Hottest Topics at Cartes 2011 – In My Opinion

Overall Winner – Visa with V.me and EMV Leadership.

Best of Show – TazTag with NFC Tablet

Worst of Show – Antennae Hanging out of Your Phone

Special Congratulations to my Friends at Point International!

First Up Visa’s V.me – It’s Easy, Open, and Free; So Far

When Google announced with their wallet they used words like “free” and “open” on a stage with people I know would have a tough time with those words. With the Visa V.me solution, if they can keep it as simple, open, and free as they say and as it is in beta then they will win this wallet war. I had my developers join the beta and test it out, within hours the feedback was:

“WOW this is easy”, “This can offload a lot of PCI requirements”, “What about all those integrators and gateways? If Visa uses this to accept any card and puts any card in their wallet for free and makes it open as this beta is then I know a hundred start-ups that will allow a bit of a logo for free and open”,”They are going to process MasterCard and other scheme transactions?”

What Visa does by offloading the transaction to their gateway and routing the settlement back to the merchant’s acquirer negates the need for a number of eCommerce gateways, at least from the initial looks of it. There are allot of very important value add services a gateway offers beyond just transaction routing such as reporting, third-party processing connections like non-scheme payments, check processing, gift, loyalty, etc. so I’m not saying they will kill the gateway business but for simple standard debit and credit this will kill some of the revenue a gateways sees from these types of transactions.

Thinking from a merchant’s perspective; Regardless of what Authorize.net offers me when faced with the proposition of no gateway fee and offloading of PCI at no cost. I know which way I would go.

If (there are still quite a few “ifs”) they work with all processors and their wallet is as open, meaning as a developer or integrator we would be allowed to create and add our own or our clients cards and tokens to the wallet and have that route back to us as an issuer processor then hooray! They have increased my capability a million fold for distribution. If it is strictly going to be scheme then they have reduced it to a thousand fold, and if they restrict it (by creating exceptional certification and branding hurdles) then they only increase my capability by tenfold. Like I said there is allot of “ifs” but at the outset my hopes are very high that what they said in private conversations about where they are going with this come true.

When Google announce “free and open” it originally scared a lot of people in the industry thinking that their dreams of creating competitive wallets and integrations were dead. What I heard at their announcement was “don’t worry we have it all taken care of, we will proliferate the wallet and the integration at the merchant and we will make this available to developers to integrate with and use because we idealistically believe that our offering will advance the industry as a whole not just for a few” Then came the realization that that’s not a bad approach and we can all focus on building better programs for our clients, better solutions that make couponing more ubiquitous, loyalty shared, ticketing a breeze, etc. But then the solution really hit the street and for some there was a sigh of relief and for others a letdown of hopes.

Now with V.me again hopes and fears are raised and we will just have to wait and see what actually gets delivered. I must say though we (Merchant360) have done hundreds of host integrations for transaction processing and never has it been so simplified.

EMV Around the World – Driven by The Desire to Increase Acceptance

While the announcements pre-date Cartes my understanding of the significance was gained there. Visa sees an increase in acceptance because of chip (contact and contactless cards and NFC phones) with a reduction in use of magnetic swipe cards. Without getting into the details of the numbers this means increase in transactions at higher average transaction and decrease in infrastructure requirement with decrease in fraud. Allot said in one sentence but I now see it.

The biggest issue on my mind that I needed to get an answer to going into meetings there was what it means “PIN not required”. For as long as this industry has been around (20 plus years) the schemes have been pushing higher and broader levels of stricter rules allowing the manufacturers and suppliers to create bigger entry barriers. Then came PCI where the rules were all laid out in black and white for everyone to adopt and challenge the industry suppliers. Then a few years ago the Secure POS Vendor Alliance was hatched working to making the bar higher and harder to reach again with the goal of making barriers. Now as I hear and see it Visa is breaking down the barriers. There has been outrage in the industry with people shouting, why, and how; but I now understand and believe this is one of the most significant changes in our industry since PCI.

