Mobile Wallet Wars: Winner is the “Final Foot”

As VISA launches the digital wallet, a “digital wallet” in a bid to be relevant in the proliferation of cloud payment credentials, VISA and other incumbent payment providers should be concerned that in a cloud-based economy, it may lose its position in the market.

Presently VISA owns the lion’s share of credit and debit/prepaid plastic in circulation globally. (VISA 2,400MM vs. MasterCard 1,000MM)

Up-starts such as Square and digital innovators such as Paypal are trying to challenge the status quo and change the way people pay with plastic. Google and Apple continue to disintermediate the card vendors by aggregating large volumes of transactions and pass them back to the banks as “prepaid”  with low interchange fees. All in all, new payment players are looking at the old business hegemony of VISA and MasterCard and going OTT (over-the-top).

It is not about eliminating plastic. And it is not really an issue of whether these plastic holders are going the way of vinyl; but more importantly an issue of the business model behind these card and card credentials. Roles are being commoditized.

Cards are simply a way to store and relay banking credentials to the POS in the store and the POS in the cloud. In the US this is no more than a number that is stored on a magnetic swipe and embossed in the plastic. In the rest of the world this number is housed more securely in a chip. A chip that can be emulated securely in the phone chip (or SIM).

It is unlikely that the costly backend systems in the US and Europe that deal with fraud and regulatory issues will be displaced. And that the 2,400MM VISA cards and the 1,000MM MasterCard that use these systems will disappear. (*)

However, as VISA and MasterCard continue to be the trusted brands on every online and physical store they may find that their margins dipping. As banks try to revamp their mobile banking applications and ATMs to be more relevant to their peripatetic customer, fewer value added fees and services will impact their margins.

The question to ask is who owns the customers relationship because it is ultimately this relationship (the final foot) that they can monetize. The emergence of mobile and card-linked offers is making the point-of-sale systems in the cloud and eventually in the store, the new promotional depots for digital deals and coupons. So called “big data” and value added services will ultimately yield the most profit.

*(In emerging markets, where there little infrastructure, companies like M-Pesa service the unbanked via their mobile phone account. VISA has entered these emerging markets through acquisition of Fundamo and MasterCard through a partnership with Telefónica. Similar to the US, these companies are vying for the last-mile relationship.)

OTT needs to go TTM: The New Orwell-Speak

OTT (or Over-The-Top) has been coined as a disruptive term that refers to new monetization services that ride for free (or for little cost) over existing broadcaster and carrier infrastructure.

Is it interesting that incumbent companies (and their executives) that have been adversely effected by OTT services, seem to be happy to use this term at conferences and in boardrooms. These executives have been hoodwinked into promoting OTT as a necessary business evil.

Instead of bemoaning how Apple is OTTing AT&T or how Amazon is OTTing Best Buy or how Netflix is OTTing Turner, the disrupted companies need to own the new words on the street. It is Orwellian: Words are used in his book, 1984, in order to control and censor the language that the public used or more pointedly are not able to use.

In an OTT economy, incumbent carriers, retailers, broadcasters need to change the term. I propose that they need to innovate “Through-The-Middle” (TTM). Carriers, retailers and broadcasters need to take back the discussion and start taking about strategies to leverage their assets “Through-The-Middle”.

  1. Carriers need to talk about the TTM services that they can launch and manage using their communities and billing relationships.
  2. Retailer need to talk about the TTM in-store clientelling trust that is moving shoppers seamlessly into purchase in-store and in-(their) cloud.
  3. Broadcaster need to talk about the TTM assets that are creating seamless multi-screen engagement platforms.

The term is TTM!