. See link for more: http://www.pwbank.com/investor/news/?y=2011&n=1637961  2001-2009 assisted technology companies in the financial service industry to improve their strategies and grow their market share. Several 7 figure deals in Canada and EMEA.  1997-2000 led several high profile internet projects including a automated web translation (original Google Translate) initiative that led to deals with Netscape, Siemens, Bank Tokyo Mitsubishi... 2
  3. 3. Payment Fails  Mondex - $ billions lost  Pay-by-Touch - $ 300 million in investor money burned  NFC – push from 2006 – Thousands of obsolete terminals gathering dust around the world  Canada’s Enstream/Zoompass – Backed by Rogers, Telus, Bell, Dumped in 2012  PayPal’s Naked Transactions at Home Depot – no traction to date  Google & Isis NFC based eWallet failed pilots 3
  4. 4. Payments pre-2012 & Google/ISIS model – payment choices rewards based Merchant POS Mag Stripe and Signature Acquiring Processor Credit Card Network Card Issuing Bank ISIS assumes NFC adopted. Liability shift only 2013 for acquirers and 2015 for merchants assuming no delays. 4
  5. 5. 5 0 20 40 60 80 100 Travel Affluent General population Ready to defect Loyal Defect Percentage preferences 33% Cashback 27% Merchandise 23% Travel rewards Desjardins RONA/Reno MC PC FinBMO SobeysTD B&MMC Wal-mart V CIBC Shoppers Cdn Tire MC MBNA Jim Patterson Group Save-on More Series1 0.00% 1.00% 1.03% 1.00% 1.00% 1.43% 1.50% 0.40% Series2 5.00% 2.00% 2.36% 1.00% 1.25% 2.00% 3.00% 0.50% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Rewards have been the main driver for payment choices.
  6. 6. Loblaws May 7, 2013  Loblaw launched its PC Plus smartphone rewards program on Friday, with offers that are tailored to individual members. Already in the first three days, it signed up “tens of thousands” of people, said Uwe Stueckmann, Loblaw’s senior vice-president of marketing.  It’s a more efficient way to run customer promotions, he said. The saving “comes out of less promotions on flyers and that money – let’s say you spent 100 [dollars] on flyers, you might spend 80 and 20 goes into customized offers to our customers through PC Plus,” Mr. Trius added during an analyst conference call. “We definitely believe as a company that eventually all flyers are going digital … Definitely the savings are substantial.” 6
  7. 7. Payments and offers today Merchant POS Mag Stripe and Signature Acquiring Processor Credit Card Network Card Issuing Bank POS Vendor Rewards and offers: • Cardlytics • EDO Merchant Funded / Card Linked Rewards Three changes in play 7
  8. 8. Card linked rewards Merchant POS Mag Stripe and Signature Acquiring Processor Card Issuing Bank Rewards and offers: • Cardlytics • EDO Merchant Funded / Card Linked Rewards • Merchants track transactions • Banks increase value to their clients 8
  9. 9. The threat to incumbents: new network 9
  10. 10. Credit Card Network Card Issuing Bank Acquiring Processor Credit Card Network ACH 10 Confusion building
  11. 11. Opportunity due to friction Merchant POS POS Vendor 1 Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS POS Vendor 2 POS Vendor 3 Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS 11
  12. 12. Significant market force: Merchant Consumer Exchange (MCX) Merchant POS Merchant 1 Merchant POS Merchant POS Merchant POS Parking garage Merchant POS Merchant POS Hotel POS Merchant POS Merchant POS Municipal POS Merchant POS Merchant 2 Merchant 3 Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Parking Garage Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS Merchant POS City POS Merchant Wallet Merchant Wallet MCX Switch 12 Barcode based Barcodes – merchants - DNA
  13. 13. MCX Wallet 13 The MCX wallet, which is expected to be launched later this year, will be a cloud-based effort that will use barcodes at the point of sale to complete transactions. It will use Gemalto’s Allynis mobile payment platform and FIS solutions to power its solutions.
