Posted on

Why Apple Pay won’t (and doesn’t need to) be a Venmo-killer

Apple revealed Monday that users of its iPhone devices can now pay their friends (or whoever) through a money transfer service that operates over the iMessage app. It’s obviously a competitor to Venmo, the popular peer-to-peer payments app, but a killer? Probably not, according to analysts in the space.

Firstly, the value proposition is for users of Apple devices, and Venmo users are more diverse than that. Industry observers say people lose sight of the reality that the story of financial technology has a lot to do with creating customer-centric offerings — and customers aren’t all on Apple devices. Android took the majority (82 percent) of the market in the fourth quarter of 2016; Apple captured 18 percent.

“It’s not the p-to-p that gets me so excited, it’s where they’re enabling commerce that’s not happening today: web and app,” said David Sica, a principal at venture capital firm Nyca Partners. “Once you win that consumer it’s very easy to start building other types of payment functionalities. People aren’t using PayPal proper as much as they’re using Venmo, but Venmo doesn’t have the offerings.”

PayPal recently announced that it would soon open Venmo to businesses, so while it’s expanding its one functionality to others, Apple is improving its current value proposition for the customer and solving for real pain points, like the checkout process in mobile shopping experiences. (Shopping cart abandonment rate on mobile devices is about 78 percent — that’s more than three out of every four sales that retailers lose because of friction at the point of sale.)

Venmo may be the dominant force in p-to-p payments, but it’s not alone. Traditional banks are going after it too, worried (at least they should be) that Apple, Venmo, Square Cash or any of the messenger app-based payments offerings like Facebook Messenger, WhatsApp or WeChat Pay will “take a debit card that they spend $7 million a year to market and bury it in someone else’s wallet,” Sica said. The banks in the Zelle Network, the other “Venmo-killer,” processed just $55 billion in p-to-p transactions across more than 170 million transactions in 2016.

“They’re looking to steer you back to their app to send money, which is great, but it’s not a very customer centric approach,” Sica said.

As part of the announcement, Apple also introduced its own digital debit card, Apple Pay Cash, which lets users receive money through the new p-to-p transaction and use it to make Apple Pay purchases wherever and however they’re accepted. That offering could ostensibly be a gateway to mobile payments for younger customers who may not already own traditional credit and debit cards.

But the heart of the actual peer-to-peer service is so similar to all the other wannabe Venmo-killers out there, said Zilvinas Bareisis, a senior analyst at Celent. The real question is which one will be best integrated into where the customer already is.

“To some extent this is a user interface, user experience proposition,” he said. “A lot of these solutions are backed by card-to-card transfers — you’re sending from one debit card to another. If you look at Facebook Messenger and messenger payment, its basically that service integrated into Messenger. With Venmo it’s that service integrated into that app; with Zelle it’s bank-to-bank, account-to-account transfers integrated within from a mobile banking app solution. The underlying service is very similar.”

Despite being named one of the most innovative companies year after year, there’s been an ongoing discussion among the tech industry about how Apple has lost its innovation mojo, or that it’s in an innovation slump, or how innovation left with Steve Jobs.

Now, Apple is saying it’s going to have its own service within its own operating system, integrated tightly into its own process solutions, like iMessage. It’s unlikely to divert people to other messenger apps to send money.

“Folks don’t want to download more apps,” Sica said. “App download is minimal, it’s hard to win that real estate now… There’s room for companies to offer more options. For some people that’ll be perfect for them.”

Posted on

With job posting, Snapchat hints at reinvesting in payments

Remember Snapcash, the payments offering by the popular disappearing message app Snapchat that never seemed to take off? Now, parent company Snap is seeking a new payments product manager, suggesting a reinvestment in payments.

According to a job posting, Snap is looking for someone to build and manage relationships with financial services and technology providers, create new payments and commerce opportunities, devise long-term strategies for internal tools, data and revenue-related products and lead a team from a payment product’s conception to launch.

Snapcash was introduced in late 2014, and Snap hasn’t shared Snapcash users stats or transaction volume, so it’s unclear how it’s actually performing. Snap did not respond to interview requests by deadline.

“There is no indication of what kind of payment volume they’re doing, and it’s not a good sign,” said Ron Shevlin, director of research at Cornerstone Advisors and author of Smarter Bank. “When you’re successful, you like to tell the world what you’re doing, like Venmo does, because it’s impressive.”

Unlinke Venmo, which launched in 2009, Snapcash didn’t have a clear value proposition. The vanishing concept at the heart of Snapchat’s brand doesn’t translate well to financial transactions, and there was a mismatch between what people used Snapchat for and what they want from payments, Shevlin said.

