Wallets

ApplePay
At first glance, their numbers seem impressive (38 million U.S. users), but with closer scrutiny we are certain Apple’s plan is more of a play to build out the Apple ecosystem. Only 24% of U.S. iPhone owners have even tried ApplePay, and only a fraction of them use it regularly (we have seen estimates as low as 4-6 million users). With all the hoopla around ApplePay, plenty of banks, vendors and merchants feel a bit burned that they invested money to accept ApplePay with so little to show for it. Here is an interesting graph that shows Duane Reade as ApplePay’s biggest customer.

ApplePay is nothing more than an e-wallet that takes 0.15% of each transaction ($0.15 per $100 charged) of every ApplePay transaction. Given that Apple has 39% of the U.S. cell phone market share, and they have standardized on NFC technology, we don’t think it will ever be a major player. Some may discount that, but we think Apple is more about securing its ecosystem and making it sticky than creating a national payments behemoth.

SamsungPay
Another e-wallet. Samsung has a great product, perhaps the best out there, but they fall short in so many ways. They have some potential, but we don’t think e-wallets are a long-term solution. They are kind of the DVD’s of the payment world - good tech that bridges a gap (in the case of DVDs, between VHS & streaming), but lacks staying power. Still, someone rightfully once said that if they are using someone else and not you, they are competition, so we are including them here.

Solid Players

PayPal
One credit card executive told us recently that the credit card companies made room for PayPal when they refused to let individuals accept credit cards. We agree.

Many of us know the PayPal story, so we won’t go too deep here, but they have been far and away the most innovative payments company in the U.S. PayPal started by creating its own network to enable people to move money from one person to another for online transactions.

Today, PayPal is largely an online payments company that does has dabbled in mPOS, but does not do mPOS payments. They mostly cater to both P2P and online transactions.

A recent tie-up with MC and Visa indicates that PayPal may likely take the e-wallet path for now, which makes sense short-term, but long-term we see them making an acquisition to enter the mPOS space.

With over 254 million users and 17 million merchants worldwide, PayPal appears to be comfortable in their niche space, and we see them as a good potential partner.

Square
We see Square as an early head-to-head competitor. They understand the value of an easy user and merchant experience. They concentrate on the same SMB market and have made the payments process more transparent. We are starting to see glimpses that they may understand the merchant value of customer data and communication. They are still run by their founder, which has kept them somewhat nimble, but just how nimble is unknown. Square is extremely reliant on the existing credit card payment system, and that may force them to make a late pivot. Given their size, a late pivot would likely doom them to niche-player status.

P2P

Venmo
For many reasons, we don’t consider Venmo direct competitors, but we would be remiss to leave them out of the conversation when it comes to competition. Their reach and brand alone is impressive, but they are not set up to take in-store payments and their reach and brand could work against them in attempting to tackle this market. They have standardized on legacy technology and their ownership relationship with PayPal would make a pivot very difficult, but not impossible. A lot depends on how much room PayPal gives them to explore different areas. We believe when this market takes off PayPal may utilize them to try to catch up, but their tardiness to the market could prove too much to overcome.

Zelle
Zelle is not an app, not a network and not a technical resource. In fact, it’s nothing more that an agreement between participating banks that says that each bank will move money to one another using Zelle. We are summarizing, but the agreement guarantees that when a sending bank uses the network, it is guaranteeing the funds will be sent, so the receiving bank essentially extends a short-term loan to the customer for the money. Zelle then uses the ACH network to exchange funds. Nothing new here, the banks just needed an answer to hold Venmo at bay. In principle, the agreement is a good back stop solution, except in reality it doesn’t work that way at all. It’s puzzling, but Zelle uses the same ACH network that banks have used to move money for years. There are lots of problems that we can see that will keep Zelle from becoming anything but a short-term fix to take on Venmo & PayPal. Here are a few glaring problems: 1) Banks pay Zelle exorbitant fees for intra-bank and interbank transactions. That means they are paying Zelle to move money inside of their own bank, this will be short lived; 2) Rampant fraud and customers have gotten caught in the middle; 3) Zelle has no bank support to deal with problems, so the banks take on all fraud liability; 4) As banks are still using ACH, their are highly opposed to enabling POS transactions over the network and 5) It’s still just ACH.

Big Tech Companies

The big tech companies have consumer trust issues, but they have potential. Here are three that we see doing something meaningful:

Amazon
A clear future competitor, but not for our SMB market space. In fact, most SMBs see them as a “frenemy” at best. They clearly want to decrease their payment rates, and we absolutely think they will jump into our space headfirst -- but from an online payment perspective. The good news for us is that they still largely concentrate on online sales, so while we are cognizant of their existence, they are not a threat to us at this point.

Facebook
We believe we are entering Facebook’s dream space. One third of their revenue comes from our market space; they love building local communities and love payments. They are testing WhatsApp payments in India and competing with the big overseas players. We don’t think they will be successful in India without spending lavishly, but we will be happily watching from the sidelines. We don’t think India will be decided by 1-2 key players like China, but will always be trend-based and will burn and churn the next cool factor faster than you can say “WhatsApp”. Ideally, we think we would make great partners for Facebook, but we haven’t seen partnerships as a successful Facebook strategy.

Google
Google is interesting. They understand the value of payments and data, yet they have had so many missteps in the space. We could write a dissertation on why, however as one Google executive put it best: “We will never leave the e-wallet concept, as every other concept just gets us into trouble”. Maybe their luck will change in the future. We personally think they could be a great partner for us.

Banks

We see banks as our partners. While they clearly want to play in this space, we don’t think they can for many reasons: 1) Cooperation across the ecosystem is difficult; 2) Monopolistic fears would keep them from being a key player; and 3) Legacy technology would stifle the payments system. They will compete by using the Zelles and Honeys of the world. As stodgy as banks are, we see them as good partners.

Credit Cards

Mastercard, Visa and American Express While there are other card providers, these are the “Big 3” in the U.S. We think they will take a wait-and-see approach when it comes to Honey, mostly because we don’t think they will be able to respond right away.

In fact, we don’t think public companies will be able to respond to free very well and will try to compete by using regulation, promotions and smear tactics.

Overseas Players

There are lots of overseas players, but none have been able to break into the U.S. market. It’s not hard to see why. Culture, politics and technology have played big roles in keeping them at bay. Americans (by-and-large), nor the U.S. Government trust trust foreign players when it comes to their money. We don’t see this changing anytime soon.

AliPay and WeChat Pay have won the Chinese market, and together have processed over two thirds of the Chinese GDP between them. The big fight is in India, where PayTM has the largest foothold. AliPay and WeChat Pay have not had any success in the West to speak of. Thier current strategy surrounds convincing financial institutions and merchants directly that Chinese citizens will use their companies to pay for goods when they travel to other countries. This has had some small success in Europe and places like Las Vegas. One small west coast U.S. bank executive told us they are so desperate to get into the U.S. market that” they will talk to anyone willing to pick up their phone”. Another told us it’s eerily similar to the cold war: “It will be them vs. the eventual U.S. leader fighting it out in developing nations”. We agree.

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