Putting The Fizz In Apple Pay

In an article titled Why Apple Pay Is Fizzling and What It Means for the Future of Mobile Payments, MPD founder David Evans writes:

“Apple Pay is fizzling. And unless it drastically changes course Apple Pay will follow the hundreds of other attempts, made around the world in the last seven years, that have sputtered along at low levels of use or, much more frequently, have just flat-out died. The evidence from Black Friday confirmed my fears. InfoScout did a survey of 400+ people who (a) had IPhone 6s and therefore could have had Apple Pay on their phones who (b) were paying at stores that had NFC terminals that accepted Apple Pay. So these are 400+ people who could have paid with Apple Pay. Less than 5 percent did.”

My take: It’s way too soon to be calling the death of Apple Pay.


Take a look at the following charts showing iPod sales.

Pronouncing the failure of Apple Pay in December 2014 is akin to proclaiming in Q1 2002 that the iPod would be a failure.

And there were plenty of reasons–two-side reasons as Mr. Evans might call it–to support an iPod death notice in Q1 2002: Consumers didn’t know what it was, there was no music no buy online, anyway, they were perfectly happy buying CDs (and certainly wouldn’t want to have to throw away all those CDs they had amassed). On the other side of the coin, music publishers and the stores that sold those CDs certainly had no vested interest in supporting the sale of iPods.

I would imagine that a survey of 400+ people who bought music back in Q1 2002 might show little interest in something called an iPod.


The InfoScout survey may very well be a representative sample of iPhone6 owners, but are existing iPhone6 owners representative of the overall public?

In addition, it seems very unlikely to me that a primary reason for those people who rushed out to get an iPhone6 was the Apple Pay feature. So what should we expect from the 400+ iPhone6 owners who were surveyed?


The point (put forth by Mr. Evans) that Apple Pay can’t be used at 98% of merchant locations isn’t a compelling death knell, either. Last I checked, both American Express and Discover were not accepted everywhere. They’re not dead.

It doesn’t matter how many places accept Apple Pay–it matters which places accept it.


Payments isn’t really a two-sided market. It’s more of a three-sided market: consumers, banks, and merchants (and I can’t help but wonder if, when talking about mobile payments, I need to throw in the telcos, and make it a four-sided market). All of which just makes any change in the market harder–and slower–to come by.

The “hundreds” of other attempts that have sputtered or died had, or have had, insufficient support from the constituents in the market. Many have tried to simply garner consumer support without sufficient support from the banks or merchants. Or have presented delusions of interchange reduction to the merchants, without any game plan for winning over consumers, and figuring the banks would roll over and play dead.

Sure, Apple Pay hardly has the support of many merchants–at the moment. But the lack of merchant support isn’t the same across the board.

A large percentage of the 98% that don’t currently accept Apple Pay may never accept any form of mobile payment, and who really cares, since a large of percentage of that 98% represent maybe 0.1% of all sales.

The “merchants that matter” fall into two (overlapping) categories: 1) Those that represent a good percentage of retail sales, and 2) Those where current and future iPhone6 owners shop at and buy from.

It’s the latter category that I don’t hear a lot of the pundits talk about. Everybody wants to focus on the MCX merchants not accepting Apple Pay. But Apple Pay can drive payment volume by following the Amex strategy–not accepted everywhere, but by enough of the places where Amex cardholders shop at. Case in point: Whole Foods.


Bottom line: I hate bad analogies, but I won’t let that stop me from giving one. Apple Pay isn’t a carbonated beverage losing its fizz. It’s more like a wine that needs to be aged.

The “aging” process for Apple Pay does involve a lot of moving parts: iPhone6 adoption, changing consumer behavior, bank (and credit union) support, and merchant acceptance (reluctant or not). In a three-sided market, strong support from two of the sides will probably be enough to bring along the third (even if it is kicking and screaming).

Which is why MCX is DOA. It’s all about one side of the market–the merchants. It can talk all it wants about how it’s supposed to be good for consumers, but that message has little meat to it.

Apple Pay, on the other hand, will provide additional convenience to some consumers and may provide other benefits in terms of yet-to-be developed features (for examples, see The Mobile Moments of Opportunity), gives a huge boost to banks (i.e., keeps them in the game), and is promised to benefit all parties in terms of reduced fraud.

