Monday, March 28, 2011

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 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.


Anonymous said...

You're right! What are you're thoughts on Venmo? They seem to *actually* be pulling customers away from PayPal.

Albert Drouart said...

I think the only chance they have of getting any traction is actually trying to drive their merchant base (long-tail) to provide better experiences via end-user adoption of the Serve wallet. Not easy, but trying to get critical traction by going straight against PayPal is very hard as you say.

matthew said...

With Paypal holding 90% of the market it may only be about gaining a foothold into that market - even if it's a shaky one. AmEx has two things going for them: 1. Experience with the anti-fraud technology necessary to protect these types of transactions and, 2. Other sources of income to buffer the costs of entry into this market. If AmEx can grab a small, but profitable portion of the market by doing very little other than playing “copy-cat” it’s a win for them, even if not for the consumer. While, “imitation is the sincerest form of flattery”, it also saves on R&D costs.

Ohad Samet said...

Interesting comments, thank you.

Anon: I'll take a look, can't say, I wonder whether they nailed something in the user experience that makes them stand out.