[Dave Birch] This time last year I was very flattered to be invited by the GSMA to moderate the session on Delivering Innovative Mobile Payment Services at the Mobile World Congress 2012. For those of you who haven’t been, MWC is the mobile industry’s gigantic annual trade fair in Barcelona with something 60,000 attendees. (The whole jamboree gets underway again next week, by the way, where I am again flattered to have been asked by the GSMA to chair a session, this time on Mobile Identity, Opportunities and Challenges.)

The payment session last year had an amazing line up: Bill Gadja (Global Head of Mobile, Visa), Osama Bedier (VP Payments, Google), Olivier Piou (CEO, Gemalto), Rodger Desai (CEO, Payfone) and David Marcus of PayPal. David was then the VP Mobile, but was about to become the head of the company. So a year on, have we seen any innovative services? At the time I remember thinking that I heard more about barriers to delivering innovative services at MWC than I did hear about innovative services — because of the emerging realisation of co-ordination costs and complexities between bank, handset, SIM, SE, TSM etc). Since that time however, mobile payments has continued to evolve as a sector, but it is on the acquiring side that we’ve seen real impact, real business change. And David and his team at PayPal have been at the forefront of this.

Pizza Express is to pilot the pioneering experiment in its 370 outlets this week, in partnership with online payment company Paypal… Customers will be able to settle their bill with just a few taps on their iPhone, meaning they can leave the restaurant whenever they like.

[From Pizza Express diners can use their iPhones to pay the bill and walk out | Mail Online]

You have been able to use PayPal at POS for some time. I think one of the first places was Home Depot. It’s certainly interesting that you can pay in a shop using PayPal (I’ve done this) but is it revolutionary? Not really. This from our friends at Glenbrook this time last year, for example.

It had and was not too surprising — other than seeing that Home Depot was passing line-item data about what I bought to PayPal. I would normally say passing line item data is a HUGE deal — in an offer targeting way, not a privacy paranoia way — except I can’t ever imagine PayPal being able to interpret what I bought from the line-item descriptions. The descriptions just weren’t that useful.

[From PayPal @ POS: My Field Trip Report — Payments Views from Glenbrook Partners]

Since then, PayPal has continued to evolve physical POS solutions, with some fascinating services and, I’m sure, a great deal of learning. They also launched their mobile acquiring solution “PayPal Here” in the US last March and in May went live with the “PayPal Local” solution. The competition between PayPal, Square, Intuit and others in the US has driven tremendous innovation in mobile POS (m-POS) over the last year. In the UK, we’ve been looking on jealously, held back by what we might call the “Chip and PIN innovation problem”. The problem is that while chip and PIN is much more secure than chip and signature, that security comes at a price. Making “PIN Entry Devices” (PEDs) that will meet the security standards for PCI-PTS and obtain the necessary scheme certifications is expensive.

What’s more, whereas is it acceptable to sign for a transaction using the screen of someone else’s smartphone or tablet (see below) it is not acceptable to do the same thing with PINs. I would never put my PIN into some random stranger’s phone down the market. Until we get trusted environments in the handsets, the handsets cannot meet the scheme requirements for PEDs.


Hence for chip and PIN a different model is emerging. Instead of plugging a dongle into the phone or tablet and then using that phone or table for the cardholder authentication mechanism, in Europe we are seeing PED devices linked to the phone or tablet by Bluetooth. So when you buy something down the market, the market trader hands you the Bluetooth PED device and you put your card into it and punch in the PIN. You never take the trader’s phone and the trader never takes your card.

In the UK in the last couple of days we’ve seen two important announcements using this model. First, iZettle launched their chip and PIN solution and today PayPal have launched the chip and PIN version of PayPal Here.

PayPal Here launches in the UK

This is excellent news. These are both great offerings and I think they will grow card acceptance and card usage. Between them they could easily bring a couple of hundred thousand new SME and micro merchants into the card world over the coming year. Naturally we took a few calls from journalists on this! I told them that as far as I could see both PayPal and iZettle would be successful. They look similar, but they’re not quite.

Dave Birch, director at IT consultancy Consult Hyperion, said although PayPal and iZettle’s offerings appeared similar, they were pitched at different parts of the market.

[From PayPal enters UK mobile payments race – FT.com]

The iZettle solution will appeal to independent traders and micro-enterprises who want to get up and running quickly with card acceptance. I think PayPal’s is a slightly different play, which is more about ecosystem. PayPal’s special sauce is their API. They have a developer community that will build on their platform and integrate chip and PIN into value-added offerings (I expect to see a variety of offerings for specific verticals emerging over the next few months). I also expect that PayPal’s entry (because of their brand and existing merchant base) will grow the market for everyone, not only for PayPal themselves. GfK research by Ryan Garner would seem to indicate that PayPal’s brand will help to bring new groups (e.g., teenagers) on board.

For example my teenagers use and trust Paypal for making payments more than they do a traditional bank or credit card company. This was echoed in the GfK research which noted “PayPal, whose experience in delivering remote mobile payment services to consumers places it in a strong position in both financial and mobile spheres. As a brand it boasts high levels of trust and consideration. But, most interestingly, it has the highest brand preference of all those tested in this research”.

[From Mobile payments brand preference — Athenic]

So are we finally seeing some disruptive innovation in mobile payments? I think we are, and it’s not all because of PayPal. We’ve always said that the disruption will begin on the acquiring side. Getting rid of cash doesn’t mean everyone having cards, but everyone having terminals. And Square, iZettle, Stripe, Intuit, PayPal m-Powa, Adyen and many others are making this a reality.

In this rapidly evolving market even relatively young firms run the risk of being outpaced themselves by fresh and even more disruptive innovations. One such very new firm is Stripe, which has attracted investment from some of the original founders of PayPal and is trying to muscle in on PayPal’s online market.

[From Mobile payments: A wealth of wallets | The Economist]

I commented on this at a client meeting a while ago and I hope they won’t mind me repeating it here. When I go to a banking conference, PayPal are spoken of as an upstart, a revolutionary interloper. When I go to a technology conference, PayPal are seen by the teenage entrepreneurs as sclerotic, lumbering incumbents no different from Bank of America or MasterCard! I think the truth is that they are now a payments incumbent and their entry into the UK m-POS market will legitimise and grow the sector. But the real impact of their product will come from the integration of m-POS into the PayPal ecosystem, which is where there approach is more innovative, and here I expect to see genuinely new services introduced over the coming year.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

1 comment

  1. Disrupt is a very strong word, dave. From my all-to-common perspective as vampire-food, I regret that I don’t don’t see any disruption. The only disruption Paypal caused was when it hung wikileaks out to dry.
    Bring finance back under democratic accountability, that would ruffle a few feathers.

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