Money20/20 unpacked: The news behind the news at fintech's biggest show

In an earlier report, we discussed the top trends to monitor at this year's Money20/20. Here, we discuss the most notable announcements that were made leading up to and during the event, while providing market context and detail on their significance.

The 451 Take

We anticipated five major themes to be on full display at 2017's Money20/20: AI, digital identity, IoT, developer platforms and digital wallets. While the latter two trends saw plenty of action in the form of partnerships and product announcements, the former three remained largely conceptual (albeit pervasive) in nature. There is no question that the trifecta of intelligence, identity and IoT will have a profound impact on this space in coming years, but one of the missing ingredients at the show was an absence of compelling inter- and intra-industry partnerships, largely due to concerns over data access and ownership. Most of our conversations alluded to the fact that while hype and optimism is high, the industry is still in discovery mode when it comes to truly executing against these themes.

The Money20/20 top five

Below, we discuss what we believe were the top five announcements coming out of Money20/20, and put them into the context of market trends.

Alipay broadens its reach into North America

Alipay unveiled a slew of partnerships targeted at expanding merchant acceptance in the US. It announced new partners including Marqeta, North American Bancard, Chase Merchant Services and Poynt, while building upon its existing Verifone partnership by enabling Alipay acceptance in Las Vegas and New York taxi cabs.

The upshot

Alipay's expansion into the US gained legs at 2016's Money20/20 through partnerships with First Data and Verifone. Over the past year, it has worked with these partners to broaden US merchant acceptance in travel- and tourism-related segments, reaching several thousand merchant locations through deals with the likes of IHG and Marriot. For merchants, the impetus to accept Alipay is compelling; annually, there are more than 100 million outbound Chinese tourists, 70% being Alipay users, according to the company.

What's more, the US Travel Association reports that the average spending per Chinese visitor was $7,200 in 2015 – the highest of all international visitors to the US. While Alipay entails higher per-transaction fees than a standard credit card transaction, it gives merchants access to an audience with spending power – some 10 million Alipay users spend $45,000 - $75,000 through the app annually. More importantly, Alipay offers US merchants a platform to engage Chinese tourists before, during and after their trip. The partners Alipay announced at the show will help broaden its acceptance footprint, and connect more US merchants into its platform.

Visa unveils an antifraud platform

Visa ID Intelligence is a platform designed for issuing and acquiring banks as well as merchants to streamline integration of next-generation authentication mechanisms. Deployed through Visa Developer, the platform is intended to connect Visa's partners with a curated and pre-vetted assortment of authentication vendors. With support for biometrics and identity documents today, the Visa ID Intelligence will expand to include identity decisioning in 2018, through partnerships with Neustar and ThreatMetrix.

The upshot

Recent breaches have placed unprecedented amounts of customer data in the hands of organized crime rings, compromising traditional approaches to user authentication like passwords and challenge questions. While most banks recognize the imperative for change, large issuers we've spoken with say it can take 12-24 months to onboard a new antifraud partner – clearly an unsatisfactory timeframe given the current pace of digital commerce fraud.

Visa ID Intelligence is an attempt by the leading payment network to expedite its customers' adoption of more robust authentication measures by taking some of the complexity out of vetting and integrating with new providers. The move serves as yet another evolution of Visa Developer, and underscores the emphasis Visa is placing on APIs to operate with greater agility and efficiency.

Ideally, by empowering its customers, the move will help Visa push back against fraud losses with greater speed while further embedding itself in its clients' operations. While we see a clear fit for Visa ID Intelligence with smaller issuers, we question how comfortable larger issuers will be with placing more eggs into Visa's basket, especially at a time when some of its large customers like Chase have made moves to distance their reliance on the network (e.g., Chase Pay).

Mastercard deploys API to help banks improve card-on-file

Mastercard Consumer Control is a set of APIs that card issuers can bake into their mobile banking app or website to provide cardholders with visibility into where their cards are stored online. The tool enables issuers to help their cardholders easily update their payment credentials stored across merchants' card-on-file systems, as well as set limits on spend for each stored card. First Tech Federal Credit Union will be among the early adopters.

The upshot

From Netflix to Uber to Amazon, a vast array of merchants and billers now rely on card-on-file billing to eliminate the friction of entering payment credentials during checkout. This billing system has resulted in smoother and faster commerce experiences for cardholders, to be sure. Its growing popularity, however, is creating challenges for cardholders in remembering the online properties they have stored their cards with over the years.

This is becoming both a top-of-wallet issue (especially when it comes time to update payment credentials after a new card has been issued), and a customer service issue (namely heightened call center volume due to unrecognized statement charges) for banks. What we like about Mastercard Consumer Control is that it puts the card issuer in a position to improve the cardholder's digital shopping experience, deliver a value-add and drive traffic to their online and mobile banking channels.

This is particularly critical at a time when third parties like Apple and Samsung are attempting to own more and more of consumer's digital payment interactions. We expect card-on-file billing will only continue to gain popularity, in part thanks to the recent expiration of Amazon's one-click patent, making the timing of this Mastercard's announcement particularly fortuitous. 451 Research's retailer surveys show that 57% of e-commerce merchants have already implemented card-on-file billing, with more than one-third planning to deploy over the next 24 months.