That said, just because you let a wine age a few years doesn’t necessarily make it a good wine. But it’s simply too soon to say Apple Pay is “fizzling.”

NOTE: Thank you for reading this post. If you work at a financial institution, please help me out and take just a few more minutes of your time to complete the 2015 Financial Brand Marketing survey. For your time, you’ll receive at least two reports that I know you’ll find interesting and helpful. And you’ll get a discount on the registration fee to the 2015 Financial Brand Forum. Thanks!


Merchants’ Payments Pipe Dreams

To put it mildly, Tom Noyes’ post What Do Retailers Want? elicited a few reactions out of me.


TN: “A top 5 merchant told me a few months ago “Retailers like Starbucks have proven that we are best placed to deliver value and influence consumer behavior. I don’t want to force my consumers to do anything, but similarly I want to networks that let me play on an even field. These next 5 years are going to be complete chaos for consumers. What do we want them to do? Swipe, dip, chip, pin, tap, QR…? We have been planning for EMV for 3 years… am I really supposed to jump to Apple in 4 weeks?”

My take 1: Delusional thinking on the part of that Top 5 merchant (regarding the Starbucks comment). Starbucks proved that Starbucks could deliver value and influence consumer behavior. Starbucks did what it did with its customer base–which, while large, is not necessarily representative of the general population. Other merchants don’t have the same (loyalty-driven) relationship with their customers that Starbucks does, nor do most other merchants (with the exception of groceries/supermarkets) represent the transaction frequency of a Starbucks (who has many customers making daily purchases).

My take 2: The “next 5 years are going to be chaos for consumers” is overstating the situation. On one hand, yes, the payments world is asking US consumers to make behavioral changes with the distribution of chip and PIN cards. And yes, “we’ve been planning for EMV for 3 years.” One would think that was sufficient time to educate consumers on the requisite behavioral changes, no? Did the move to EMV cause chaos in Europe? (I honestly don’t know). For other payment-related changes, like mobile payments, consumers have a choice–if they wish to change their behavior, they can.

So the comment regarding chaos may be overstated. But it’s also disingenuous. If the quoted merchant is so worried about causing consumers chaos, why is it supporting MCX, which is not only a very different way for consumers to pay (they have to first link their bank accounts to the merchants), but, arguably, more chaotic than Apple Pay, which is really little more than a new method of paying with existing cards.


TN: “What do merchants want? A neutral broker!! [Regarding MCX:] I think their business vision is well placed. They want a network where they can play on an equal footing. A neutral broker.. or at least one where they can have a seat at the table when rules are set. Will MCX be a massive success? It depends on the consumer value proposition. Are the merchants motivated to work together in creating a neutral broker? Hell yes.

My take 1: Please believe me when I say that Tom Noyes is one guy I don’t want to challenge (most of my other comments here address what the merchants said, not what Tom said). But Tom’s view that merchants’ “business vision (re: MCX) is well placed” needs to be backed up better. What exactly does “well placed” mean?

MCX’s business “vision” is fuzzy, at best. My rough estimates suggest that MCX won’t succeed, from an economic perspective. And while it’s open for debate and interpretation, my take is that, regardless of what the CEO of MCX says, the real reason for the consortium is avoiding paying interchange fees. Anything resembling “customer value proposition” is a distant second, at best.

My take 2: I also have to take issue with Tom’s contention that merchants are “motivated to work together in creating a neutral broker.” What merchants are motivated to do is make more money. One way they see to do that is to avoid paying interchange fees. Fair enough. But let’s call it for what it is. This talk of a “neutral broker” and a “network where they can play on an equal footing” is nothing more than spraying the dung pile with perfume.


TN: “One merchant said it this way “Tom I didn’t think we would ever have someone more difficult to work with than Visa and Mastercard, but I was WRONG. Apple is a nightmare! At least we knew what was coming with Visa and Mastercard, with Apple they don’t talk to us, respond to our letters, or offer any kind of value proposition. Why on earth would I want to let another brand in my store without understanding what it will do for me? They are a great company, with great products, and certainly have a much better approach to data than Google.. but anonymity is NOT a value proposition, in fact Apple makes our efforts to deliver value to the consumer even harder as we have no defined way of using Apple to engage our consumers.”

