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Power of Payments Ep. 2: Tap to mobile, crypto-backed cards, and PayPal’s fraudulent accounts

  • Tearsheet’s new bi-weekly payments podcast gives you a taste of the recent developments in the world of payments.
  • In today's episode, we talk about PayPal, tap to mobile payments, and crypto-backed cards.

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Power of Payments Ep. 2: Tap to mobile, crypto-backed cards, and PayPal’s fraudulent accounts

Welcome back to another episode of Power of Payments. I’m your host Ismail Umar, and this week, we talk about PayPal, tap to mobile payments, and crypto-backed cards. If you’d like to access more of our coverage on payments, subscribe to our Payments Newsletter.

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The following excerpts were edited for clarity.

Can tap to mobile technology democratize payments?

Contactless payments have been growing throughout the pandemic. The use of contactless payments has increased by 150% in the US since March 2019, and the UK recorded £66.5 billion in contactless transactions in the first six months of 2021 alone.

With this move towards contactless payments, it’s becoming more challenging for small businesses and micro-merchants to remain competitive and retain market share against established players and tech giants like Amazon.

Many SMBs operate on cash payments, and they simply can’t afford to pay for expensive payment terminals that accept contactless payments. It’s also a challenge for them to process payments on the go, in settings like outdoor events, street vending, and deliveries.

This is where tap to mobile technology comes in. It basically turns smartphones into payment acceptance devices. This could help simplify payment processing for SMBs, because it’s easy to set up, and it doesn’t require any hardware, other than your phone.

If SMB owners want to use tap to mobile, they can simply download an app on a smartphone and create a merchant account. Once they’re connected to a payment processor, the phone automatically receives its provisioning credentials. This makes it easy for small business owners and micro-merchants to accept payments from contactless cards or devices like phones, tablets, and wearables.

Payments firm NMI recently surveyed 300 small business owners and 1000 consumers in the US and UK to ask about their contactless payments capabilities, and whether tap to mobile payments could help them meet current challenges in their payment systems and provide a better shopping experience for their consumers.

NMI’s report found strong support for the use of tap to mobile technology from SMB owners as well as consumers. 95% of SMB owners said they would consider using tap to mobile, including 92% of current cash-only businesses.

Additionally, 83% of consumers said they would use tap to mobile if it was offered by a business, and 85% said they were more likely to shop at a business that offers tap to mobile as a payment option.

The top three factors that would influence SMB owners’ decision to offer tap to mobile payments were the cost of the technology, customer demand, and the security of business and customer transaction data.

Tap to mobile payments could potentially address all three of these concerns. First, the technology doesn’t require a big financial investment, since there’s no need to purchase additional equipment.

Second, consumers show a clear desire to use tap to mobile. Consumers said they’re more likely to shop at a business that offers tap to mobile in a variety of settings, including restaurants, deliveries and events, because of its convenience and speed.

And finally, when it comes to security, tap to mobile is legally required to follow the data security standard outlined by the PCI Security Standards Council, which is a global forum that mandates the adoption of security standards for safe payments.

Although tap to mobile is still in the early adoption stages, it’s growing fast. Vijay Sondhi, CEO of NMI, says that tap to mobile is democratizing payments by lowering the barriers to entry for SMBs and micro-merchants who are looking for cheap and user-friendly solutions to process payments and grow their business.

I spoke with Sondhi to get his thoughts on NMI’s report and the wider implications of its findings for the payments industry. Here’s what he had to say:

“We knew there was interest in tap to mobile technology, but our data shows it’s overwhelming. Both businesses and customers demonstrate the great demand for this technology.

Tap to mobile payments provide a quicker and cleaner transaction experience for consumers, and because SMBs don’t have to purchase additional hardware, it’s also a cheaper option for them. In many countries around the world, contactless payments are becoming the default way of paying, so SMBs must provide this option to deliver on consumer demand.

This technology allows SMBs to quickly respond to changing consumer behaviors, accelerate their digital payment adoption, and compete with larger businesses. Leveraging tap to mobile could allow SMBs to democratize payments and level the playing field with tech giants like Amazon, since it’s a readily available, affordable and flexible payment option.”

How crypto-backed cards are disrupting payments

A crypto-backed card is a payment card that connects a crypto wallet, provided by an exchange like Coinbase or, to a card-issuing and payment processing platform. This allows cardholders to make crypto payments, both electronically and in-person, through conventional payment networks like Visa and Mastercard.

