Archive for the ‘credit card companies’ Category

I have mentioned PayPal in not one, not two but three different posts. Yesterday PayPal got upset and filed a suit against Google. It’s the usual stuff about stealing employees and with them intellectual property. What it is really about is Google daring to attack PayPal and PayPal getting scared. I suspect this is a pointless battle. Lawyers will make money but otherwise progress will march on. The system will get more streamlined and efficient. PayPal will ultimately disappear or get merged in with an electronic wallet system. It’s not like this is the only attack on PayPal. The credit card companies are also starting to offer PayPal type services.

Google just finished announcing Google Wallet. This is their NFC based payment system. In reality it is a lot more. You can read the details here. I have talked about this before. I don’t want to regurgitate details already covered but I do want to cover a few obvious items and some not so obvious one. The first involves why Google is doing this in the first place. In the near term (more about this later) they are making nothing on the transactions run through Google Wallet. The seeming financial beneficiaries are the store involved, the credit card company and the clearing house. We must ask our selves what Google’s business model is. It’s advertising. Targeted advertising is more valuable and hence able to fetch a higher price than random advertising. In the near term this is all about knowing who you are, where you are, and how you spend your money. If you are getting a little edgy about your privacy there’s a reason. You won’t have any. Google already knows more about you than the government does and that knowledge base is growing. Google Wallet extends that knowledge base. You do get benefits in return. For giving up your privacy you will gain ease of use and discounts on your purchases.

Watching the players in this was interesting. Each took their assigned segment. Google proclaimed they were the altruistic software provider that happened to make money on advertising but nothing else. Sprint  was happy to be the carrier placing the services on the phone. Citi wants to be the bank involved, Mastercard the credit card company and lesser known First Data the clearing house. Then there was the lineup of retailers happy that it would be easier to part you from your money. In many ways, players like Mastercard, First Data and Citi have little choice. This is going to happen with or without them. All of these players will be near term winners. I wonder, however, if any of them have a little fear about the long term future. The immediate losers are companies like Groupon. The retail coupon business is slipping into a Google business unit. Groupon isn’t a very large outfit nor are the others like it. I doubt many will see this as a big deal. A bigger potential loser is PayPal. Not mentioned was the fact that Google Wallet will quickly pick up the capability of PayPal. All of this is relatively near term. What happens later as mighty Google and it’s rivals Apple and Microsoft seek new avenues for increasing revenues? Google, with the world’s most powerful computer network, will have to ask itself why so much of this process, including the profits, goes to others. Perhaps they will decide to become the clearing house and edge out First Data. After that perhaps Mastercard will be a target. I doubt they will want to be your bank but who knows. Some of those faces that were smiling today might be wearing frowns in ten or fifteen years.

For the consumer, Google Wallet and related moves will mean a further increase in retail efficiency. Generally this is a good thing. Purchasing will get easier and tracking purchase will get easier too. Lost receipt issues will go away. Coupons will be easy to use and not a low paying paper cutting  job as it sometimes seems. While privacy will diminish, it will mean advertising that is relevant and generally useful.

I’m a semiconductor guy. What does this mean for the chip business? It means volume in everything related to this process. It means smartphone sales, and the chips inside them, will increase. It means lots of readers being deployed so stores can accept Google Wallet. The reach doesn’t stop there. Behind all of this will be massive data centers and a lot of network bandwidth. That means all of the chips that support these areas have a bright future.

If you have been following along with my comments on transparency you might think the only big prize is owning the phone market or the tablet market or both. There’s another prize that’s very big. To understand it you need to take a look at PayPal. When I am online I like it when PayPal is a payment option. I don’t have to pull out my credit card. I just have to remember my PayPal login and I can complete my desired purchase. What if every transaction in the US went through two or three companies? This would be like a super PayPal. It wouldn’t just be online transactions but local purchases such as groceries, gas, clothes and dining.

It’s time for some simple math fun. April 2011 retail sales in the US were approximately $390B. One percent of that is $3.9B. If a company could get a third of this it would be $1.3B. That’s per month or $3.9B per quarter. This is only for the US. How do you get 1% of every transaction? You make them flow through your device. With NFC, the phone is the gateway to your credit card. When watching TV,  think GoogleTV or Apple TV. What if all you needed was one account with Google or Apple and you could cover all of your bills using your phone or your TV? This makes iTunes look puny. Don’t kid yourself, both Google and Apple are eyeing this. I suspect Microsoft is too but they are a bit late.

Amazon, a company I haven’t mentioned till now, sees this  too. Their solution has been to be the central online shopping site. However, remember how the Germans went around the Maginot Line? Remember how I said Apple and Google were doing a similar end around on the Wintel alliance? We could have another end around play here. Imagine your phone being your main device for purchases i.e. replacing your credit card. Apple and Google could move in on Visa and Mastercard. Now that they have you funneling your purchases through them it’s a small step to begin guiding those purchases. Think Apple App Store on a huge scale. Think of the Google Market Place but selling more than apps. Both of these companies are sitting on large amounts of cash and looking for ways to turn that into even larger revenue and profits. What can Amazon do? They can take a clue from their Kindle line. I don’t own a Kindle. However, there are Kindle apps on my laptop, my desktop, my phone and my tablet. When I buy ebooks my first choice is through Amazon. I don’t buy through iBooks because iBooks isn’t as broadly cross platform as Kindle. It’s that old transparency of data thing again. By buying through Kindle (Amazon) I can read the book on all of my devices. I read them where I want, when I want, and on the device I want to use.  Amazon needs to be the one company that will allow both your Apple device and your Android device to use the same account. At all cost they need to make sure the various platforms are open enough to allow them to be the central clearinghouse for your purchases. The same can be said for Mastercard and Visa. Those two companies dominate the landscape right now. However, fundamental changes are afoot and that always spells opportunity for others. For the first time Visa and Mastercard are vulnerable.

When will this take place? No time in the near future as far as the general public will see. However, the initial steps are being taken now. At first you will just place your credit card information in your phone and use it instead of the physical card. This is only slightly different from having Amazon store your credit card information with your account. From there it’s a small step to add extras to the Apple and Google app stores. Finally, Apple or Google issue you the credit line and push Visa and Mastercard out. They will be able to do this by offering incentives from the savings generated by not shipping Mastercard or Visa 2%.