My take 1: At this point in Tom’s post, I’m beginning to feel sorry for him. Must be a bitch spending all day talking to whiners. As for the whining merchant, I feel bad that the rest of the business world doesn’t roll over and play dead and let that merchant do what ever it wants. I can’t help but wonder if that merchant has never talked with some  of Walmart’s suppliers who–I would bet–don’t have a lot of nice things to say about the way Walmart’s policies strong-arm them into doing business Walmart’s way.

My take 2: Considering the number of large retailer data breaches that have occurred in the past year, listening to a merchant whine about Google’s approach to data is precious.

My take 3: The comment “why on earth would I want to let another brand in my store without understanding what it will do for me?” is puke-inducing. First of all, for MCX merchants like Walmart, Target, Best Buy, and (I’m guessing) Sears and Kmart, Apple is already in the store.

Second, if a merchant already accepts an American Express or Bank of America credit card, then why would it care if the transaction was done by having the customer swipe a plastic card or letting the customer hold her smartphone up to a reader? If the reader is already there, there is no difference in the cost of the transaction to the retailer.

Third, here’s a possible answer to the merchant’s question: Because Apple has a stronger brand than you, and aligning yourself with a stronger brand might strengthen your brand, Einstein! And in fact, that’s exactly what is happening–or, at least, could happen–with the banks and Apple (for example, Chase bringing breakfast to people waiting outside for the Apple store to open on the first day iPhone 6 sales). 


Am I afraid Tom Noyes is going to rip my arguments to shred? Hell yeah. But he did say something that makes me think my views aren’t too far off from his:

“Getting a card number from consumer to merchant is NOT innovation. There is just no problem here.”

Totally agree. In fact, that’s why I would argue that MCX isn’t about providing more value to consumers. If that’s what MCX really wanted to do, it could work with MC, Visa, Amex, and Discover–or other firms–to do that.

But the large merchants have set up the payment networks as their adversaries, not partners. Why? Because they lack negotiating power. Much like the situation many smaller suppliers to MCX merchants face, who don’t have much negotiating power dealing with these giant merchants.

Bottom line: Live by the sword, die by the sword. MCX has no future.

The Problem With Those Apple Pay Projections

pymnts.com reported:

“Piper Jaffray is projecting Apple Pay revenue of $118 million this year and $310 million next year, which is less than one percent of Apple’s estimated revenue of $180 billion this fiscal year. Apple Pay is designed to sell phones and so far, it’s sold a boatload of them. Whether or not Apple Pay is the reason remains to be seen.”

My take: Those projections are very aggressive.


Before explaining my skepticism regarding Piper Jaffray’s forecast, let’s deal with the last two sentences of the quote above. In the second to last sentence, “Apple Pay” is the object in the sentence. So when that sentence says “it’s sold a boatload of them” the “it” is Apple Pay. And when the next sentence says questions “whether or not Apple Pay is the reason” for the boatload of sales, it’s a direct contradiction of the previous sentence.

I’m guessing that what the author meant was that “Apple is selling a boatload of iPhone 6s” and is questioning whether or not sales can be attributed to Apple Pay. But that’s not how it reads.

In addition, what Piper Jaffray projected was that Apple Pay would generate $118 million in revenue in 2015 and $310 million in 2016, not “this year” and “next year.” “This” year is 2014, according to my calendar. That’s a huge mistake, pymnts.com.

I’m guessing that there is no editing process at pymnts.com.


Now on to the main reason for this post: Those Apple Pay revenue projections.

I have no basis on which to disagree with Piper Jaffray’s estimates. I’ve done no research on this myself, seen no contradicting research, or know what PJ’s methodologies or assumptions were. But pulling a few numbers together leads me to believe the projections are aggressive.

One assumption I start with is that Apple will get 0.15% of all Apple Pay-related sales. I’ve read that there may be a difference between credit and debit card-related sales, but there are a lot of reasons to believe that the volume will be skewed (at least initially) to credit card sales versus debit card (one of which being that the large credit card issuers have signed on with Apple Pay, whereas many banks supplying debit cards are not on board yet).

So, if Apple were to generate $118 million in revenue in 2015, and got 0.15% of AP-related sales, then Apple Pay would account for roughly $78.7 billion in retail sales. To put that in perspective, total retail sales in the US amount to about $4.5 trillion. So, PJ is estimating that Apple Pay will account for 1.7% of all retail sales in the US in 2015.

Is that realistic?

