Author: Philippe Dauman Jr.

Apple’s iPhone 6 Could Be Contender in Mobile Payments

apple-mobile-payment_largeThe newest version of Apple’s iPhone is rumored to include a long-anticipated mobile payment system. Though Apple made fun of the technology when it introduced AirDrop, many analysts expect the next iteration of iPhone to have Near Field Communication, or NFC, for contactless payments. Other rumors point to partnership discussions between Apple and Visa.

This would all be on top of Apple’s existing payments and security strengths. The company already has access to over 800 million registered credit cards through iTunes accounts, which could make launching the new mobile payment platform significantly easier. And as Apple CEO Tim Cook said in January, “The mobile payment area in general is one that we’ve been intrigued with. That was one of the thoughts behind Touch ID. … You can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it’s a big opportunity.”

Apple’s former head of online stores, Jennifer Bailey, has reportedly constructed a team for a mobile payments project, and former members of the Visa and J.P Morgan Chase team have recently joined the Apple family.

By 2017, Forrester Research estimates U.S. consumers will spend $90 billion in mobile payments, and Apple may just be looking to influence a large slice of that pie with the iPhone 6.

Huge Week for Digital Commerce

What a week this has been for online payments announcements!

First, on Wednesday, Google released a new version of Google Wallet that finally adds gift card support. I can attest that this feature was a long time in the making. And with well over $100 billion in gift card purchases every year, a smart addition.

The same day, Visa announced their new Visa Checkout service, essentially the next iteration of V.me.

Then today, Facebook announced a test of a Buy button within Facebook posts and ads.

Finally (and most importantly!) Twitter today welcomed payment infrastructure and offers company Cardspring to the Twitter Commerce team.

Couldn’t be more excited to work with our new Cardspring colleagues, and for all the innovation taking place in our industry to build truly modern e-commerce platforms.

Minacoin: Cryptocurrency Backed with Gold

download

Until now, cryptocurrencies—Bitcoin, as well as derivatives like Litecoin, Namecoin, and Dogecoin—derived their value purely from scarcity and a community of users willing to invest in them, without any tangible backing.  There’s now a new entrant called Minacoin which, like the US Dollar in the beginning of the 20th century, is on the gold standard.

This may sound antiquated and even counter-intuitive for what digital currency was supposed to do for the world, but the creators of Minacoin, Melvin Ng and David Gallo, wanted to merge the benefits of Bitcoin with gold. Gallo states that “although gold has a more stable value, it’s really hard to transfer. With Bitcoin, it’s easy to transfer but we’ve seen the volatility over the last year when it went from $100 to $1000, down to $400 again.”

Minacoin is slated to be available to customers by the end of May. All 21 million coins are pre-mined, and backed by real gold held in a reserve, with each coin equal to one milligram of gold (making the entire currency worth a bit over $870k by my calculations). In this sense, Minacoin will be like a Gold ETF that can easily be traded person-to-person on a blockchain, without having to go through an exchange. On the downside, a 51% attack will no longer just be stealing bits, but actual gold. I don’t see how enough mining power is going to be deployed to protect against this given the entire value of the currency is a fraction of Bitcoin’s, and ultimately this is a trust run by a single, central authority, contrary to the entire point of having a decentralized blockchain.

In my view it’s an interesting experiment to use blockchains to effectively replace traditional securities markets (and allow them to be traded 24/7), but there are a lot of challenges that may present Minacoin from getting off the ground any more than the thousands of more traditional copycat currencies. Pando points out some other potential issues(such as the fact that you can’t actually withdraw the gold) here.

Changing Mobile Payment Technology

mobile_commerce_2Between November 2013 and January 2014, 32 percent of online sales were made with mobile devices, according to the IMRG Capgemini Quarterly Benchmarking Study. Additionally, this figure is predicted to continue to grow.

The easier it is for consumers to make purchases on mobile devices, the more likely they are to transact. This is why the bulk of mobile sales are  digital goods purchased using built-in single-click transaction systems, such as iTunes and Google Play. Cumbersome experiences, such as having to enter credit  card details for every purchase, limit mobile payment adoption.

The CEO of ETA, Jason Oxman states, “shopping cart abandonment is one of the major issues merchants are facing when it comes to mobile. The ability to make payments is a significant part of the issue—after all, without successful payment, no transaction can be completed.…Making mobile payments faster and easier is a big driver for the types of mobile technology that are being developed.” 

