The Payments LandscapeA Merchant’s Perspective

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Payments Innovation Summit Chicago, June 11-12, 2014

About Me

๏ CEO & Founder of The Emob, the “Family” of online retailers – a trade association of mid-market online retailers.

๏ Started my ecommerce adventure in 1995 – (iBeauty / FragranceCounter) selling perfume online.

๏ Subsequently started, acquired or managed other online retail businesses. ๏ HomeClick, InsideStore and Ashford

Learning the hard way

๏ Card Not Present (CNP) transactions ๏ Explaining ecommerce in 1995

๏ “I am shocked, shocked, that there is fraud on the Internet” and other great discoveries

๏ Getting terminated – TMF (terminated merchant file) it’s a lot like “The Trial” by Kafka

๏ Building a security infrastructure

The Landscape Today๏ Traditional players – Visa, MC, Amex and the processing

companies that manage most of the merchant transaction flow ๏ Hybrids – PayPal, Square, Stripe ๏ Masters of the Universe – Google, Apple, Facebook. They won’t

rest until they are integrated to every part of your life ๏ Revolutionaries – Bitcoin, Coin ๏ Inadvertent & accidental contenders – Starbucks model

๏ 10 million customers use Starbucks’ mobile payment and loyalty app. 5+ million transactions weekly in US. Billions of dollars of funds being deposited onto Starbucks cards (or app) annually. Starbucks reporting $1 Billion in margin just off mobile payments last year

๏ Wannabes – tens of startups that are trying to insert themselves into the “path to purchase” or checkout process

Bitcoin

๏ Will we see more merchant acceptance or just a gimmick?

๏ Pros ๏ Low transaction cost ๏ Universal currency ๏ No credit requirements ๏ Privacy / Confidentiality

๏ Cons ๏ Non-recoverable ๏ Pricing/valuation fluctuations ๏ Future regulations ๏ Stability and source of origins

Challenge of mobile payments

1. Using mobile devices as electronic wallet (tap to pay) ๏ Very low adoption so far ๏ Benefit of using mobile phone to pay vs. swiping a

credit card are minimal (for consumer & merchant) 2. Providing an easy checkout when shopping

online – entering all your info is not fun ๏ A big problem, with many answers but few well defined

solutions ๏ PayPal has huge head start. Apple and Google well

positioned to dominate (but physical goods vs. digital goods is an issue)

Why is this so hard?๏ Building a consumer brand at a large scale is brutally hard

and expensive. ๏ Companies don’t seem to factor that in their planning

๏ At a minimum innovating in payments is a two sided marketplace that needs merchants and consumers to engage ๏ Many offerings are answers looking for questions – the solutions

aren’t solving an existential problem or providing a life-altering experience for the end-user

๏ Current payment systems/processes are very ingrained and changing user behavior requires a lot of time, consistency and proper motivation ๏ Many efforts don’t really give either constituents enough

motivation to participate

What consumers want

๏ Do they really, really want a cashless society?

๏ How important is mobile payments? ๏ Do they really know what they want? Or

will they come if you build it? ๏ i.e. the Apple iPod and iTunes store

What merchants want๏ Implementing a new payment option/methodology/system,

etc. requires a fair amount of investment on the part of an online retailer.

๏ Anything that adds another step, process, element or screen in between the “Add to Cart” and the “Submit Order” buttons endangers the merchants conversion rate, i.e. their business. ๏ Offering too many options to the consumers actually has an

adverse affect on conversion rates ๏ The merchant has little incentive to implement your

‘tokenization’ or other innovation if he/she isn’t paying a drastically lower fee or other incentive

๏ The trail of failed payment innovators has left many merchants reluctant to try new offerings if their backers aren’t committed to supporting it long term

Lets talk about security

๏ It’s a Chimera (mythical Greek fire-breathing monster, part lion, goat and serpent).

๏ PEBKAC – Problem Exists Between Keyboard And Chair.

๏ For every major security breach (Target, Ebay) reported in the media, there are hundreds or thousands that go unreported, many times because the business don’t even know that have been breached!

๏ We would be well served to acknowledge the truth

In Conclusion

๏ The incumbents are facing a serious “innovators dilemma” and have too many ingrained attitudes that might make them stumble

๏ The winners will be the companies that may seem least likely – the object that looks really small in the side view mirror until its too late

Contact Info:

Email: eli@theemob.org Phone: 877.ELI.KATZ (877.354.5289) x101 !Twitter: @eli_katz Website: http://theemob.org