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‘Driving force’: Inside PayPal’s partnership strategy

PayPal seems to be going full Alipay, scooping up partners to create what looks like a comprehensive ecosystem of financial services.

Last week, the payments processing giant announced customers could use their PayPal accounts as a form of payment in the App Store, Apple Music, iTunes and iBooks. Customers can’t add PayPal to their Apple wallets, but they may be able to one day — that partnership would benefit both companies and PayPal probably doesn’t want to compete with cards because they need them to fund customer accounts. The payments processing giant did partner with Google though, in April, allowing Android Pay users to add their PayPal accounts as a payment form.

In October, PayPal also partnered with Facebook to allow users to send buy things through Facebook Messenger; and earlier this year it was reportedly in talks with Amazon about a payments partnership. And these are just the biggest companies. PayPal has forged several partnerships and acquisitions that allow it to extend its reach to small businesses and the underbanked as well as its core customer base of consumers and merchants.

“We had a lot [of partnerships] in the second half of 2016,” said Joe Gallo, a senior communications manager at PayPal. “In 2017, we’ve seen Google and Apple and I think that’ll continue. This is a driving force for us… we plan to continue to assign deals at that pace.”

PayPal has 16 million merchant accounts and 203 million consumer accounts. This year alone, PayPal has announced that customers will soon be able to buy things at physical shops with their PayPal balances through Android Pay, that it will extend a pay-with-Venmo option to PayPal accepting merchants by the end of the year and closed a huge deal with TIO that will bring 10,000 billers into the PayPal network. Its latest offering is a partnership with e-commerce platform WooCommerce and accounting software company Xero.

“PayPal’s strategy has been to partner, partner, partner promiscuously — and in this space, that’s the right thing to do,” said Brendan Miller, a senior analyst at Forrester. “They’re less concerned about their competition and are more about enabling great experiences for the entire ecosystem, and they know it’s going to bring them business when it comes to enabling PayPal at all these different touch points.”

Customer choice 
The key to customers’ hearts (and business) is choice. The industry is beginning to better understand the idea that there won’t necessarily be a winner in digital payments or that each new product doesn’t need to be a Venmo-killer to provide value and do well. Like credit and debit cards, customers will use multiple services when and where they best suit them.

“Consumers are using a lot of different methods so we want to offer them choice,” Gallo said. “We don’t want to say you have to use tap-and-pay because that becomes a barrier to entry. By offering to a series of others and partnering with credit card companies and issuers, we’re able to provide to Citi or Chase or Wells Fargo cardholders and have that breadth of portfolio that we can integrate.”

While most companies focus on either the consumer or the merchant side, PayPal’s customer spectrum includes them both. Apple Pay, for example, is very much a consumer proposition, meant to bring convenience to the Apple device owner. Until now, Apple has only supported credit or debit cards as a payment form. By implementing alternatives like PayPal would give Apple customers even more choice and freedom to pay how they like.

Until then, Apple will remain a significant merchant customer to PayPal.

“If a consumer can’t use a PayPal account in Android Pay and that’s their choice of in store payment, that’s a missed opportunity for us,” Gallo said of the Google agreement.

Building products with empathy
For a long time PayPal took a combative stance toward Visa and MasterCard, said Zilvinas Bareisis, a senior analyst at Celent. It tried to use bank accounts as funding sources as the card networks threatened to apply special charges and fees to services like PayPal.

“Six to nine months ago they buried the hatchet and said, let’s start working together,” Bareisis said.

Now PayPal is of the mindset that it needs to be ubiquitous, wherever the customer is. That’s very close to banks’ mantra these days. Also like banks, it’s also playing to the reality that money is an emotional topic for many people and when they need their financial institution, PayPal will give them the support they need.

“[Choice] is part of the strategy, but it’s also about helping consumers better manage their money over the long term and how that drive emotional loyalty,” Miller said. “If they can help consumers better spend, save and manage their money, which is emotional…Everyone is realizing now it’s not just the banks that’ll do that, try to drive that emotional connection with the consumer.”

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On the road to voice payments, Google and Amazon pull ahead of Apple

Google just scrapped its Hands Free pilot, a retail payments program it began testing almost a year ago that allowed people to use facial recognition technology to pay for items in-store. All they had to do was say “I’ll pay with Google.”

The road to mobile payment is riddled with the bones of past failures. Google previously stumbled with Google Wallet in 2011, the first attempt at a mobile wallet for consumers that never really took off — and was overshadowed by Apple Pay, which launched months later.