“They want and need an electronic paper trail and Snapchat doesn’t do that,” he said. “The whole payments strategy from Snapchat was a bit of a stretch because it wasn’t a logical extension of what they were doing. It appealed to a demographic that was actually not making a lot of payments.”

Venmo, by contrast, easily became part of the lives of 20-somethings, who were eating out a lot and splitting the bill or had at least one roommate and could use it to split rent and other utility bills. It was free, easy and fun — three qualities not to be underestimated, Shevlin said.

Through a deal with Square, users can add a debit card, type a dollar amount into Snapchat’s text-chat feature, and hit a green “pay” button to send money to someone instantly. It’s effectively a white labeling of Square Cash. Your friend has 24 hours to accept the payment or else it’ll be refunded to you to make sure it didn’t disappear. Square declined to comment.

Snapchat’s search for payments expert suggests that something about the payments play is working, or that Snap is now trying to improve its value to users now that it’s gone public. Snapchat also faces mounting competition from Facebook, which hired PayPal president David Marcus in 2014 and launched payments through Messenger in 2015 and has lately been adopting Snapchat-like features for Facebook and Facebook-owned Instagram.

Facebook’s Instagram Stories has 200 million daily active users, Facebook reported earlier this week. Snapchat reported 161 million daily active users in February, an 82 percent decline since the launch of Instagram stories.

“[Snap] wants to become a more important platform in their customers lives and that Facebook hired the president of PayPal for its messenger platform clearly suggests these companies think payments is an important hole in their story,” said a payments expert at a U.S. bank, who asked to remain unidentified because employees aren’t allowed to comment on other companies. “Maybe they want to start e-commerce stores that Instagram has been quite successful in letting its users build.”

The source pointed to China’s WeChat as an example. Commerce is embedded deeply into the app, he said. U.S. platforms haven’t gotten there. They mostly allow people to talk, but not connect with businesses easily like WeChat does.

“Snap has always been the ‘fun’ platform,” the source said. “They need to get people to think of them as the core way to manage their life. Facebook with a public social graph has it, Snap doesn’t.”

Posted on

How Ant Financial is transforming the Chinese payments industry

Alibaba’s financial affiliate group is reaching out to the under-banked in China.

Alibaba’s Ant Financial Services Group has brought people with low income and limited to no credit history onto the financial grid by incorporating digital payments into existing e-commerce and social media platforms — a feat by any standards, especially as other markets, like the U.S., lag behind.

By using the customer data from those transactions, Ant has been able to give them access to other financial services its created that look a lot like typical core banking products — savings accounts, credit assessment and loans for consumers and small businesses — according to a report released Wednesday by the United Nations Better Than Cash Alliance.

“That Ant Financial is now able to analyze all that data and leverage the platform to extend loans to companies or individuals has had a big impact on how they produce new businesses,” said Camilo Tellez, head of research for Better Than Cash Alliance and the lead author of the report.

Ant Financial has basically found a way to scale financial access and wellness tools similar to existing apps in the U.S. either struggling to take hold or not really integrating with the other existing offerings – like the savings app Digit or micro investing app Acorns. But U.S. customers still largely pay with plastic, whereas mobile payments are so big in China that Ant can use transactional and other alternative data to create a true financial ecosystem. Friction around customer data is one of the biggest things in the U.S. keeping financial services siloed.

Ant Financial launched in 2014 and as of September 2016 had loaned $107.3 billion in loans to more than four million small businesses over its Alipay platform to date, according to the UN report. Grameen Bank, the Nobel Peace Prize-winning microfinance organization and community development bank, has lent $17 billion since its inception in 1976.

In China, 79 percent of adults have had a bank account at some point, according to the UN research, but only 10 percent of them have borrowed in the formal financial system and for them, their digital footprint of transactional data and payment behavior can add to their credit histories. The same is true of small businesses, which historically have had difficulty accessing credit or taking out loans because China’s major banks are so heavily focused on lending to state-owned enterprises. Sesame Credit, Ant’s social credit scoring system, now has more than 350 million registered users and 37 million small businesses that buy and sell on Alibaba Group marketplaces. Sesame examines customers’ credit history, financial behavior, contractual capacity, identity and users’ social networks.

There are also accessible ways for people to save and invest their money. Alibaba’s Yu’e bao lets customers invest the money “left behind” on digital wallets into a money market fund, earn interest on that spare change daily and still have the freedom to withdraw the funds when they want. Alipay effectively acts as a fund manager but is treated as a distribution service from a regulatory perspective. Customers can also use Yu’e bao funds to make e-commerce purchases. Yu’e bao, which now serves more than 152 million customers, grew its assets under management to $117 billion in 2016 from $29 million in 2013.

“You have all these different opportunities being created through these messaging platforms for younger entrepreneurs for small and medium sized enterprises,” Tellez said. “Hopefully some of that impact will be found in other markets and similarly be able to provide SMEs better access to capital.”