Well, there are roughly 315 million people in the US. Some of them are children and don’t have debit or credit cards. So let’s say there are 220 million consumers. At 85% cellphone penetration, 75% of them owning smartphones, and 45% of smartphone owners owning an iPhone, that comes out to roughly 63.1 million iPhone owners in the US. (Note: This is amazingly in line with published estimates from Statista).

Let’s make an optimistic assumption, and say that one in four (25%) iPhone users upgrades to the iPhone 6 in 2015. That would give us about 15.8 million iPhone 6 owners.

On average, each consumer spends $20,455 each year. This means that the 15.8 million iPhone 6 owners will generate $322.7 billion in retail sales in 2015. If Apple Pay-related sales come to $78.7 billion, then, among iPhone 6 owners, AP-related sales will account for 24% of their total retail spend.


Let’s look out to 2016, when PJ estimates that Apple will get $310 million in revenue from Apple Pay-related sales. I made a few changes to the assumptions listed above: 1) smartphone penetration grows from 75% to 80%; 2) iPhone ownership as a % of smartphone owners increases to 55%, and 3) iPhone 6 penetration (among iPhone owners) doubles from 25% to 50%.

If Apple generates $310 million in revenue, then Apple Pay will account for 4.6% of all retail sales in the US and 25% of iPhone 6 owners’ retail sales, pretty consistent with the 2015 level.

Here are my calculations:

2015 2016
Projected Apple Pay revenue $118,000,000 $310,000,000
Estimated Apple Pay transaction fee 0.15% 0.15%
Total Apple Pay-related sales $78,666,666,667 $206,666,666,667
Total US retail sales $4,500,000,000,000 $4,500,000,000,000
Apple Pay-related sales % of total retail sales 1.7% 4.6%
Number of US consumers                        220,000,000                        220,000,000
Average retail spend/consumer $20,455 $20,455
Cell phone penetration 85% 85%
Smartphone penetration 75% 80%
iPhone ownership 45% 55%
Number of iPhone owners                          63,112,500                          82,280,000
US iPhone 6 penetration % 25% 50%
Number of US iPhone 6 owners                          15,778,125                          41,140,000
Total retail spend by iPhone 6 owners $322,734,375,000 $841,500,000,000
Apple Pay % of total retail spend by iPhone 6 owners 24% 25%


If iPhone 6 penetration only reaches 15% of all iPhone owners in 2015, and Piper Jaffray’s Apple Pay estimate is correct, then Apple Pay will account for 41% of all retail sales generated by iPhone 6 owners!


Bottom line: For Piper Jaffray’s estimates to be correct, it would appear that iPhone 6 owners would have to make some significant shifts to their payments behavior. This seems highly unlikely to me, considering that Apple Pay can’t be the reason driving every iPhone 6 owner to upgrade to the new phone.


Banks’ Apple Pay Opportunity

In a pymnts.com article titled One Banker’s View Of Apple Pay Threats, the SVP of a large bank indicated:

“Though Apple gets a piece of every transaction, the company provides no help to banks in making sure their cards are “top of wallet” for use, or helping users decide which card is best of each situation.”

My take: Stop whining. Making sure your card is top of wallet, and helping users decide which card is best is YOUR JOB bankers!


Dear Bankers: What you give up for participating in Apple Pay (reportedly 15 basis points on credit and a half-cent on debit that comes out of the bank’s share of interchange) is for two potential benefits: 1) To be considered as one of the potential payment options in a transaction, and 2) Promise of a reduction in fraudulent transactions.

Participating in Apple Pay is like advertising. You pay to generate awareness and hopefully influence decision. When you advertise, there’s no guarantee that your efforts will lead to a sale. It’s the same with Apple Pay participation.

When you advertise, you hope to drive a prospect to take some future action in which you hope to make the sale. It’s the same with Apple Pay. Having your card in the wallet only gets you awareness and consideration–you must take additional steps to “make the sales” (i.e., get the consumer to choose your card).

[Note: At some point in the future–near or far–we’ll probably stop using the word “card.” But for now….]


In a BAI Banking Strategies article titled Apple Pay as Enhancer, Not Disruptor, consultant Eric Grover wrote:

“Contrary to many prognosticators, Apple Pay is likely to enhance the existing payments system rather than disrupt it. Apple Pay highlights the existing retail payment system’s openness to new and nontraditional players bent on enhancing it rather than on fundamental disruption.”