As mobile commerce grows, it is adapting to incorporate more of the commerce value change. As Ariel Bardin of Google states, “in this new world of constant connectivity, mobile is blurring the lines between the online and offline worlds. People are growing to expect the ability to transact instantly using their smartphones-whether they’re in cyberspace or standing in your retail space.” 

Tablets See Higher Value Purchases than Smartphones

For high-value mobile purchases more and more customers are turning to tablets as their preferred device according to transaction data released by payment processor Adyen. Adyen is an Amsterdam-based company that track mobile payments with its Adyen Mobile Payments Index, issued quarterly, which analyzes transactions on their global processing platform. The president of the North American branch of the company states that, “smartphones are very convenient devices, but their disadvantage is their small screen…we’ve found that, while people use smartphones for initials research, they increasingly make high-value purchases on their tablet, as it’s easier to enter data on a tablet. Also, because tablets are lighter than PCs, when consumers are watching TV at home, they are more likely to use their tablet rather than their PC to make a purchase.”

Adyen’s payment index breaks down information even further as to what consumers where buying when purchasing products on their mobile adyen-rgb_1_1devices. They differentiate between travel, digital goods, online game-playing, retail and ticketing.” Interestingly, of those five verticals, the only category that sells better on a PC than on a tablet is travel.

There is an important distinction to be made between smartphone and tablet purchases. While the transaction values were higher on tablets, the volumes of transactions were higher on smartphones. This may indicate that people trust a bigger screen with larger purchases than they do a small smartphone screen. It is easier to put in your information to a larger screen, therefore you don’t have to worry about experiencing an error with a big ticket item.

Incidentally, Google Wallet helps alleviate this problem, by providing secure, 2-click purchasing on any mobile device without the need to fill out forms on a small screen. As a result, mobile sites with Google Wallet’s online transaction API installed have seen substantial increases in both conversion and basket size (success stories linked here).

J.C. Penney and E-commerce

Woman checks her phone outside the entrance of a J.C. Penney store in New YorkThere is good news and bad news when it comes to the future of J.C. Penney. The good news is that online sales for the store, J.C. Penney Co Inc (JCP) rose 26.3 percent over the holiday season/quarter. The bad news is that these numbers still don’t take J.C. Penney back to its former top position as an early e-commerce pioneer.

J.C. Penney was one of the first major big-business retailers to start offering e-commerce. They began their online business in 1995 while maintaining a large catalog business until 2011. By that year, the company had reached $1.52 billion in online sales. Unfortunately, those sales fell by a third in 2012. As this was happening, online sales for Kohl’s Corp (KSS) and Macy’s Inc (M) had huge gains. Some point to J.C. Penney’s loss as management missteps under ex-CEO Ron Johnson (especially his disastrous “fair and square” pricing strategy) and too little investment in website technology.

J.C. Penney’s online sales improved when Chief Executive Myron Ullman returned to the company. Despite the positive changes he has made, there is still a lot of work to be done to catch up to competitors. Penney plans to close 33 stores in May of this year and improve online sales by investing in jcp.com.

They plan to improve the website by bringing back popular items that sold online like home goods, men’s big and tall clothing, and baby furniture. Additionally, the company hired Michael Rodgers, the former Saks Inc Chief Information Officer to better integrate stores and e-commerce as well as establish an online costumer loyalty program. J.C. Penney will need a large spike in online sales to catch up to competitors and reclaim their position as e-commerce pioneers. If they are able to do so, it will be all the more impressive for having overcome challenges introduced by prior management.

Bitcoin and Deposit Insurance

bitcoin-logo-3dOne of the world’s Bitcoin exchanges, Mt. Gox recently lost $400 million worth of digital currency and cash. This left many of the customers without any way to get back their money. While removing such an incompetent company is likely good for the ecosystem in the long run (indeed Bitcoin prices have rallied since), this event was devastating for many who  had accounts with Mt. Gox, and highlights the need for insurance for Bitcoin and other cryptocurrency held with third parties.

MtGox has filed for bankruptcy after losing almost all of its customers’ deposits. In addition to the financial risk of price fluctuation, Bitcoin held in third party accounts is more susceptible to theft and loss than other assets because it handles like digital cash, without protections like those in place for bank accounts (FDIC insurance) or credit cards (extensive CCPA protection). 