In China, merchants are required to accept mobile payments — each point-of-sale terminal needs to have near field communication technology built in — so they’re more accessible, user friendly and more people can take advantage of the opportunity, which allows more data to enter and flow through the system.

The closest thing to a social payments platform in the U.S. is Venmo, which stops at peer-to-peer money transfers. But Tellez says he sees Venmo 2.0 bringing the money transfer capability to merchants. While the U.S. has so far missed out on a lot of mobile payments opportunity the China has been using to the advantage of its financially excluded consumers, it’s possible merchant partnerships with Venmo or something like it could be how we actually start integrating mobile payments.

“As companies are leveraging more data analysis and they start looking at how to integrate wallet functionality into everyday activities, the wallets will become like silent pipes through which payments move,” he said. “We’ll see more partnerships happening where you don’t even recognize that you’re using Venmo to pay for things, it’ll be more seamless.”

Posted on

5 charts on how mobile payments are growing in China

Social payments in China now reach almost $3 trillion, according to a United Nations report released Wednesday.

China has been a world leader in mobile and social payments while the U.S. and Europe have been slow to adopt them. Payments on messaging and e-commerce platforms like WeChat and Alibaba are set to increase China’s GDP by $236 billion by 2025.

Now, the United Nations’ Better Than Cash Alliance is hoping other countries can emulate China’s models as much as possible, if only to unlock economic opportunities for people and small businesses the way China has.

“While China is a very specific country study, it does give us insight into some changes in behavior starting to happen across the global consumer segment, specifically regarding how people make payments,” said Camilo Tellez, head of research for Better Than Cash Alliance. “This ecosystem that has grown in China in an insular way has shown how we can take advantage of these social platforms and really use them to reach economics of scale.”

China learned early on what many financial startups and institutions are just starting to integrate into its own financial system: the keys to success include building payments services existing e-commerce platforms and social networks to draw new customers, making platform tools like application programming interfaces openly available to innovators for seamless integration and enabling universal access for users and businesses by developing ecosystems that function across various platforms, according to the report.

Here are five charts from the report that show the success of WeChat, Alipay and China’s payments market.

mpayments by value

Alipay and WeChat absolutely dominate mobile payments. WeChat payments rose to $1.2 trillion in 2016 from less than $11.6 billion in 2012. That’s an 85-fold increase in four years. Combined, Alipay and WeChat payments rose to about $2.9 trillion in 2016 from less than $81 billion in 2012.

WeChat payments are growing faster than its original messaging service. The Tencent subsidiary launched in 2011 and introduced its payments functionality in 2013. WeChat grew its active daily user base 43 percent to 806 million in 2016 from 195 million in 2012.

The rise of Internet and mobile phone use in China has had a lot to do with this. China’s shift to smart phones took place over the course of the last five years, according to the report. Mobile payments capabilities existed for most of that time, whereas in the U.S. and Europe, customers became heavily dependent on their phones before being introduced to that function.PSP market share- mobile payments

Integrating payments into WeChat has fueled its growth. In 2015, Alipay had 450 million monthly active users each spending $2,921 on average. In the same year, WeChat had 697 million users whose average spend was $568 on average and grew 168% to $1,526 in 2016.

Tencent’s partnership strategy allowed WeChat users to pay for basically anything – beyond just peer-to-peer payments – by establishing relationships with vendors and merchants which sometimes offer promotions for WeChat users in physical stores. Customers can use WeChat to top up their mobile phones, pay utility bills and book plane, train and movie tickets. You can even book a karaoke session with WeChat.

wechat use

Cards are still king. Despite impressive growth over a short period, just 12 percent of payments are done on mobile devices in China compared to 16 percent online, 30 percent in cash and 41 percent with cards. The sheer scale of the Chinese market, however, means these numbers get pretty big.

China retail consumption value by payment type

China UnionPay, the main domestic payment card clearing and settlement system, as 26.7 million merchants with electronic point of sale devices installed for card payments. Debit card penetration stands at 3.1 cards per person – and is increasing, according to the report. Although, every new POS device sold in China is required to come equipped with near field communication technology for mobile payments. Meanwhile, the U.S. has been in a chip versus stripe cards debate when most of Europe implemented chips a decade ago.

Posted on

Is the US ready for WeChat?

If you live in the U.S., “social payments” is relegated to Venmo and its emoji-powered money transfers.

But compare that relatively thin offering to China’s WeChat, the do-everything messaging app that is the cornerstone of Chinese digital life. WeChat lets users execute peer-to-peer payments, top up their mobile phones, pay utility bills and book plane, train and movie tickets or book a karaoke session – to name just a few things. If China is any indication, social networks and messaging services could be killer apps for money transfer; WeChat is already leading that movement.

