Mobile Payments – Trouble in paradise

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Mobile Payments are going the wrong way.

  • It appears that the usage of Apple Pay on the iPhone is now declining compared to where it was in June 2016, sending a worrying signal for the outlook for mobile payments in general.
  • The most recent data from (see here) shows that both adoption of Apple Pay and its usage are showing the first signs of decline.
  • Android Pay and Samsung Pay have yet to show this decline but I suspect that this is due to the fact that they have not been around long enough to show this trend.
  • Neither of these two offer anything that Apple does not and in almost every case, I think Apple does it better.
  • The percentage of iOS users surveyed that had tried Apple Pay fell from 23.8% in June 2016 to 21.9% in March 2017.
  • Furthermore, in March 2017, 48.6% of those users that had not tried Apple Pay said that they were happy with their current payment method (plastic card) compared to 37.0% in March 2015.
  • Of those that have used it, those that “use it at every opportunity that I get” fell from 48% in March 2015 to just 18.7% in March 2017.
  • It also appears that security, ease of use or the store’s ability to make the payment work are not the reasons for Apple Pay’s lacklustre performance but more the fact that paying with plastic is just fine.
  • I think that this is a great example of how important it is to offer a better experience when one is looking to drive adoption.
  • Paying with a mobile phone is no easier or convenient than paying with a card and in many circumstances, it is much more difficult.
  • This also explains why mobile based payments have been so successful in China despite being based on the much maligned (in developed markets at least) QR code.
  • The offline experience to do almost anything in China is dire when compared to USA or Europe which has meant that even QR codes offer a huge improvement in the user experience.
  • For example, when using WeChat Pay, the time required to buy a train ticket can be reduced to 5 minutes from 45 and wait time at a hospital can be reduced to 20 minutes from 2 or more hours.
  • This is the issue that I see with mobile based payments in developed markets.
  • Plastic cards have very high penetration and almost everyone accepts them.
  • At the same time payments using a mobile phone don’t particularly improve the user experience for the consumer which is what I think has led to the ambivalence that this survey is pointing to.
  • The net result is that to win the kind of adoption that China has, mobile based payments need to offer the user a compelling reason to use them.
  • Failure to do this could see adoption and usage decline to a niche of power users with the vast majority of users sticking with plastic cards which, by all accounts, are plenty good enough.
  • It looks like wallet manufacturers are going to be in business for much longer than anyone thought.

MCX and Ecosystems – The white flag.

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MCX serves as a lesson to all in the ecosystem.

  • Merchant Customer Exchange (MCX) has paid a heavy price for ignoring the fundamentals that govern whether or not Digital Live services and ecosystems will be successful.
  • MCX is an attempt by the retail industry to break Visa and Mastercard’s stranglehold on payments with a mobile-based payment system.
  • In theory this makes a lot of sense as retailers operate by making wafer thin margins on huge volumes meaning that it hurts when card companies take even a small slice of the transaction.
  • Unfortunately, MCX assumed that because it had the support of the biggest retailers in USA, that the user experience did not matter.
  • Consequently, what emerged was a clunky, difficult to use payment system using multiple QR codes that has also proved to be somewhat insecure resulting in a couple of security breaches.
  • The result has been that both its retailers and their customers have refused to adopt the system and former partners now working to ensure that their offerings are compatible with market leader Apple Pay.
  • This is why MCX has “postponed” the nationwide roll out of the app, fired 30 of its staff and will now concentrate on partnering with banks.
  • To heap further humiliation upon MCX, this coincides with Walmart (once its biggest backer) launching its own payment system in 600 stores across Texas and Arkansas.
  • It seems that Walmart has learned something from its hapless partner as its system is much less cumbersome than MCX despite still being based on QR codes.
  • However, even in this form, it has little hope of competing against Apple Pay which uses the iPhone’s NFC chip and a compatible terminal to offer a best in class user experience.
  • The simplest and most important rule for any user oriented Digital Life service or ecosystem is ease and fun of use (RFM Law of Robotics No. 1).
  • Smartphone users now have so many options to choose from that anything that it is not intuitive, quick to learn and easy to use will, in all likelihood, fall by the wayside no matter how good the technology is.
  • Without a reasonable score on ease of use, RFM’s other 6 Laws of Robotics do not really matter as the users are likely to drop the service or ecosystem very quickly.
  • This problem is most often encountered by technology companies that let the engineers who build the technology also design the user experience. .
  • What the user inevitably ends up with is a bare bones offering that is unappealing to look at and painful to use.
  • Sony’s user experience that runs the PlayStation 4 is a great example of this and I think that Sony is lucky that in this generation, Microsoft got it very badly wrong at launch and is still paying the price for it.
  • This is why user experience design is so important in the current environment and those that ignore it are likely to fail no matter how good their innovation is.
  • Apple, Google and increasingly Facebook and Microsoft have a pretty good grasp of this concept but this is something that Samsung, Sony and many other Asian companies really struggle with.
  • With the exception of China, which is a law unto itself, there is no change to the current outlook where the big ecosystems of today look set to dominate the markets of tomorrow.