But now Google has a leg up in voice, which is probably the next shift in consumer behavior, and as a result, payments. The same is true for Amazon. Google’s Hands Free facial recognition experiment may not have caught on, but the popularity of its Home Assistant, as well as Amazon’s Alexa, is rising rapidly. Echo sales jumped 400 percent from last year, according to VoiceLabs, and both Google Home and Alexa grew their third-party developer bases more than 1500 percent.

Meanwhile, Apple is missing the voice-first boat, which is odd considering that Apple Pay, a fingerprint-enabled mobile payment service, took an early lead in the mobile payments race after Google Wallet’s flameout.

But fingerprint tech is different from voice. And even though Apple’s Siri debuted well ahead of Alexa and Google Home, in differs from them in the types of information users feel comfortable sharing with her and what they can share with Alexa or Google Home.

Here’s how the three biggest players in voice currently stand against each other in regards to voice payments:

Alexa
This week Starbucks — itself a payments pioneer disguised as a caffeine vendor — launched a beta version of its voice ordering function for iOS and Alexa users. About 1,000 users in the U.S. are testing the service. People who bank with Capital One can ask Alexa for information about their banking activity. Alexa has the greater information sharing and reading capability, for now, than its competitors.

There is an increasing number of service providers bringing Alexa integrations to enable commerce through voice. Currently, it adds a level of convenience to small purchases, like a Starbucks coffee or an Uber ride.

“I don’t think the day is on the horizon where a consumer is standing in their living room saying, ‘I want to order a 42-inch TV,’” said Michelle Evans, head of digital consumer research at Euromonitor. “I think it’ll be driven around different products or services where convenience is a factor,” like food ordering, or ride sharing services.

Google Home
Brian Roemmele, a researcher and analyst and founder of PayFinders.com, predicts that in the next two years adoption of digital assistance will accelerate as quickly if not more as the original iPhone did in its early days and smaller uses will begin to take off, like ordering food.

“We had three voice-first Super Bowl ads,” he pointed out. “One from Google and two for Alexa. People say mainstreaming is about 10 years away, I’m saying it already happened.”

It’s not clear what Google’s next move is. Now that the Hands Free pilot is over it plans on “bringing the best of the Hands Free technology to a wider audience,” it wrote in an FAQ this week. In the same week, Alphabet, Google’s parent company, warned investors in its annual report of increasing competition from “digital assistant providers, such as Apple, Amazon, Facebook and Microsoft.”

Furthermore, developers last month dug into the code that makes up the latest version of the Google Home Assistant and found some lines saying it would soon allow users to make payments directly through Google Home. Neither Google nor Amazon responded to requests for comment.

Siri
Developers have built a voice-first peer-to-peer payment capability into the latest iPhone operating system, with Square Cash and U.K. challenger bank Monzo. The next update will include voice-activated bill pay functionality, an Apple spokesperson confirmed. But because Siri requires the person’s fingerprint to authenticate and send the payment, it still feels like more of a mobile payment than a true voice payment. For example, someone might say, “Hey Siri, send John $10 using cash,” Siri would go into the Cash app to set up the payment, but then ultimately require TouchID verification to send it.

Apple’s best efforts in voice have been Siri and its new AirPods, wireless headphones made for better listening experiences and interactions with Siri. These allow people to exchange much more personal information, things customers are most likely uncomfortable disclosing to a digital assistant like Alexa or Google Home because of who might be listening in on that information, said PayFinders’ Roemmele.

Because customers tend to communicate more generalized information with Alexa and Google, Roemmele added, the two companies will need to fine tune its voice recognition and authentication capabilities to ensure when customers share private information they never feed it back when a third party is in the room.

Nevertheless, Siri as a digital assistant lags behind them. Customers feel the difference when they ask Siri particularly complex questions and she often directs them to web searches requiring they do further reading and research, instead of replying with a complete answer the way Alexa or Google would.

“Apple is missing part of the voice-first revolution because they see it as an upending to the existing operating system,” Roemmele said. “They don’t see it as a modality in and of itself and because of that they box themselves out of it.”