The short of it is that there are actuaries (risk analyzer) whom have built models around increase in chip, reduction in mag swipe, increase in capability to determine authenticity through other means than PIN that will drive increase in acceptance points. All this equates to more money transacted easier with less infrastructure requirements, costs and faster time to market. To that I say let’s go!

Best of Show – TazTag – NFC Tablet in Production and with Sales

I’ve known these guys for 3 years now and they started out to create a handheld NFC OEM device with touch screen. The solution has evolved from a prototype of electronic guts to a product that was too expensive for what it was to now a full blown android table with NFC and the means to add new and replace old Point of Interaction devices. Since their model is to sell through integrators this makes it even more attractive for me. They have been selling the solution for only a few months now and have individual orders topping 2,500 for a single distribution. This is very significant numbers in the NFC space.

We (at Merchant360) have been actively working with several tablet solutions with NFC or with connectivity to NFC devices. We built a solution for a tablet and bluetooth RFID reader that tracks trash can pickups for a client recently. We are currently working with another loyalty solution provider at evaluating several tablet solutions (I touched and played with three others solutions at Cartes this year) to support retail counter top and aisle interaction points. The new solution from TazTag looks to have taken the lead as the right fit solution. I’ll be posting more on this as we integrate it.

Worst of Show – Antennae Hanging From My Phone

In a word it’s “Frankenstein” I do apologize to all those I offend with this comment but this is the feedback I get. I’ve had this solution for going on three years now in my lab and have carried around to a few issuer bank meetings and the feedback I get is this is not a solution they can endorse given how it looks and the difficulty attachment. I sat with 3 of the 4 manufacturers who now have this solution and they talked about how easy it is to install and the world that it opens up. I can agree with the world opening statement but easy is relative. I have a slew of phones (Nexus S’s, iPhone 3 and 4, blackberry, Nokia, htc,..) and while for me opening it up sometimes removing the battery and slipping this solution onto the SIM is not hard I would not call it easy by any stretch. Some SIMs are slide in out, some are pinched, and their holders were not designed with tolerances for having a slipped in (no matter how thin) solution. Then comes the antenna – anyone in the industry knows that tuning is what makes the difference between decent and really bad connectivity. With something flexible you can hang outside the phone or pinch it over the battery and folded wrong till it breaks I just don’t see the average person putting this on their phone. We talked about people brining in their phones to stores, buying the solution and having the clerks trained to do it right but still there is this black wiry thing hanging out of my phone. Again I love NFC and am a big fan of anything that helps us get more adoption and acceptance but I’m not seeing my issuer customers buying this for their members and consumers buying this on their own.

In Closing

All in all another great year! A few new clients and partners and great reconnecting with lots of old friends. Although not part of the show a great big congratulations to my friends at Point International for what looks to be the biggest acquisition in our industry thus far. Good show and thanks for the beers!

The Google Wallet Makes My Head Hurt! Evaluating the Threat and Opportunity

With words like “Free” and “Open” espoused today from the Google announcement today my head is spinning because the all the other people standing beside Google people in T-Shirts are wearing suits and they don’t normally do “Free” and “Open” things. Don’t get me wrong, overall I am very pleased and excited by today’s announcement and selected partners. I’ve done a lot of work to help increase the adoption and acceptance of NFC and have worked with each one of these same partners on some aspect of mobile contactless. But “Free” and “Open” stuck out for me in today’s announcement as contrary to most of what’s been going on in the industry.

Given my conversation, last week, with MasterCard (blog post) and others with people close to this there is still a lot of business issues in the air that need to be nailed down. The technological capability is there and has been for some time, I’ve been distributing NFC solutions integrated to POS for over 3 years now, but it really comes down to deploying infrastructure (PayPass Readers, NFC Devices, and applications that understand how to communicate the payment cards, offers and loyalty cards) and business rules.

The hard questions are around the ownership of this infrastructure and applications and those words “Free” and “Open”. For example First Data has invested significantly in its Trusted Service Management infrastructure and I can guarantee you that Ed Labry is not going to provide this for free and he can’t provide open access to it because that negates the whole purpose of a TSM Solution.