Launched back in 2015, the first crypto-backed card in the US was developed by Shift (now known as Apto Payments), in collaboration with payment processing platform i2c and Visa on behalf of Coinbase.

Since then, crypto-backed cards have become one of the world’s fastest-growing card categories. They offer consumer and commercial cardholders a number of benefits, like much lower foreign conversion fees, real-time transactions, rewards, and multi-currency features that allow them to move between crypto and fiat in a simple and secure way.

i2c is one of the leading global platforms for issuing and processing crypto-backed cards, with over 5 million of these cards running on its platform across 40 countries. The firm recently compiled account and transactional data from these card programs to release a report on crypto-backed cards.

Here are three key findings from the report:

  • Crypto-backed cards are not just for Gen Z and Millennials. Demographic data shows that almost half of crypto cardholders are over the age of 35, and 11% are in their 50s and 60s. There are engaged users across all age groups, with some even in their 80s and 90s.
  • Crypto card programs are growing much faster on average than traditional cards, and have seven times less attrition when compared to non-crypto programs. Crypto-related accounts grew 1100% year-over-year from March 2020 to March 2021.
  • Crypto-backed programs are used in cross-border transactions at a much higher rate (28% of all transactions) as compared to traditional, non-crypto programs (only 10% of transactions). And these transactions also represent a higher average dollar volume.

i2c’s president Jim McCarthy says crypto-backed payments are quickly becoming one of the most disruptive payment technologies, and they have the potential to change the way that globally oriented consumers and businesses perceive and make payments.

I spoke with Jim to get some more insight into crypto-backed cards and how they are changing the way the industry thinks about payments and cardholders. Here’s what he had to say:

“Crypto cards were a radical concept when the first one was launched by Coinbase back in 2015. I was at Visa at that time, and I remember that the idea of a crypto-backed card was revolutionary to us. People were still just trying to wrap their heads around the concept of what Bitcoin even was. Effectively, the launch of a crypto-backed card was a recognition of building two-sided networks, and the power of Visa and Mastercard in terms of their acceptance was a vote of confidence. These points are still valid today. 

With tens of millions of cards issued and lots of spend, crypto-backed cards are the fastest-growing segment within payment cards. It’s a global phenomenon. Just take as an example. It’s expanded to Singapore, Hong Kong, Australia, and throughout Europe – with many more markets on the way.

I would say that in the past five years, crypto cards have certainly moved from revolutionary to commonplace from a market perspective. We’ve entered a mainstream part of the growth curve now.” 

Behind PayPal’s 4.5 million fraudulent accounts

PayPal recently identified and removed 4.5 million fraudulent accounts on its platform, as reported by CEO Dan Schulman during the firm’s Q4 2021 earnings call. After publishing its earnings report, the firm also saw its stock value slump by 25%, the largest single-day drop on record.

PayPal has 426 million accounts registered on its platform, with 120 million of those acquired within the last two years. With the recent emergence of new payment methods and competing processors, PayPal has been going through a phase of slowing growth. Growth in its total payments volume fell short of analyst expectations, rising 23% in Q4 2021 – the smallest increase in the last two years.

PayPal has lately been experimenting with its customer acquisition strategy by offering its first-ever sign-up incentive program. But these incentivized accounts are what eventually created an opportunity for fraudsters to step in.

PayPal’s risk management team discovered that many of the new incentivized accounts were being created by bot farms. Bot farms are computer systems that run on automated software, performing manual tasks like filling out sign-up forms, which are often deployed in fraud schemes. 

Since then, PayPal has pulled the plug on its incentivized account opening program. With that, the firm lowered its forecast for new customers and abandoned its ambition to achieve 750 million active accounts by 2025.

PayPal has now revised its customer acquisition strategy, and it wants to move away from incentive programs, and instead focus on sustainable growth by increasing the engagement of its existing customers. 

Mary Ann Miller, VP of client experience at Prove, a firm that uses mobile devices to ID people, says that what we’re seeing at PayPal is a systemic issue, related directly to identity theft and synthetic fraud.

Even neobanks like Chime and payments apps like CashApp, with their fast approval and low-to-no-fee accounts, have suffered from cases of fraud throughout the pandemic.

In Miller’s opinion, the core issue is that digital identity today is broken. Nearly anyone with stolen personal information — such as a name, social security number, and date of birth — can easily open accounts in another person’s name. Service providers can’t be sure whether the person at the other end of the line is the same person whose information is being presented.

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