May 12, 2006

3 of the big 4 - all doing payment systems

A snippet of recent news:

(May 5, 2006) Online search giant Yahoo! Inc. is developing what appears to be a person-to-person payment service and may be weeks away from introducing it, but details of the new service remain unclear. ... Industry speculation about a possible payments product at Yahoo! was fueled last month when the company was granted a patent on a P2P “money-exchange” system for which it had applied nearly six years earlier. Also, Yahoo! is not without experience in P2P payments, having operated a platform, called PayDirect, from July 2000 until it shuttered the service in November 2004.

So that brings Yahoo into line with Google and eBay/Paypal. We are now looking at a herding structure where all the big players copy each other. Back to the future again! All we need is for Microsoft to join the club.

The reason Microsoft has not done payments before is because when they mentioned their desires back in the mid 90s, the banks jumped liked they'd been slapped. Banks might not have known what the Internet was, but they knew what Microsoft was, back then, as they had those DOS and Windows3.1 machines scattered all through their offices. DigiCash, First Virtual, and a few dozen other names were no serious threat, but Microsoft? That was distribution. That was scary.

Off to Washington DC they trotted and fairly soon on, the message filtered back to Microsoft - that's not a good idea, pick on someone else's soft underbelly.

This time, the structure of the sector is fundamentally different. Then, it was hype and greed and ignorance. This time it's Paypal, user bases, spreadsheets, ROI. Google has been working on it for probably a year or more, using the Paypal model upgraded to remove the bugs, and Yahoo have also no doubt taken the same advantage.

Washington DC no longer has anything to say, in the banks' defence. Now, the banks are distracted with phishing and trojans and Walmart, and wearily eyeing the security offerings of smorgasbord companies like RSASecurity. They could be forgiven for wondering whether it was worth it.

Also, it's been a full decade of more progress on securitization, so the banks structure is no longer so rigid. On the surface, the banks might even look as though they are doing this themselves:

IDC and Financial Insights have announced results from a recent study concluding that financial institutions are increasingly looking to third parties to manage entire payment functions, rather than the process alone. IDC estimates that U.S. spending on payments BPO services reached $3.3 billion in 2005 and will grow at a five-year compound annual growth rate (CAGR) of 4.2% to reach $4 billion by 2010.
Posted by iang at May 12, 2006 03:34 PM | TrackBack

... slight drift, another article from today

Payments Technologies Vie For Banks' IT Dollars

from above:

Payments revenues at European banks typically represent 10 per cent of annual revenues, while in the US, this figure is nearer to 40 per cent

... snip ...

some difference in the revenue demographics between US and Eureope with regard to payment operations

Posted by: Lynn Wheeler at May 12, 2006 02:35 PM

Iang wrote:
> Off to Washington DC they trotted and fairly soon on, the
> message filtered back to Microsoft - that's not a good
> idea, pick on someone else's soft underbelly.

a congressman's speech on the floor of the senate about the bank modernization act said that the purpose of the bill was if you are already a bank, you can remain a bank and if you aren't alerady a bank, you can't be a bank, and more the bill was to specifically prevent microsoft and wal-mart from becoming banks.

a couple other articles from today:

Small Banks Adopt a Wide Spectrum of Electronic Payments

Home Depot: No Designs on Payments with Deal to Buy ILC

from above:

Less than a month after the Federal Deposit Insurance Corp. held three days of unprecedented hearings on Wal-Mart’s application to open a Utah ILC, Atlanta-based Home Depot this week disclosed a definitive agreement to buy EnerBank USA, a Salt Lake City-based ILC with $75 million in net loan assets.

... snip ...

Posted by: Lynn Wheeler at May 12, 2006 04:45 PM

Ah, the old "what is banking?" question. I was first triggered to this quixoticism by Dave B, who mentioned that up until the early 1980s or so, the UK legislation still had it that a bank was what did banking, and banking was what banks did. I don't know what it was replaced with.

Surprisingly, this still seemed to be quite prevalent in the US. I recall reading such circularity in a circular from the FDIC giving permission for a bank to enter a particular business (I think certificate authorities).

OTOH, some bank acts are quite clear about banking. One I read was almost model perfect, in that it said the business of banking is that of taking deposits as borrowings from the public and lending those deposits to others of the public, with differing terms.

Which of course is not the payments business.

Posted by: Iang at May 13, 2006 07:57 AM

another aspect of the payment industry landscape:

Interchange Fees: The tipping point

from above

Fed up with out-of-control interchange fees, retailers are fighting back with concerted legal and educational tactics -- and, in some cases, proactive offensives of their own.

... snip ...

from above:

Convenience store operators can make more money on a 12-ounce cup of coffee than they can on a 12-gallon tank of gas. Credit card fees now account for almost half of a typical store's expenses - more than labor.

... snip ...

this is sort of another facet of Boyd OODA-loops ... not only do you cycle the loops faster ... but during the loop you may also view a subject from a number of different aspects.

Posted by: Lynn Wheeler at May 13, 2006 02:10 PM

Plastic under attack. Battling lawsuits and new rivals, MasterCard and Visa may face a lower-growth future.


ECOM Finds Issuer for Anonymous, Disposable Prepaid MasterCard

from above

... allows the company to sell the cards to consumers through merchants like cans of soda or other merchandise, then process transactions almost immediately at any location that takes MasterCard

... snip ...

Posted by: Lynn Wheeler at May 15, 2006 11:37 PM
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