Mobile Payments – Horrible trade-off

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Security and a good user experience are almost mutually exclusive.

  • I continue to believe that the trade-off between ease of use and security remains the single biggest impediment to the take-off of mobile payments.
  • In 2012 every man and his dog was creating an app store as this was then a major differentiator in the user experience.
  • In 2015 we are seeing the same thing again with mobile payments as every bank, ecosystem and payments processor wants to own the customer when it comes to paying for goods and services.
  • Unfortunately, in this mad scramble almost everyone has forgotten that unless paying with a mobile phone is much easier than presenting a plastic card, no one will bother.
  • This is where almost everyone falls over because those that have designed the solution almost always know nothing about the user experience.
  • One only has to look at the Merchant Customer Exchange (MCX – see here), Chase’s recently announced mobile wallet or any solution based on QR codes to realise that consumers will loathe using these offerings.
  • These solutions have addressed the problem from the security angle and a desire to ensure that fraud rates are at least as good if not better than the existing plastic cards.
  • Unfortunately, this thought process lays bare the critical problem with security and mobile payments in particular.
  • This problem is that good security and a good user experience are almost always mutually exclusive.
  • This means that a secure service is horrible to use and an easy and fun to use service is insecure.
  • So far, I do not think that anyone has come close to solving this problem as even Apple Pay is still experiencing fraud rates that are far above where they need to be to see real traction.
  • In actions where the user has no choice (like airport security) ease of use does not matter but where one is trying to entice a user to try something new, it is of paramount importance.
  • Hence, it will be the service that solves this problem that will win.
  • At the head of this race has to be Apple which has done a good job in putting together an easy to use, end to end service but now it has to help its partners to bring the fraud rate down.
  • I think that the banks, merchants and credit card companies have no chance as their understanding of how important it is now to provide a good user experience is almost non-existent.
  • Google also has a good opportunity here, but I think it will continue to be hobbled by the inherent fragmentation and insecurity of the Android platform upon which it is based.
  • I suspect that users will be using plastic for much longer than those investing heavily in mobile payments would like us to believe.


Apple Pay – Pulling teeth.

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Apple Pay problematic but better than the rest.

  • Payments are horribly difficult.
  • From vested interests to proprietary standards and a myriad of complexities, getting a mobile payments system to work is a herculean task.
  • This is why I suspect that Apple Pay is experiencing teething problems
  • Research firm Phoenix has conducted a survey that found of the people who had enrolled in Apple Pay only 59% has actually tried to use it and two thirds of those had experienced some difficulty in effecting the transaction.
  • In many cases it was due to the merchant itself not being ready to support the service despite being on the list of those that are supposed to be enabled to do so.
  • Other issues involved the terminal not working, the transaction taking too long and timing out and inaccuracies when the transaction was posted.
  • In many cases the cashier was unable to help fix any of these problems.
  • To be fair to Apple, none of these problems appear to be its fault, highlighting the problem of being dependent on operationally much weaker partners.
  • This combined with weaknesses in how the banks authenticate cards added to the iPhone are all causing the service to underperform the magical experience promised by Apple.
  • I suspect that these problems will eventually be ironed out but it will take a long time as the payment industry is slow moving at best.
  • This gives the alternative offerings more of a chance but they are in far worse shape than Apple Pay.
  • For example, Google Wallet has been around for a number of years but the user experience is so bad that it has never gained any traction.
  • Very like 2009 where every man and his dog created an app. store, now every man and his dog are creating payment services.
  • Almost all of them are likely to fail badly.
  • These services are extremely difficult to get right as one has to line up the entire payment chain from device to merchant to processor to bank.
  • Furthermore this all has to be linked with very secure, very robust, easy and fun to use software.
  • When it comes to fixing all of the back end systems and getting all of the different players on board, the alternative offerings are all miles behind Apple Pay.
  • Consequently, I think that Apple Pay will get it right long before any of the alternatives do, meaning that its position as the payment provider to iOS users is pretty safe.
  • Although Apple has 40% market share in the US, its global average is much lower at around 16.5% meaning that more than 80% of the mobile payment opportunity will still be on the table even when Apple gets it right.
  • I continue to see Apple Pay as a catalyst that stimulates the payment opportunity for others rather than something that takes over the world.
  • Hence, I see big opportunities for other players but progress to date is going to make them followers rather than leaders.
  • Microsoft and Google remain my favoured ways to gain exposure to the digital and mobile ecosystem.

Samsung vs. Google – Here comes trouble

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Mobile payments could cause the gorillas to start fighting again.