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Hi 5! The top five fintech stories we’re following today

top 5 weekly fintech stories

Digital wallets: lacking growth, getting creative

Accenture’s recent report that POS digital payments haven’t grown at all confirmed what we already knew — namely, the technology is ready, but users aren’t. Still, there’s some movement on the mobile payment horizon. Apple is making a conscious effort to get users comfortable using Apple Pay in ecommerce, and not just in retail. Meanwhile, Walmart’s isn’t twiddling its thumbs, and is now in talks to integrate other digital wallet options into its newly launched retail app.

Online lending’s blurred lines

We’re sometimes quick to draw distinctions between the incumbents and the upstarts. But in online lending, things are getting a bit blurred. A new partnership between Fannie Mae and SoFi shows how fintech partnerships can work. Partnering is starting to look more and more attractive, given that OnDeck is primarily using its own balance sheet to fund growing originations, while Lending Club investors continue to shrug off more losses.

What will those incumbents think of next?

Incumbents partner up with fintechs, they acquire them, they launch innovation labs, and sometimes they do what Bank Leumi did — disrupt itself from within with its new digital bank, Pepper.

Industry leaders share insights on success and fintech trends

It’s rare that fintech CEOs get the chance to really open up about the challenges and delights of their jobs. Tradestreaming’s smooth-talking Josh Liggett got them to share their CEO highs and lows. Other industry experts spoke of the major trends they see impacting fintech and finance.

Software, APIs, and SDKs

If you want to see just how banks, with more open systems and established software connectors, can evolve, here are 7 examples showing the power of banking APIs. Citi is one of the more recent incumbents to join the API fray with its new global API developer hub. In payments, CardFlight chose not to reinvent the wheel. The company built its tech on top of existing payment infrastructure, rather than building out something new. And finally, WTF are SDKs, and why you should care.

 

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Apple Pay jumps into ecommerce

Not seeing much growth in mobile payment POS transactions, Apple Pay has opened up a new channel for its mobile wallet: ecommerce.

It’s part of a bigger strategy Apple’s been implementing since the middle of September. Already established at the POS, Apple is now working on tightening up its presence in browsers and mobile commerce. Apple Pay for websites was launched with the iOS 10 for iPhone and iPad release and into Safari with the recent OS Sierra update.

This allows iPhone, iPad and Mac users to quickly checkout at ecommerce websites by selecting Apple Pay, eliminating the need to create a new account or log in to a website, expediting the payment process. The new Mac Book Pro even has touch payment authorization and payments built into the Touch ID pad.

And today, Apple announced special holiday offers for Apple Pay users shopping online.

apple-pay_-_apple

Mobile and ecommerce is way ahead of mobile payments on the adoption curve. Getting users familiar with Apple Pay in existing ecommerce behavior can pave the way for future mobile commerce and POS adoption.

It seems that the road to mobile payments runs through getting people comfortable with using wallets in mobile commerce. Google has made a similar move with Payments Autofill in Chrome, so it seems the mobile wallet war is moving online. At the same time, because it lacks a web browser, Samsung may be left to clean up its exploding phones.

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John Sculley on what banks have to learn from Kodak

The innovator’s dilemma in finance is huge. Banks have grown so large and profitable in today’s market that they run the risk of taking their eyes off where tomorrow’s market will be. That’s according to John Sculley, previously CEO of Apple and Pepsi.

“Look at Kodak, which doubled down on film to compete with Walmart just around the time Apple first introduced the iPhone,” Sculley said in a keynote address at the Money 20/20 Conference in Las Vegas. “Do banks really have the incentive to pivot?”

As the financial services industry has grown, it’s become significantly harder to skate to where the puck is headed. According to Sculley, who is also vice chairman of Lantern Credit, financial services now amounts to 4 percent of GDP and employs 7 percent of the U.S. workforce, but accounts for 30 percent of corporate profits. It’s that profitability, he suggests, that make it hard for incumbent financial institutions to address changing customer demands.

 

John Sculley, Moira Forbes at Money 20/20
John Sculley at Money 20/20

He’s quick to draw comparisons from other industries as an opportunity to draw inspiration, something he says he learned from Apple’s Steve Jobs. “One of things Steve used to say is that you have to zoom out beyond your industry and look around,” he explained. “When Jobs was creating the Macintosh, he looked at the advances in graphics and fonts and looked at Xerox PARC and he became convinced that there was a way to build a personal computer for non technical people to do beautiful work, to become a ‘bicycle for the mind’.”

Sculley sees consumer credit as an opportunity for fintechs to begin edging in on incumbents’ territory. With a denial rate for credit card applications that approximates 50 percent and no real resolution dispute process for consumers to challenge their credit scores, there’s room for improvement.

