There was an involved discussion about convergence of transaction platforms on a project that I am involved with and it set me thinking about what convergence actually means in this space and what the impact of that convergence might be. I started by remembering something that I’d read at Payments Views.

A couple of weeks ago, eBay held an Analyst Day where eBay senior management shared their thinking about the future of the changing commerce landscape – and how they’re thinking about taking the “e” out of eCommerce… What’s this taking out the “e” business all about? It’s about the influence of mobile on integrating online and offline commerce together.

[From The PayPal Juggernaut — Payments Views from Glenbrook Partners]

Scott is typically accurate with his comments hereafter. The strategic direction is convergence. Not the simplistic kind of convergence, where our mobile phones become watches, cameras, wallets and devices for getting stones out of horses hooves. This simply hasn’t happened. Sometimes I use my iPhone, sometime my iPhone, sometimes my MacBook Pro, sometimes my MacBook Air, sometimes my Apple TV (spot a bit of a theme here?) and sometimes I still walk into a store to buy things. The point is that the strategic direction of transactions is convergence so that whichever of these channels I use, I use the same digital money and digital identity infrastructure. It’s the transactions that become integrated, not the devices. And by integrating across channels, the transaction systems give me a better service, whether in terms of loyalty, fraud protection, price or whatever. I then continued by remembering a good report on e-payments that I’d read a couple of months ago.

A new O’Reilly/PayPal report on web-native payment platforms, “ePayments: Emerging Platforms, Embracing Mobile and Confronting Identity,” is now available for download. Among the topics covered in the report are the rise of payment platforms, the mobilization of money, and the advent of contactless payment in mobile commerce.

[From 3 mobile payment products hint at the future – O’Reilly Radar]

The thought experiment in the O’Reilly Radar “report about auctioning payments set me thinking. The idea is that, rather as advertising networks such as DoubleClick auction page impressions to advertisers in real-time (when you click on a page, the advertising network sends the details to advertisers who get 20 milliseconds to respond with a bid, and then the advertisement from the highest bidder is displayed) so when you click on “pay”, the payment platform might bundle together some facts about the transaction and auction them to processors. Presumably, one of the key elements in the bid decision would be related to fraud, especially if the pricing for the fraud management is unbundled from the pricing for the transaction itself and any other value-added services.

If this analysis is correct, then there will be a premium on identity and authentication because the higher the standard of identification that can be provided to the processors, the lower the bid! This would mean – to continue the thought experiment – that we would have a very accurate means of pricing identities. I imagine that this accurate pricing would reveal at least two interesting things. First of all, whether an identity is “real” or not is immaterial to the price, because the price will be based mainly on reputation (ie, transaction history). Secondly, the strength of the authentication will be directly reflected in price but for smaller transactions the price increments from 2FA to 3FA will be minimal. Thus, pricing will point towards pseudonymous 2FA as the “sweet spot” for transactional identities. So far, so good. Can we use this analysis to make some predictions about who might be best-placed to take advantage of this converged platform then? Well, last year I read that (all other things being equal) then it really should be the mobile operators. Qualcomm call these “horizontal models” for mobile operator value-added services – what I would call the “smart pipe” future of the mobile operator – and say that if operators do make a play in delivering intelligent services now, the potential upsides are great because…

  • They will strategically position themselves as a valued service provider to their subscribers – getting the retail experience right on mobile will be critical to capturing value;
  • They can act as an honest broker – trusted, secure, in their interests to protect and cater to their users’ needs;
  • They stand to gain from the uptick in usage as well as providing services using their billing platforms and the knowledge of their subscribers;
  • The potential of data analytics to turn digital footprints into value for consumers, MNOs and other players that have been cited in the two sided business model begins to emerge.

Vertical models may have created the marketplace, but Qualcomm believes a retailing experience that is not tied to any one operating system or technology is necessary for the industry to scale.

[From Mobile Internet: Horizontal Platforms Needed (Guest Post, Qualcomm) – Convergence Conversation]

I think this is broadly correct — especially the part about the honest broker, protecting the “real” identity of the consumers — and I think it means that operators must be more aggressive about their digital identity infrastructure as well as their digital money infrastructure. After all, who has this “retailing experience that is not tied to any one operating system”? The mobile operators do, but so does Apple. On the other hand, the mobile operators have a direct billing relationship with customers (and they know where they are). It’s time for the operators to start talking to processors about creating the mobile transaction auction house.

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