Payments innovation canadian institute final

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MSBA

Case Study: Will Google Win the Wallets War?

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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...

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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

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Payments pre-2012 & Google/ISIS model – payment choices rewards based

Merchant POSMag 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.

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0

20

40

60

80

100

Travel Affluent Generalpopulation

Ready to defect

Loyal

Defect

Percentage preferences

33% Cashback

27% Merchandise

23% Travel rewards

Des-jardins RONA/Reno

MC PC Fin

BMO Sobeys

TD B&M MC Wal-mart

V CIBC Shoppers

Cdn Tire MC

MBNA Jim Pat-terson Group

Save-on-More

Se-ries1

0 0.01 0.0103 0.01 0.01 0.0143 0.015 0.00400000000000

001

Se-ries2

0.05 0.02 0.0236 0.01 0.0125 0.02 0.03 0.00500000000000

001

0.50%

1.50%

2.50%

3.50%

4.50%

5.50%

Rewards have been the main driver for payment choices.

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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.”

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Payments and offers today


Acquiring Processor

Credit Card Network

Card Issuing Bank

POS Vendor

Rewards and offers:• Cardlytics• EDO

Merchant Funded / Card Linked Rewards

Three changes in play

1.

2.

3.

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Card linked rewards


Acquiring Processor

Card Issuing Bank

Rewards and offers:• Cardlytics• EDO

Merchant Funded / Card Linked Rewards

• Merchants track transactions

• Banks increase value to their clients

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The threat to incumbents: new network

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Credit Card Network

Card Issuing Bank

Acquiring Processor

Credit Card Network

ACHConfusion building

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Opportunity due to friction

Merchant POS

POS Vendor 1

Merchant POSMerchant POS


Merchant POS



Merchant POS

Merchant POS

POS Vendor 2 POS Vendor 3








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Significant market force: Merchant Consumer Exchange (MCX)

Merchant POS

Merchant 1


Merchant POSParking garage

Merchant POS

Merchant POSHotel POS


Municipal POS

Merchant POS

Merchant 2 Merchant 3



Merchant POSParking Garage




Merchant POSCity POS

Merchant Wallet Other eWalletOther eWallet

Other eWalletOther eWallet

Merchant Wallet

MCX Switch

Barcode basedBarcodes – merchants - DNA

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MCX Wallet

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.

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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

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Google POS ApproachAligned 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

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MoneyballGoogle & 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.

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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

Economics of Moneyball

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Moneyball ROICalculations

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

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Google PlasticOnline 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.

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Practical applicationIncorporating 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.

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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.

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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.

Contact info

Mark [email protected] Id: marksibthorpehttp://www.linkedin.com/in/marksibthorpe

mailto:[email protected]

http://www.msba.ca/

http://www.linkedin.com/in/marksibthorpe




Payments innovation canadian institute final

Economy & Finance

Transcript of Payments innovation canadian institute final