I agree. Grover goes to say:

“If Apple Pay is successful, it will erode the primacy of bank payments relationships, increasingly relegating financial institutions to a kind of back end utility.”

I disagree. In fact, the SVP quoted in the pymnts.com article (cited above) shows why this “erosion” won’t happen: Precisely because Apple isn’t doing anything to influence top-of-wallet status or help consumers decide which card is best in each situation.

This “erosion” isn’t going to happen as a result of Apple Pay for one other very important reason: Because the “primacy” of bank relationships isn’t built on payments. It’s built on “storage.” The reason banks have a primacy position in consumers’ financial relationship is because they park their money in banks. And as long as banks’ accounts (checking, prepaid, or whatever) are the funding sources for payments, banks have a position from which to compete.


What will banks have to do to compete in that scenario? The answer (in part) is “help consumers decide which card is best in each situation.” For better or worse, in some situations, the advising bank’s card may not be the best card. If that happens in a lot of a particular consumer’s situations, that bank (or that particular account at the bank) might not be the best one for that consumer.

This is why money management is more important than money movement to the bank of the future (which just happens to be the sub-title to my book, which will be published in the next couple of weeks).


There is a hierarchy of needs in banking. At the bottom level is security (or maybe APIs). On top of that is movement. And at the top, performance (you’ll have to read the older post to get the detailed description on each level–not going to repeat it all here).


Apple Pay changes the security level, and changes one small component of the movement layer (i.e., the mechanism by which a consumer initiates the movement of money). But it does nothing to change the performance level. This is banks’ Apple Pay opportunity: To use data and create tools–built upon Apple Pay.

It’s not Apple’s job to do this. That’s not why they’re getting the cut of interchange. And, in fact, I don’t think Apple could do this if they wanted to do. I remain (for right or wrong) convinced that Apple just isn’t that good at data management and analytics (unlike a Google, for example). Maybe they can develop or acquire this competency, but it’s not in their DNA.

Adventures At The LoopPay Mall Kiosk

You probably think I spend my Saturday nights out at fancy dinner parties, going to the Symphony, or attending high-society social events. I do. It’s good to be me.

But this past Saturday night, the two older girls were home for the weekend, which put a crimp in my typical Saturday. So I took the family out for dinner to a restaurant close to the Burlington (MA) Mall. Needless to say, the Shevlin women had to go shopping after dinner.

After agreeing on when and where to meet up, I started walking around the mall. Outside of the Apple store (hardly a coincidence) was a kiosk selling LoopPay fobs and phone cases:


I started looking around the kiosk, so the woman manning the kiosk (or “womanning the kiosk,” to be PC) asked “Are you familiar with Loop?”


Sorry to say, but I lied, and said “no.” I figured, let me hear the pitch. I thought you’d be interested to hear how the conversation went. For the purpose of this post, I’ll refer to her as “Ms. Loop” since I didn’t catch her name.


Ms. Loop: Loop lets you store your credit card information on your smartphone, and pay directly from the phone, using existing card readers. Come around over here and I’ll show you how it works.

[I go over to where she’s sitting, holding a smartphone with a case around it].

You open the app, hold the phone over the card reader, and then select the card you want to use to pay for the transaction.

[Ms. Loop presses the American Express card icon, but nothing happens. Ms. Loop presses the American Express card icon again, but again, nothing happens. Ms. Loop presses the American Express card icon a third time, and still nothing happens. Finally, Ms. Loop hands me the phone.]

Here, you try. I have circulation problems, so sometimes it doesn’t work when I hit the icon.

[I press the icon, it blinks, indicating it was selected. The card reader (can’t remember if it was a Verifone or Ingenico unit) flashes “INVALID SWIPE”]

Try again.

[I press the icon again, it blinks again, indicating it was selected. And again, the card reader flashes “INVALID SWIPE”]

Me: That’s ok. I trust it works in a real setting [yep, lied AGAIN]. Isn’t Apple Pay going to make this obsolete?

Ms. Loop: Absolutely not. Apple Pay works with only a fraction of merchants. Most don’t have the readers needed to accept Apple Pay payments.

Me: I thought I read somewhere that that was going to change, that they were going to issue new cards, and that retailers had to upgrade their card readers.

Ms. Loop: They are updating the cards. They’re called chip and pin. I lived in the UK for 5 months last year, and they work great. But a lot of mom-and-pop shops in rural areas aren’t going to upgrade their equipment.