Americans live on credit and bettering this process can mean real impact for consumers. Sculley’s work at Lantern Credit centers around what he calls developing an “intelligent credit score” and giving consumers tools to improve their scores.”Imagine applying machine learning and predictive analytics to see give a person insight into how their activities would affect their scores,” he explained. “You can’t necessarily improve a person’s income but you can increase their credit worthiness. Lowering the cost of capital would make a big impact.”

For Sculley, the way forward for the financial industry is to look to the differences between the auto and tech industries. At its peak, the auto industry accounted for $250 billion in revenue. But to do that, the big three auto makers employed 1.2 million employees. Facebook, Apple, and Google have similar revenues and only employ about 127,000 people. Technology enables scale and to do so with fat margins.

In spite of the challenge, Sculley is generally optimistic for the industry to get through these challenges and rise to the opportunity, even if everyone doesn’t make it. “There are bound to be war stories of big leaders of banks who missed the pivot, to customers paying more attention to the opinions of other customers than they do to their bankers,” he said. “Changes are happening in exponential time and it’s a great time to be a disruptive innovator.”

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4 charts about mobile payment growth, or the lack thereof

As companies pour cash into developing and advertising their mobile payment products, the future of mobile payments is still up for grabs. Currently, there are three mobile wallets emerging as industry leaders: Samsung Pay, Apple Pay, and Android Pay. Although watching three technology giants battling it out for mobile payment supremacy may be intriguing, it’s important to keep everything in perspective and understand how far along we are in the mobile wallet lifecycle.

Here are four charts that tell the story of where mobile payments are today.

Mobile operating systems go hand-in-hand with market share, as Apple’s and Android’s mobile wallets can only grow to the limit of their respective users.

chartoftheday_4431_smartphone_operating_system_market_share_n

Android is far ahead of iOS in terms of market share, but it also has Samsung Pay competing on the same operating system. There are reports that Samsung is releasing an iOS app soon, and expect Apple to surely welcome them with open arms and make no attempts to restrict their app.

Now that OS market share has been broken down, we need to evaluate mobile payments transaction volumes from a few years ago and see if anything has changed since then.

globalcreditanddebitcardvolume

According to this chart, mobile payments comprised only three percent of the worldwide credit and debit card transaction volume in 2013, totaling $207 billion. $200 billion is nothing to roll your eyes at, but it’s nowhere near ecommerce ($691 billion) or retail transaction volume ($5.9 trillion) of the same year.

The obvious knock on this data is that it’s from 2013, and mobile payments have only grown in the past few years. However, when looking at consumer behavior, the opposite may be true.

1214friday

Black Friday is the biggest shopping day of the year, and unfortunately for Apple, Samsung, and Google, users chose to go with plastic and paper over mobile wallets. Only a small fraction of iPhone and Android users used their respective mobile payment wallets when shopping on Black Friday in 2015. Most interesting may be that both companies saw market shares that were lower than the three percent threshold shown in the 2013 study.

The issues regarding the growth of Apple, Samsung and Android Pay become more apparent when looking at how many users have ever used the mobile wallets featured on their phones.

apple-pay-vs-samsung-android-pay-2016-1

According to 2015 data from Trustev, only 20.7 percent of iPhone users and only 14 percent of Android/Samsung users have ever used Apple, Android, or Samsung Pay. Of the users who have used these mobile wallets, a vast majority only use them once a week.

All the data tells us something we already know: Although mobile payments are growing, customers still prefer to use their credit cards over mobile wallets. Until the day that consumers behavior changes, mobile wallets will still be the little brother to cash and plastic.

Photo credit: whiteafrican via VisualHunt.com / CC BY

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WTF are mobile wallets?

What is a mobile wallet?

A mobile wallet holds all the information that would be in your ordinary wallet, except it’s stored on your mobile device. But unlike George Costanza, you won’t be plagued with back pain if you stuff your mobile wallet to brim. All sorts of stuff you’d normally put in your purse or wallet can be stored in mobile wallets, from credit card information to your library card. Unfortunately, they haven’t figured out the technology to include Tic Tacs yet, though maybe they’ll do it through the blockchain or at Money 2016?).

Where are mobile wallets used the most?

The most common way mobile wallets are used is for the facilitation of mobile payments. Users put their credit or debit cards into their digital wallets, and are able to pay or transfer funds via one click or NFC technology.

