The payment market is in replay mode

I sometimes stand dumbfounded at how history tends to repeat itself. Seems like no-one in the leading banks and card companies and their peers has had the time to read and process archives about the emergence of Paypal, and what happened to its competitors.

I am not a blind Paypal fan - the service has flaws and the payments market is ripe for disruption - but the recent announcement from AmEx just goes against reason (for some more material about other companies going after payments, see here).

Let's look at the case in hand: there's a gorilla in online payments, called Paypal. It has 90 million active users it acquired with hard work, hundreds of millions of dollars and riding eBay's success in the days when "viral marketing" was still called "email campaigns". To get its initial traction Paypal had to offer $10 per user referral,  a brilliant and costly move, and to get users to add their low cost bank accounts to their Paypal accounts it needed, and still needs, to force all kinds of limitations and verification schemes on its users. Still, Paypal struggles with high card payments volume and, to this day, has not had a single mass-traction product which encouraged users to actually keep money in their accounts.

In come the above. They look at the online payments market, look at Paypal, see what it takes to grow a customer base and get them to attach a financial instrument to an account, and what do they do? They create an online account, which takes 3 pages to sign up to, and which then asks you to attach a card or bank account - and without any built in virality. I am completely at awe with the reasoning that has gotten serve.com up and running other than "let's copy Paypal and wish for the best". If someone sees something here that I am missing then please, enlighten me.

Knowing where you're going: roles in payments and how your company fits in

Several months back I wrote about archetypes of players in the payments ecosystem. The post got some replies that objected to its proposed division of the ecosystem for various reasons; the most common one of all were those that cited regulatory and legal definitions as ones that determine who you are and what role you play. However diving into these details takes attention away from the most important parts, in my opinion - my post was aimed at categorizing business model and market approaches. Those, and not your PCI/DSS or money transmitter status, define your product needs, the brand you build and ultimately your market.

The confusion is apparent when talking to payments-related startups. As I like to say, moving money out of one's hands is a commodity and building a bi-directional network of sellers and buyers is a huge undertaking. And still, many startups that develop incremental improvements for the current process insist that they are going to compete with PayPal. If that's your way of showing commitment to a goal, maybe it's a reasonable tactic; but trying to "compete with PayPal" as a default in payments creates a distraction that may prevent you from realizing the real benefits of your business.

For example, do you think you can create the ultimate payment experience for a type of product (most popular are mobile and micro payments)? Realize that by virtue of simplifying the flow and integration you are not creating the foundations of a network - you are creating an engagement driver. Trying to sign sellers and buyers on to demonstrate superior conversion and ease of use, then being sold to a larger company (think Jambool) is a viable strategy - and a completely different one than creating you own payment network. Bling Nation is demostrating how hard, frustrating and capital-intensive is such an attempt, and I am not sure they are winning it.

Another one: do you have a new technology that allows an easy addition of NFC capabilities to existing POS systems? That's a neat solution to an adoption issue that many companies will be interested in; however, again, building a payment experience to try and capture a piece of the pie would be the wrong way for packaging your solution. You do not have to turn into a technology vendor, but deciding to build your own network is a diversion that will cost you your focus and a lot of money.

All of the above does not mean to say that starting a payment network is not something to be done, nor does it imply that you cannot use some other company's infrastructure if you want to be successful in payments. What you need to do is understand what role you can, want and should play in payments and use it to direct your product strategy. Diving head on into the business of building networks is an unnecessarily automated decision that can turn a potential money making machine into a very effective capital incineration one.

While trying to go after Square, VeriFone shows its lack of mojo

"THIS JUST IN: YOUR SERVER AT A RESTAURANT CAN STEAL YOUR CC#, CCV and EXP!!!!!" @ethank


Public blows to competitors' brands are acceptable, especially if you're a long time contender who sees its lunch being taken away by a 2-year-old hyped newcomer. But the only thing VeriFone managed to do today is hurt its own brand; its focus on obscure security issues exemplifies how unversed it is in building a proper payments brand, the application it built raises ethical issues that their shareholders should be worried about and - last but not least - it managed to do it all without style. 


And style, anyone at Square will tell you, is key for building a brand in payments.


The only thing VeriFone might be able to do is raise some concerns with card associations. However, since Visa has openly endorsed the Square model, this too seems like a dead end. It's not that Square cannot face trust issues, and I have covered that in the past - but nothing is really incremental to existing setups. 


I suggest VeriFone focuses its efforts on building a truly compelling payment solution and compete for the attention of customers. That, and getting some tigerblood won't hurt either.

Apple, Google and the future of the payments market

A post I wrote about domination of the payments market and the largest players in it is live on TechCrunch (here).

Happy reading!