[Do I blow my cover and argue this? No…I move on]

Me: How well are these selling here?

Ms. Loop: Not real well on a Saturday night. They sell much better on weekday afternoons, when the businessmen are here for lunch. I would say that a disproportionate percentage of sales go to young Asian or Indian men.

[Note: The Burlington Mall is on the Route 128 stretch outside Boston, where–probably literally–hundreds of high tech companies reside].

Me: Is that consistent with Loop’s overall sales?

Ms. Loop: I’m not sure, but it is different from what we found in New York City. One of the big demographics buying the product in New York were yummy mummies.

[Note: I think this is what she said. I’ve never heard that term before, but, upon reflection, I’m guessing she was referring to YUMmies (young urban moms). I’m pretty quick, no?]

Me: Really? Why would they like it so much?

Ms. Loop: They carry around big bags and don’t like to hunt all over their bag to find their cards. They keep their phones handy.

Me: Who’da thunk? [Still holding the smartphone in the Loop case]: This case really adds a lot of bulk and weight. Must be a real deterrent to sales, no?

Ms. Loop: Just the opposite. A lot women like that because it’s easier for them to find the phone in their bags.

Me: Oh, puh-leeze. I know I look like a moron but you don’t really expect me to believe that, do you?

[Note: I didn’t actually say that. I thought it, but it didn’t come out of my mouth]

Ms. Loop: So what do you think? Want to get one?

Me: Can’t. I’m still using the Motorola DynaTAC 8000.


p.s. As this was exchange was clearly work-related, I think I’m entitled to expense that night’s dinner, don’t you agree?

The [Not So] New Hierarchy Of Needs In Banking

When you hear “hierarchy of needs,” I’d guess that you think of Maslow’s hierarchy of needs. The theory posits that humans have needs that range from physiological needs (e.g., food, water, shelter) at the bottom level of the hierarchy, to self-actualization at the top. The theory has recently been updated to reflect the new reality that wi-fi and battery life are perhaps more important than food and shelter.


The “hierarchy of needs” concept is a useful way to look at the banking industry. There is–and always has been–a hierarchy of needs. At the bottom of the hierarchy is security, in the middle is (money) movement, and at the top level, performance. 20141002HierarchyNeeds In the old world of retail banking, consumers had a need for security–they wanted to know that when they put their money in a bank of Monday, that money would be there on Tuesday. With deposit insurance, and a highly regulated industry, that level of need was satisfied, and has been for a while now.

In the old world of retail banking, consumers had a need for money movement–they wanted to know that when they wrote a check on their banking account, the money would be moved to whomever they wrote the check to. And they wanted to know that when they deposited a check into their account, that the money would be moved there (although we’ve long wished that movement happened faster than it does). These needs have been long met, as well.

And in the old world of retail banking, consumers had a need for account performance–they wanted to know that they were getting the best rates, and paying the lowest fees. This is a relatively newer level of need, as consumers (especially, and predominantly, in the US) have become more affluent over the past 50 years. The Internet has contributed strongly to helping meet this need.


Disruptophiles love to talk about how banking is being disrupted. Two speakers at this week’s SIBOS conference told the Innotribe group over and over that “you (bankers) will disrupted…it’s not a matter of if, but when.” Personally, I find these proclamations to be at a level of distraction that renders them useless. What’s happening in banking is that the hierarchy of needs–which to a large extent were satisfied in the old world of retail banking–need to be re-established.

With the advent of electronic, mobile, and alternative payments, the security of transactions and the efficient/effective movement of money is being challenged. At the top of the pyramid, the increasing complexity of managing one’s financial life makes managing performance far more complicated than just tracking rates and fees.

While the Disruptophiles would like to scare us into thinking that banks are becoming obsolete or will go out of business (i.e, become extinct) if they don’t adapt to the changes, the reality is that the financial services environment is too global, and way too complex for so-called disruptors to effect large-scale change without the assistance of, or reliance on, existing financial institutions (case in point: Apple Pay).


The Innotribe Startup competition that concluded this week at SIBOS underscores this redefinition of the hierarchy of needs. Finalists Sixscape Communications and Ensygnia address the changing security needs. Sixscape replaces insecure username/password authentication with certificate-based authentication, while Ensygnia’s technology improves identity verification. Competition finalists also addressed the changing needs at the money movement level of need.