Today if a merchant wants to have a prepaid card program or a merchant specific coupon program they buy the software, devices and cards or coupons and distribution and as you can imagine prices and service are all over the map for this depending where a merchant gets it from and usually how complex it is. If Google provides this open framework that takes advantage of existing and in deployment infrastructure where does that leave the industry?

My industry cohort Doug Hardeman, CEO over at SparkBase, has been building a business supplying stored value and couponing infrastructure and processing with some success over the last couple of years. His distribution strategy focuses on empowering Independent Sales Offices (ISO’s as they are known in the industry) with cards, terminals, software, and services. Doug was very quick to send out an email blast this morning after the Google announcement stating his opinion on the current state and relative near term feasibility. He stated:

1. “The technology does not exist.” Referring to the single digit (and likely less than 5) percent adoption of merchant acceptance devices to support this.

2. “Merchant Must Invest in All New Equipment.” Stating that the current merchant infrastructure can be leveraged or integrated and the whole of the infrastructure be swapped out for more expensive equipment.

3. “Not Focused on Your Brand.” Referring to the program providers Google and Square who are more interested in promoting their brand versus the ISO brand, whom this email was targeted to.

4. “They Want Your Business.” Stating that the positioning of both Google and Square is to take away the ISO’s business, e.g. payments, coupon and loyalty processing.

And in classic form he closed with an alert that he is sending another email tomorrow with how his company is helping ISOs respond to the Google and Square “threats.”

Now I have to tell you this morning whilst I listened and watched Google, First Data, Sprint, and Citi talk about their solution I put myself into the shoes of the different current industry giants, external large interlopers, and emerging players (because in addition to some participating at the announcement these are my other clients) and asked the question how should I react to this. Of course the word threat comes to mind but also the word opportunity.

Threat: If a merchant receives or purchases a solution that works with Google and partners does it negate the merchant from having a solution that competes with say a Google prepaid card or Google offer.

Opportunity: If Google opens the API and distributed the wallet and acceptance application freely then can I add my coupon solution to that wallet and have it acceptance everywhere Google is accepted?

These are just two of the thousand things that went through my head today and I can see why Doug reacted the way he did but I have some facts to go along with his opinions:

1. The technology does exist. NFC has been around for over 8 years and only recently (in the last 6 months) has it really heated up. Before 6 months ago there may have been an announcement or article every other month or so about the coming solutions. Now you can’t go a single day without someone saying something about NFC and in fact usually there are several in day. I have been deploying the technology for over 3 years now globally so I and my clients know the technology does exist. Now, is it everywhere a card swipe machine is? Not even close.

2. Merchants can leverage what they have. We’ve been adding serial NFC readers to terminals for some time now upgrading them with a bit of software and using mobile contactless stickers on consumer handsets, cards, key fobs, wrist bands, etc. So yes there is some new parts to add but no reason to throw anything out.

a. Although another Doug, Doug Bergeron, CEO of VeriFone, and other hardware manufacturer Presidents like my friend Mohammad Khan at Vivotech would like everyone to buy a shiny new full featured terminals with embedded NFC (we write applications for these solutions) the reality is you can add a lower cost serial reader and some software to most existing solutions achieve the same or similar effort.

3. With regard to brand focus now here I do agree and will take it even s step further. Some of my existing clients are putting out solution that is branded with their own name on it and many times when we together meet with potential merchants, usually the larger ones, they want a solution that put their brand first. Now from the merchant’s perspective this is the goal for sure but we’ve seen from some recent solutions where the merchant brand is secondary to the grouping of a coupon or the logging of a visit to an online book the merchants are being lost in the mire of the program brand. I personally know people who have used the group coupon and cannot recall the merchant but they can tell you they got a great deal. So what’s an infrastructure provider to do? Leave the option to the merchant. If you want your own branded solution then no problem you just pay a bit more for it. Will Google and their infrastructure partners make this offer or will everything be forever Google and Key Partners?