Who offers mobile wallets?

The most well-known mobile wallets are Apple’s Apple Pay and Google’s Android Pay. Merchants like Starbucks and Walmart also have popular digital wallets. Other solutions available include a mobile wallet combined with a physical credit card, giving users the convenience of consolidating credit cards without fully changing the habit of pay-by-swipe.

Secure wallets are also available, providing customers a digitally encrypted way to store all their sensitive information, like banking records and passport copies. Gift card consolidators merge gift cards into one place, ensuring these presents don’t end up in between couch cushions or at the bottom of a purse stuck together with old gum.

Why are mobile wallets important?

Digital wallets combine the two most important things any good millennial would never leave home without: a phone and a wallet. The ability to consolidate financial information and help people move away from schlepping around tons of credit, debit, and loyalty cards is an intriguing concept for merchants and customers alike. As consumer behavior changes, more merchants, banks, and third parties will try and lure customers to use their products.

Photo credit: festivusweb via VisualHunt / CC BY

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5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

1. 5 things Goldman Sachs’ new online consumer bank is not (Tradestreaming): Goldman Sachs is pretty serious about growing its consumer banking. The bank has bought GE consumer banking business, hired some serious industry players to take the helm and now, Goldman has launched internet banking. Opening a GS bank account online with a $1 min could seriously appeal to the 99% who don’t bank with the firm. But the new online offering, well, isn’t much to write home about…

2. Could Apple be your next bank? (The Financial Brand): Is the opportunity to provide a better user interface for banking services a potential for Apple in the future? If so, what are the risks to the legacy banking system?

3. Slowdown in marketplace lending? Maybe, but digitization is on fire (Tradestreaming): The growth of marketplace lending is certainly slowing by most accounts. But contrasting all this talk about a slowdown in online lending, technology providers that service the industry are saying that they aren’t seeing any of it, though. That’s because they’re hard at work helping marketplace lending platforms securitize their offerings.

4. 6 awesome things hit show Billions says about today’s financial industry (Tradestreaming): Part of Billions’ appeal is its genuinely realistic portrayal of the financial industry: from the fleece vests traders wear, to the games played on the trading floor, to the lingo used discussing a trading idea in front of a Bloomberg machine. The show is amassing a strong following in the financial community and the show’s plot does a good idea highlighting nuances only industry insiders could pick up on

5. Christine Duhaime: Iran to take leading tech role as it rejoins the global finance community (Tradestreaming): The international business and finance community has identified an enormous market of opportunity in Iran, and believes the time is rapidly approaching that open trade is becoming a reality. Iran appears serious about building out a fintech hub. Christine Duhaime, who’s helping to connect the international finance community with the emerging country, provides her perspective on what’s going down.

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Bloomberg’s BusinessWeek app launches to mixed reviews

Bloomberg Businessweek announced the launch of a beta version of its new Businessweek iPad app, available as an iTunes subscription for $2.99/month.

Pro

Dan Frommer is a pretty glowing in his admiration of the app, actually impressed with Bloomberg Businessweek’s new iPad app.

Bigger picture: While you could say that weekly business magazines are already irrelevant in the Twitter era, Bloomberg is at least spending money on making good products. (That’s the beauty of having a cash-printing terminal business with which to fund Bloomberg TV, magazines, etc.)

Con

TechCrunch’s Erick Schonfield is underwhelmed, calling the app nothing more than a digital reproduction of the magazine.

But with the iPad app, I am not getting all of that. It is nothing more than a digital reproduction of the print magazine. The news changes only once a week. In a world where news changes every minute, that lag time is one legacy you don’t want to bring over from print. And Businessweek doesn’t have to either. It’s website changes every day, and there is no reason those articles shouldn’t show up in the iPad app. Even the search function in the app only works for iPad issues in your archives. It doesn’t return results from the website.

By making its iPad app less informative than its website, Bloomberg Businessweek is signaling to readers that if they want to stay up to date they will be better off simply going to the website, which is free. So Bloomberg Businessweek thinks readers will want to pay $2.99 a month for less information that is presented in a prettier format. What readers end up paying for, essentially, is the tablet experience and bigger fonts.

Bloomberg’s app for Businessweek joins a host of other magazines trying to recreate themselves in the age of social media, apps, and mobile devices. From the Financial Times to Elle to Popular Science, publishers are signing on to Apple’s subscription service (or intend to).