Ingenico Group embraces tablet POS with release of new device

Ingenico Group released its Android-based tablet POS device called Moby/M70, which is targeted at ISVs and developers in the US market. The device is designed for deployment across a range of verticals, including healthcare, retail and food, and beverage. The Moby/M70 can be custom-branded, and when deployed in conjunction with Ingenico Group's mPOS EMV SDK and EMV Gateway, comes out of the box as an EMV pre-certified offering.

The upshot

Ingenico's launch of a tablet POS device addresses the evolution of the preferred form factor for acceptance in the midmarket. Our research shows that SMB merchants are increasingly gravitating toward tablet-based POS devices, which deliver considerably more functionality and flexibility than a traditional back-office POS system, while offering more versatility than a smartphone-based mPOS solution.

Ingenico's move also supports the proliferation of software in the SMB market. In a recent study of 250 SMBs, we found that 70% of respondents leverage software they consider to be 'mission critical' to running their businesses, with POS software ranking as the top application. The Moby/M70 aims to tie into this diverse software ecosystem by providing a device that is developer friendly (e.g., SDKs, pre-certified, Android OS), and capable of supporting different use cases, such as pay-at-table and in-store checkout.

Early on in the mPOS market's evolution, the trend was for ISVs and developers to launch their applications almost exclusively on consumer-grade tablets. However, the expansion of the market has seen growth in more purpose-built devices such as First Data's Clover, Verifone Carbon and Poynt. All of these players have aspirations of building software developer ecosystems oriented around their hardware – a vision Ingenico is chasing as well.

PayPal tackles the burgeoning marketplace opportunity

PayPal for Marketplaces is a payment product for providers that need to facilitate transactions between buyers and sellers, such as platforms (e.g., ride-sharing), marketplaces and crowdfunding. It supports PayPal, credit and debit transactions, and is designed with flexibility to address different needs pertaining to risk, payouts, multi-party disbursements, and fee and commission collections.

The upshot

From Uber to Airbnb to eBay, marketplaces have become a highly popular e-commerce model that accounts for a significant percentage of overall online transaction volume. From a payments standpoint, marketplaces present a lucrative volume opportunity, but also a unique challenge. They have a need to support payment collection from buyers, and payment disbursement to sellers, while collecting fees/commissions and operating in a complex risk environment.

This is one of the reasons well-tenured payment processors looking to target marketplaces have chosen to buy, not build, as evidenced by Chase Merchant Services' recent acquisition of WePay. PayPal made a play of its own back in 2013 by purchasing Braintree for $800m – a move that has undoubtedly underpinned the creation of PayPal for Marketplaces. What hasn't been made clear is how PayPal intends to position this marketplace initiative in relation to Braintree's existing marketplace payments product.

Regardless, there is no question that with this move, PayPal will face competition from Stripe, which has carved out a strong reputation as a marketplace provider with a deep bench of capabilities. PayPal's ace comes in the form of its international reach, and existing active relationships with 201 million consumers and 17 million merchants globally.

Notable mentions

Facebook taps Visa for tokenization: Facebook announced that it has joined the Visa Digital Enablement Program (VDEP), providing it with a commercial framework to access Visa's token services. The announcement shows that Facebook still has aspirations of evolving into a commerce platform, despite the nascence of its strategy. We expect Facebook Messenger, which has already seen collaboration with players like PayPal and Mastercard on chat bots, to become an increasingly visible part of its commerce strategy moving into 2018.

Apple Pay launches with new merchants: Apple used its opening keynote timeslot on day one of the event to play up new and recent partnerships with 'everyday spend' merchants in an attempt to emphasize the everyday applicability of Apple Pay. In November, Apple Pay will be live in McDonald's and Chipotle's order-ahead apps in several cities. It also announced contactless tickets will be supported in its Wallet app at all Ticketmaster sports and concert venues in the US. The partnerships show the emphasis Apple is placing on driving habituation and frequency of use across its user base in attempt to curb the new-user falloff that is customary with digital wallets.

Zelle sees an enrollment surge: The bank-led P2P payment system reported that in Q3 it saw an average of 65,000 daily enrollments, handling some 60 million transactions valued at $17.5bn. Zelle counts roughly a dozen live bank partners including Bank of America, Citi and Wells Fargo. Often lauded as a Venmo competitor, Zelle differs in that it is integrated into the mobile banking apps of its partners, providing instant access to tens of millions of users. Zelle is slated to launch a stand-alone app in coming months. We anticipate over time the initiative's broader aspiration will be to evolve into a consumer-to-business payment method (as Venmo recently did) in an attempt to generate transaction-based revenue.

Vantiv leverages Aevi's point-of-sale app marketplace: When we first met with Aevi at 2016's Money20/20, expansion into the US was still a goal on the horizon. At this year's show, the company announced a strategic partnership with Vantiv, providing the massive merchant acquirer and its ISV partners with access to its open application marketplace via Vantiv's SmartPay suite of third-party POS devices. The partnership underscores the trend of developers and application marketplaces as new distribution channels in payments. Also worth noting is that Aevi is pursuing a differentiated strategy from competing app marketplaces, given it is operating across multiple third-party hardware platforms.

Amazon partners with First Data's Clover for order-ahead: As we discussed in our report on Amazon's payments strategy, the e-commerce giant intends to extend its payments business far beyond the confines of its own website. With this partnership, starting in November, the Amazon app can be used for ordering takeout from select restaurants in several northeastern states as well as Seattle. The partnership highlights the effectiveness of tablet POS partners in bringing new commerce experiences to market quickly while emphasizing order-ahead as a strategic payments focal area for Amazon.

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