4. “They Want Your Business.” Stating that the positioning of both Google and Square is to take away the ISO’s business, e.g. payments, coupon and loyalty processing.

Here is my checklist list of what’s needed to make all this work and some of the surrounding business questions:

Check - The Phone: Mainstream phone with availability at reasonable price and distribution
o Nexus S with NFC on Sprint – just released April 26, 2011.
o Note: The Nexus S has been out since late last year unlocked and with T-Mobile. The provisioning service from First Data may someday work with T-Mobile but there’s much work to be done to implement trusted services provisioning across a mobile carriers network
o Question: Why do I need the carriers Over the Air (OTA) provisioning to get the secure distribution of a card? Why can I not connect my phone to PC via USB cable and get a secure connection with Trusted Service Management (TSM) system therefore bypassing the carrier?

Check - The Wallet: Near Ubiquitous Application for Secure Storage, Retrieval and Interaction
o The Google Wallet downloaded for free from Android Market; they paid for it they own it and they are letting us have it for free.
o They, Google, say there will be open APIs that allow developers, like us, to integrate and use the wallet. My company, Mobifyer, already released an Android NFC Developers kit for testing open tag solutions on the Android. Google released a small and sparse document about how to integrate NFC in peer to peer fashion for passing information back and forth between devices other than another Android device and outside of PayPass but this is still a work in progress. More on this to come.
o They, Google, say they want to work with other operation systems like those from RIM and Microsoft to support the near ubiquitous part of the story and I can see this happening.
o MasterCard PayPass has had a solution for some time, a year or more (Note: Visa has this too, others as well), that allows you store other cards and coupons within their PayPass format using the same secure element as the MasterCard Payment Card but developing for this requires significant fees and certifications a bit out range for most developers.
o Just like any other wallet software e.g. Visa, Blaze Mobile, and we’ve put a few together in the past ourselves for customers, it securely stores information token that points to card information and can generate secure sessions with certified readers to pass those or derived tokens. Just like handing over cash or a check or coupon to the cashier, just safer and presumably faster and easier.

Check – The Credit Card: (Optional) Something to Pay with
o Citi is the launch partner and if you have a card from them presumably you will be able to easily get the Google Mobile Wallet version of this.
o The process: This distribution technology capability has been around for a while but it costs money to maintain the systems to support it.
o The infrastructure for plastic card distribution is tightly controlled and regulated with highly secured by companies like AB Note, Gemplus, G+D, and many others.
o Question: Is there a fee to get this? Maintain this?
o Will current service bureau for plastic card distribution see a slide in orders?

Check – The Prepaid Card: (Optional) Another something to pay with if you don’t have or don’t want to use the partner credit card
o If you don’t have a Citi MasterCard and want to pay then you will need to get a card on your wallet that allows that. Google is offering their pre-paid stored value card that allows you to deposit funds and pay the merchant with.
o Not sure about the fees associated with this?
o PayPal, MocaPay, and others offer similar solutions already but the question is will Google provide this as part of their open API allowing third party cards open access or will they have to “Go through Google” to add an option?
o It’s no secret I have been working with Bling Nation, MoneyCell, and host of others who offer similar pre-paid services; will I be allowed to integrate my customers cards directly with this wallet and offer this as prepaid card alternative?

Check - The Offers: The value add
o The merchant will be able to create offers and send them or respond to consumer behavior (a tap on a smart poster, tap an aisle tag, search for something nearby) with offers.
o This is great as well with my current clients we helped to empower this service using stickers where consumer taps sticker to reader and then get a coupon via SMS or the reader has printer that prints out ticket.
o The Google Advertising Engine is a perfect fit for this and there are reasonable costs associated with advertisements online but how will this translate in cost to the merchant for individualized offers.
o Again this is another place where I have to ask about the openness of the APIs. Will others like MoneyCell and MobiWave be able to take advantage of the infrastructure at a reasonable cost?

