US Payments: Winners and Losers in Mobile


On Thursday, Google announced Android support for “host card emulation” which places payments credentials in the cloud and allows them to be securely accessed by mobile applications including digital wallets; in particular, NFC-enabled wallets no longer need to access the secure element of a ‘phone for payment credentials and so a roadblock presented by the carriers to mobile payments adoption has been lifted.

We now expect mobile payments to exceed industry forecasts for $50bn by 2017 and industry efforts to enable e-couponing to accelerate. Given First Data estimates US marketing/advertising spend potentially available for new digital solutions at over $500 billion (versus merchant card fees of $70 billion), this will shift competitive dynamics in payments from branded processing to the data access/analytics needed to target/personalize real-time “pay with points” and “e-couponing” programs at point-of-sale.

Industry advantage will accrue to firms that are able to effectively implement e-couponing through accessing/analyzing in-store transaction data from merchants and out-of-store transaction data from issuers, and those that can provide cloud-based authentication solutions; the importance of in-store data gives merchants more leverage in payments negotiations. Other winners will include:

    • AXP and Chase Merchant Services (because of closed-loop access to both cardholder and merchant data, and the ability to advantage acquiring businesses by discounting network fees and, to the extent e-coupons drive card utilization, splitting interchange with merchants);
    • VNTV (because of its analytics services to both issuers and merchants, leading share as an acquirer hence access to merchant data, and attractiveness to an issuer looking to build or strengthen a closed-loop);
    • MCX (because of access to in-store data), and suppliers to MCX as a consortium and merchants individually including: COF and ADS (because analytics capabilities and private-label platforms make them natural credit partner for MCX members), FIS (because of its expertise in, and partnership with MCX around, cloud-based authentication), and DFS (as a likely credit partner of, and agent to extend acceptance of MCX products beyond, consortium members).

Losers will include the carriers (because the secure element of a ‘phone can now be by-passed), card-on-file plays such as Pay-with-Amazon and PayPal (because static card numbers on file will be replaced by dynamic tokens in the cloud), and smaller issuers who will find it challenging to invest in the infrastructure for differentiated e-coupon programs:

  • Small issuers can work with Visa programs, such as and Visa Offers, but both involve sharing the personally identifying information (PII) of their customers with Visa.
  • Large issuers are not prepared to share PII with Visa and, indeed, are concerned that Visa’s services to smaller issuers (around fraud management and cardholder offers, for example) are undermining their ability to build competitive advantage beyond discounted network fees. Along with network rules that are perceived to be restrictive and the Durbin debit interchange caps that apply only to “open loops”, this is causing tension between large issuers and the networks. The usual issuer recourse of shifting volumes to the other duopoly network is expensive and disruptive, and large issuers are looking for alternative solutions such as Chase’s private processing arrangement and WFC’s partnership with Amex around credit cards and Bluebird. 

Please see our published research for the full note.

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