One solution many are now proposing is for increased government regulation of Bitcoin. This may be inevitable at this point, but it reduces many of the decentralization benefits for which Bitcoin was originally created. Two of the best arguments against knee-jerk government regulation are in letters written by Brad Burnham and Fred Wilson.

An alternative that is closer to the tradition of Bitcoin is for the community to introduce its own, free-market improvements such as private insurance. One company  trying this is a London startup called Elliptic. It has offline servers to prevent hackers and has negotiated a deal with a large international insurance company. Elliptic charges steep rates to keep your cybercurrency safe. They keep 2 percent of its value per year, but will take less if you hold a larger amount. The bottom line is that insurance for cybercurrency is expensive, but may be worth the risk.

Another company is Inscrypto, founded by Ryan Selkis, who was instrumental in breaking news of Mt. Gox’s insolvency. The company’s website describes Inscrypto as “Bitcoin’s privately funded, decentralized version of the FDIC. We help you reduce or completely eliminate the risks of owning Bitcoin.” Selkis’ company is still in a private testing period, but it could have big implications for the future of Bitcoin. There are many advantages to using cryptocurrency, but also many risks. If there was a means to insure holdings and mitigate risk, many more players may join the Bitcoin market, which is good for the currency in the long run.

 

Bitcoin Decentralization, Bank Runs, and Price Stability

bitcoin-logo-3dIt’s been an interesting week in Bitcoin. Three exchanges, including Mt. Gox—formerly the largest—all ‘temporarily’ halted withdrawal of Bitcoin after discovering duplicate transactions in their internal record keeping due to the long-known ‘transaction malleability‘ issue. However, while the other two exchanges have reopened, Mt. Gox has not, leading to an effective run on the bank. Without being able to move bitcoins out of Mt. Gox, users are fearful they will never recover the bitcoin, and have been selling at bargain prices to folks willing to take that risk. The price on Mt. Gox has therefore plummeted to the $200 range.

Meanwhile, even other bitcoin services such as Coinbase—which shrugged off the transaction malleability issue, stating “there weren’t any users affected by this issue”—admited to being hit by a DDoS attack. Coinbase recovered quickly however, and claims to still be carrying on business as usual, leading to an interesting situation where pricing on Coinbase (a broker and wallet service), as well as other major exchanges besides Mt. Gox, continues a relatively long period of stability since the last run-up, at over $600.

Having exchange rates vary between $200 and $600 per bitcoin is just the latest interesting result of having the world’s first decentralized currency. Personally, I continue to be long bitcoin—this is still very early days in the grand scheme of things—but having major exchanges shut down like this is certainly disturbing.

Study Says Small Business Mobile Banking Services Lacking in the US

Mobile-Banking-Solutions

Small businesses often have to run their business while on the g0, but mobile banking services for small business has not kept pace with consumer banking services, according to a recently released study by the Aite Group. U.S. banks need to make a greater effort to provide specialized small-business mobile banking services rather than simply rebranding consumer mobile banking services. The research, performed in September, surveyed 1,003 U.S. companies with revenue under $20 million. The survey found that roughly 32% of those businesses do their banking via mobile device. Meanwhile, while 65% of U.S. banks with greater than $10 billion in assets offer some form of mobile banking to small businesses, only 30% of banks with less than $10 billion in assets and 20% of credit unions do so. Even amongst those that offer services, this includes both rebranded consumer banking services as well as true business-specific mobile platforms. Aite claims that the small businesses market is severely underserved in terms of mobile banking. Rebranding or repackaging consumer services into small business mobile banking platforms creates customer dissatisfaction due to  limited product capabilities. For example, while 15% of the survey respondents are currently able to send mobile ACH transfers, an additional 30% of respondents desire this capability.  Banks should include in their small business banking services more useful features, such as ACH and wire transfers. Adding those features that aren’t offered to consumers would prompt more small businesses to use mobile banking; especially with a full third of those surveyed by Aite Group said that they would like to move over to mobile banking by next year, and “banks that offer mobile banking services to small businesses find that the customers using these services are among their most profitable and loyal clients.”

Disclaimer

Note, any views expressed in these posts are solely my own; I do not write on behalf of my employer.