Check – The Infrastructure: Places to use the solution
o They, Google and partners, are signing merchants fast and Ed Labry stated that their hundreds of millions of merchant customers will be able to take advantage of the solution in short order.
o As an integration provider of NFC on terminals supplied by First Data, Global Payment, Paymentech, etc. I can attest that it is not as easy as downloading an app to my phone but it is less as monumental and difficult than most people think.
o Our client merchants order an add-on solution that gets shipped out next day and then overnight they download new software. DONE!
o The real hard part of infrastructure is who is going to pay and therefore own it, maintain it, how do merchants sign up for the service and with whom? Does everything go through Google, First Data, PayPass secure channels? Now you’re talking potentially significant costs, lengthy certifications (it took me 6 months to get a stored value card swipe application certified on First Data and all they had to do was load and make sure it did not interfere with their application), and potential cross brand limitations.

What can be done now, in the meantime while these other business issues get ironed out and we see more clearly the possible threats and opportunities?

What’s to be done while the phones are not in market, while other carriers, handset makers, and infrastructure suppliers gear up? My friends over at TechCrunch talked to Google’s Osama Bedier and asked this question. The response “Stickers.”

If you need to learn about these stickers you can check out information on my web site at: http://merchant360.net
We’ve been customizing and selling these stickers and even advanced Bluetooth to NFC stickers (http://www.youtube.com/user/TranZfinity?blend=8&ob=5#p/u/0/obW95qLR8Ek) with integrated POS solutions for a couple of years now and our clients Tranzfinity, Bling Nation, MoneyCell, and others have had pretty good success. Recently MoneyCell announced they have been selected as a finalist to win a technology award (http://www.actionti.com/accueil/octas/octas-2011/les-finalistes-2011 ) and of course Bling has received ample notoriety for their solution.

Sorry to end on a flat note but I need to get to my son’s T-BALL game. So more to come. Thanks for reading,
Steve – The Guy You Call When You’re Tired of Being Stuck!

Who says it’s Their Decision Anyway? Why NFC Roadblock #1 Exists

Has anyone been following this banter between RIM, Apple and the carriers over the ownership of the secure element for enabling secure Near Field Communication (NFC) transactions?

Think of the secure element is the microchip that contains the secure information intended to be used as the storage place for your electronic credit card. We all use them today in our contactless credit cards and now that mainstream phones are reaching the market there is a battle brewing between some handset manufactures and carriers over who gets to supply the secure element. Why because the general belief is that the one who supplies the secure element is the one who gets to be the landlord of the space and charge others for using it. This has been one of the biggest deadlocks in getting NFC for payments to take off.

What I want to know is who said they get to decide? Does the mail carrier say “hey look I deliver the credit cards to the consumer so why shouldn’t I get a piece of the transaction?” Does the company that makes the plastic or the Integrated circuit inside the plastic say “hey I make the components that allow you to make the transaction so I should get a piece of every transaction?”

So why are the guys who make the plastic (albeit a bit smarter plastic) and the guys who deliver the internet connectivity believing that they are in charge of my (the consumers) credit card?

Do they really control the technology that much that they can really tell the consumer how they are going to get their credit card? Why isn’t the secure element a removable chip (like the SIM card in most of your phones) that is controlled by me, the consumer, just like my credit card today. If I want to use my phone as a credit card then I put my chip in, or not. Who says the carrier or the handset manufacturer gets to decide?

In my opinion they do it because they think they can control the distribution of the technology but as more and more people work to make electronic wallets and adaptive solutions those fighting over right of way are going to lose out.

Reminds me of one of my kids’ Dr. Seuss stories  about the importance of compromise. In the story a North-going Zax and a South-going Zax meet, quite unwillingly, face to face in the Prairie of Prax.

Because they refuse to move east, west, or any direction except their respective headings, the two Zax become stuck, as they refuse to move around each other. The Zax stand so long that eventually a highway overpass is built around them, and the story ends with the Zax still standing there “Unbudged in their tracks.”

So are they really a roadblock or will the roads just go around them? What’s your opinion?