As Bank Innovation put it, competition winner Epiphyte “avoids traditional money movement avenues and instead converts currency to bitcoins, moves the coins, then cashes them out on the other end in the local tender. The bitcoins are moved for a fraction of the cost of traditional money transfers using exchanges like Coinbase and Bitpay, which take on the currency risk.” Another finalist, TransferGo, is a digital, international money transfer service that enables international money transfer without actually transferring the sender’s money internationally.

Addressing the performance level, competition finalists Stockspot provides robo-advice to investors, while Lending Robot helps investors looking for lending opportunities on P2P lending platforms like Lending Club.


Bottom line: As banks and credit unions move into the latter stages of their 2015 strategic planning efforts, the challenge is not “what to do about potential disruption.” FIs needs to better understand the changing needs at the various levels of the hierarchy, and determine when and where to make investments in the technologies driving–and dealing with–those changing needs.

Durbin Delusions

If you follow me on Twitter, you know that I’m fond of responding to delusionary and BS tweets by saying “don’t bogart that joint–pass it over to me.” It’s a reference to a line from a Little Feat song (if you’re not familiar with the song–or God forbid, the band–please leave this site now, and go back to listening to your little hippity hop Pandora station).

I’m reminded of that line–once again–by a press release (dated September 30, 2014) from the Merchants Payment Coalition which made the following claim:

“Debit card reform has helped consumers save almost $18 billion and supported 100,000 new jobs in three years.”

My take: Total BS.


The date of the press release is important because the savings claims come from a 2012 study which claimed that, after its first year of implementation, the Durbin Amendment saved consumers $6 billion, and that merchants added 37,500 jobs as a result of the regulation.

The claim of $18 billion in savings and more than 100,000 jobs created comes from (as the press release puts it) “extrapolating those findings.”

Unfortunately (for the MPC), these claims hold the water. Below is a chart showing retail employment trends from the Bureau of Labor Statistics. What it shows is that:

  1. Between January 2004 and January 2008, when pre-Durbin interchange rates were in effect, retail employment grew by half a million jobs. In other words, despite so-called “unfair swipe fees.” retailers added jobs to their payrolls.
  2. Between January 2008 and January 2010, more than a million retail jobs were lost. You could argue this, but I’d say the overall economy caused that, more so than high interchange fees.
  3. Between January 2010 and January 2012, about half a million retail jobs were added back. Since the Durbin Amendment didn’t go into effect until October 2011, it’s a stretch to attribute too many of those jobs to the regulatory changes.

Retail Trade Employment (source: Bureau of Labor Statistics)

The following chart shows retail spending in the US over the same period of time (2004 to 2014).

What do you notice? The change in employment pretty much tracks the change in retail spending. Reality: Changes in merchant employment levels have little to do with the Durbin Amendment.


What about those $18 billion in savings we consumers have supposedly seen? The MPC conveniently ignores other studies, like one published in the Loyola Consumer Law Review, titled Misguided Regulation of Interchange Fees, which found:

“Gas retailers received over $1 billion in annual savings due to reduced interchange fees.While this should mean savings of roughly $0.03 per gallon, no savings have been passed on to consumers. This is especially  disconcerting as debit cards account for one third of all transactions and over half of non-cash payments for gas retailers. If retailers that receive such a significant portion of their payments from debit cards are not passing along the saving to consumers, it is likely most retailers would refrain from doing so as well.”

The Loyola paper cited an Electronic Payment Coalition that found that “consumer prices one year after the implementation of the Durbin Amendment actually rose 1.5%.” The Loyola paper, however does point that the EPC study “failed to hold certain factors such as inflation constant, [so] it is unclear the actual effect the Durbin Amendment had on consumer prices.” In addition, the Loyola study points out that “small business owners were forced to raise prices for consumers because of the interchange regulations.”

An academic study titled Recent Trends and Emerging Practices in Retailer Pricing points out that “retail consolidation, changing manufacture practices, and advances in technology directly affect both retailer cost and prices. In addition to the medium or channel (Internet vs offline), other marketing mix variables, such as advertising and promotion, customer factors, positioning of the retailer, and competition within and across channels or store formats, influence retailer prices.”

In other words, the MPC’s claims of consumer savings resulting from the Durbin Amendment are without merit.