“WeChat is kind of a de facto operating system and has massive, massive usage,” said Sean Neville, cofounder and president of bitcoin wallet turned social payments app Circle. “There isn’t anything quite like that in the West.”

Just yet. But when WeChat, or a WeChat-like clone, finally hits the U.S., it’s going to look different. There’s more competition in the U.S., so there will probably be a few players as opposed to one “winner.” And although the U.S. payments system desperately needs an upgrade – sending payments is excruciatingly slow and expensive – it works well enough; how much U.S. customers benefit from paying in new ways with new technologies doesn’t yet outweigh trained behaviors that don’t want to change.

Worlds apart
The U.S. and China are on opposite ends of the behavioral spectrum. First of all, China is a mobile-first nation. Mobile e-commerce took off there because its retailing landscape was weaker and less efficient 15 years ago compared to the U.S., said Michelle Evans,, global head of digital consumer research at Euromonitor International. Mobile phones brought people online that were previously cut out and now, Asia’s technology landscape has a really diverse portfolio of online businesses. The adoption gap between the different worlds is less about technology and more about the fact that people in China and emerging economies enter the social payments ecosystem without a pre-existing bias as to how they transact.

“In an emerging market like China, digital technology became a lifeline, providing something consumers would otherwise not have access to,” said Evans. “In the U.S. market it tends to be more of a convenience plug.”

By contrast, the transition to chip-enabled cards in the U.S. happened a decade after it had in Europe. That was largely because retailers and banks didn’t see the incentive to retrofit their point-of-sale terminals and issue new cards to customers.

And while the U.S. market is large like China’s, it has more competitors, said Evans. Alibaba is China’s dominant Internet retailer. Union Pay is its dominant card network. That’s it. There are so many more players in U.S. retail and card issuance – and in social networking and messaging services.

“There are so many different innovative companies trying to address payments from many angles,” said Warren Hayashi, president of the Asia Pacific arm of Adyen, a payment platform that provides technology for WeChat. Adyen alone has built more than 250 local payment methods onto its platform, he said.

From conversational banking to conversational payments 
China may be ahead of the U.S. but Circle’s Neville is betting message-based payments will go the same way regular text message conversations in that sending money to someone will be as easy and direct as sending that person a text.

“Messaging on mobile is a killer app for money transfer,” he said. “If I send a message to you in Europe and I happen to be in Boston, the Internet doesn’t really care,” and there aren’t any barriers to receiving that message. “That same thing will happen with money. That kind of behavior isn’t perfectly natural or common yet in Europe or the U.S.”

Circle launched as a bitcoin wallet service with significant backing from Goldman Sachs and the Chinese company IDG Capital. Last year it raised another $60 million from Chinese investors to continue expanding in China and in December it decided to refocus its efforts on messenger-based payments more broadly as it dropped its bitcoin exchange service.

Messaging platforms for exchanging information like bank account balances and spending recaps have attracted a lot of investment in the last two years; customers spend more time in messengers now than single-purpose apps, investors say. Kasisto’s MyKAI, which allows people to talk with their banks and make Venmo payments through Facebook Messenger, Slack and text messages, is perhaps the best example in the U.S.

“In the U.S. it’ll happen naturally, using messaging,” Neville said. “Consumers use it to pay one another back, merchants will catch on, it’ll be a holistic development that occurs. There are more people sending messages and sending other content through messaging. It’s an emerging organic behavior.”

How this manifests in the U.S.
It’s not unlikely to see social payments take off in the U.S., but it’ll look different than China’s WeChat model. WeChat had the opportunity to establish a very strong leadership position if not a monopoly, but that leadership will be more distributed in the U.S., said Josh Sutton, head of artificial intelligence at Publicis.Sapient.

The first step will be industry consolidation in processing. “Payments processing will standardize very similarly to how the credit card industry is standardized today: on a common backbone in a common ecosystem,” Sutton said. “Mobile payments initially will drop out of that existing ecosystem… There’ll be the First Datas of the world that help to centralize and consolidate. There’ll probably be another tier of companies that provide different flavors of payment – you already see that with Square and Venmo. Then you look at how that gets integrated into different solutions, and that’ll be wide open.”

The consolidation has begun. Social networks are already starting to morph into one another – suddenly it seems all of them have their version of Snaps, Stories or Moments – and what once distinguished one from another is starting to blur. At the same time, those networks will begin to bring different brands and payments companies onto their platforms if they haven’t already that may start in emerging economies – just last week, WhatsApp, which is owned by Facebook, announced a payments push into India – and then make their way the U.S. and Europe.

“You see social payments trying in the U.S.,” Evans said, “but you don’t see the same uptake.”