  14. 14. How has Google adjusted  Hired and lost staff such as poached staff from PayPal that were since dumped, Freed- Finnigan, who had poached staff from failed Enstream.  Multiple initiatives: NFC based eWallet; Apple Passbook  Google Plastic  Google Glass 14
  15. 15. Google POS Approach Aligned with Discover and will issue its own plastic cards  Result: it can maintain its strategy as intermediary without the need for merchant or issuer consent. Consequences  Less efficient  Alienate merchants and issuers  Data threat Benefits  Google’s card base strategy overcomes POS obstacles  Ad revenue  Marketing  Analytics 15
  16. 16. Moneyball Google & Passbook can leverage the Moneyball approach  Card Linked Rewards (CLR): CLR is relevant for all marketers, but particularly those considering Google Wallet.  Merchants use Google to target consumers and generated passes;  Merchants do not have to invest in proprietary loyalty systems to leverage Passbook and neither do the content aggregators;  Merchants can capture transaction data and analyse their campaigns. 16
  17. 17. Portfolio attributes Credit/Debit Card Assumptions Number of accounts 1,000,000 Percentage active 45% Number active accounts 450,000 Average US$ per purchase transaction per active account – non- incentive $50 Average annual spend per active account $6,000 Number transactions per year per active account 48 Assumptions Average merchant funded incentive transaction $75 Average merchant consumer incentives 10% Average merchant placement fee 4% Average revenue share percentage for FI 35% Average FI revenue share per transaction $1.05 17 Economics of Moneyball
  18. 18. Moneyball ROI 18 Calculations Participation percentage 30% % accounts redeeming merchant funded incentive offers # accounts redeeming 135,000 Average merchant funded redemptions per active account 6 Number of transactions 2,700,000 Gross dollar value of incentives transactions $202,500,000 Gross dollar value of consumer incentives $10,125,000 Revenue share for FI $2,835,000 Merchant placement costs $8,100,000 Revenue per participating account $18
  19. 19. Google Plastic Online marketing transformation facts  Huge implications for the evolution of online marketing.  1000 banner ad impression (view) = 2-3 click throughs  X thousand click through = 1 authenticated transaction  Authenticated transaction = 4% of the gross sales value, and sometimes up to 10%  96% of Google revenue is from ads. This means Google’s current $37 billion revenue could be worth significantly more. This is not what merchants would have to pay if they use Passbook. Merchants using Passbook would only pay the current click through rate, and then be able to pick and choose partners based on actual transactional data. 19
  20. 20. Practical application Incorporating the CLR approach into the Google or Passbook wallet might look as follows:  Vouchers/offers are delivered via third party web sites and Google search results;  Pass created and encoded with web site credentials, and sent to consumer’s mobile device via email, or other means;  Pass redeemed at POS via Discover plastic;  Transaction data captured and analysed. 20
  21. 21. Authentication at POS challenge  Make pass dynamic and useable on subsequent occasions  Cons  Difficult to enforce and monitor;  Might not be desired by consumers;  Might overly complicate transaction.  Consumers automatically enrolled in the restaurants loyalty or prepaid program  Pro  This would work for some consumers and has been demonstrated by Starbucks.  Cons  Assumes restaurant has loyalty program;  May not be something the consumer wants;  Even Starbucks only has limited traction using this model. 70 million transactions over 2 years may mean only 300,000 of their users paying via mobile: important but still a niche.  May overly complicate transaction.  Use third party wallet like Google or PayPal  Pro  This would permit transactions to be tracked  Cons  3rd party would have access to data;  3rd party might charge for data;  Assumes consumer has account with 3rd party. 21
  22. 22. Authentication at POS challenge  Affiliate ties pass to a credit card and subsequent transactions are captured at POS each time the associated card is used at the merchant location. This is one of the approaches used by First Data  Pros  This resolve the tracking issue;  Could be done via First Data if merchant not equipped to manage and store data.  Cons  This would involve PCI compliance which can be expensive;  Only works if same card is used;  Comes at a high cost 4% of each transaction is average vendor fee for managing this type of offers;  There would likely be data charges;  To avoid PCI compliance involves working with First Data or its equivalent.  4% -10% merchant fees reduced to .4% - .5% click though costs, is the incentive for merchants to use Passes in conjunction with content aggregators, as opposed to CLR. This means reduced cost from about $8 million to $800 thousand based on comparable data shown on table 1. 22
  23. 23. Contact info Mark Sibthorpe mark@msba.ca www.msba.ca Skype Id: marksibthorpe http://www.linkedin.com/in/marksibtho rpe

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