  • Google’s acquisition of technology from Softcard threatens to shatter the fragile peace that has existed between Samsung and Google since January 2014.
  • For more details please see Samsung & Google – Gorilla War – 27th May 2014
  • Following the failure of its own Google Wallet that was launched in 2011, Google has decided to acquire the technology and patents of Softcard in another effort to get a foothold in this important space.
  • At the same time Samsung has acquired LoopPay (see here) which I think will be already be integrated into the Samsung Galaxy s6 when it launches on Sunday.
  • This is because Samsung has been working with LoopPay for quite some time and I think that the acquisition is a sign that this is the technology that Samsung has decided it wants to run with for payments.
  • This will lead to Samsung and Google once again competing against one another for the attention of the user, but I do not think that Samsung is going to fall for the same trick twice. (see here).
  • Softcard is (or was) a collaboration between AT&T, T-Mobile and Verizon that offered users a NFC based mobile payments system.
  • Unfortunately due to a clumsy set up process, poor user experience and limited credit card support, Softcard has gained virtually no traction.
  • Vast sums of money have been poured into it as the cash burn looks like it is around $15m per month.
  • However, it looks like Google has simply acquired the technology and the patents, leaving most of the people and the infrastructure behind for the telecom operators to deal with.
  • Using Softcard will provide Google with much greater operator support but it will not fix the inherent usability problems that exist within both Google Wallet and Softcard.
  • Google must now put the two technologies together and come up with a seamless, easy and fun to use solution that users will love.
  • This will take quite some time (I am expecting some announcements at i/o on May 28th and 29th), giving Samsung a lead in terms of having something workable in the market.
  • Samsung has lost of lot of market share over the last 9 months but it is still the largest Android vendor by quite some margin.
  • In order to ensure that Google’s payment system has the best chance, I can see Google altering its Mobile Application Distribution Agreements (MADA) such that its payment system is required to be the default option with the app. placed front and centre on the device.
  • Samsung is Google’s biggest distributor of its ecosystem and I am pretty sure that this time it will refuse to put Google’s payment system in a more prominent position than its own.
  • This is because payments is one of the few areas left where Samsung can differentiate itself having ceded the entire ecosystem to Google in 2014.
  • The winner of this latest conflict will be decided by the user, but Google has an advantage by being able to tie its payments system into its very popular ecosystem.
  • This is likely to cause further conflict within the Android camp, handing the advantage to Apple and giving Microsoft an even greater opportunity to bring its ecosystem to life.
  • Microsoft remains my top choice for the ecosystem in 2015E as Yahoo! is still failing to make any real use of the assets it has.

Samsung – Back to basics

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LoopPay must become seamless to create value for Samsung.

  • With the complete cessation of any attempts at the ecosystem (see here), the acquisition of unique hardware is the only way left for Samsung to differentiate.
  • To this end Samsung has announced the acquisition of LoopPay which is an enabler of wireless payments with any terminal that has a mag-stripe reader.
  • Loop Pay consists of a piece of hardware that wirelessly transmits the data of the card to the sensor in the card terminal that reads the magnetic stripe.
  • This is the main advantage that LoopPay has over Apple Pay which requires an NFC enabled terminal.
  • LoopPay will work with any terminal in the world whereas less than 10% of terminals in the US alone are NFC enabled.
  • LoopPay also includes an app. to manage all of the stored cards and to ensure that the appropriate security is observed when making a transaction.
  • There are two disadvantages:
    • First: The user still has to sign or enter a PIN to complete the transaction making using LoopPay no less onerous than using the original card.
    • Second: It requires the user to have a case on his device that turns it into a brick or he has to carry around an extra fob.
  • This is why LoopPay sells itself on “leave your wallet” at home rather than as a “much easier way to pay”.
  • I have suspected for a long time that the Samsung Galaxy s6 will include the LoopPay hardware integrated into the phone which will solve the second problem.
  • However the first problem will be more difficult to solve.
  • LoopPay expects to be able to enable tokenised transactions (like Apple Pay) this year which should solve this problem but how successful it will be remains to be seen.
  • There is a simple test.
  • If the user can pay for goods and services as easily with a Samsung Galaxy s6 as easily and safely as he can with Apple Pay then this will be a resounding success.
  • There is no space for compromise.
  • The slightest complexity, extra step or compromise and this will be a complete failure as many wireless payments solutions have already found to their cost.
  • To date LoopPay has prided itself on supporting any card and a very large range of smartphones but that is now going to change.
  • I suspect that users of other smartphones will be able to use LoopPay with the external piece of hardware but only Samsung devices will have it integrated.
  • This will give Samsung an important differentiator if painless mobile based payments become something that users demand on their mobile phones.
  • Samsung will also have the advantage of having the system work on any payment terminal in the world as long as LoopPay can solve the usability problem with tokenised transactions.
  • Given the complexities involved in tokenised transactions, I don’t expect this to make a real difference on the Galaxy s6 but it could be fully ready for the s7.
  • Consequently, I still see very little that is going to make users rush out and pay up for the Galaxy s6 meaning that Samsung faces another very difficult year.
  • With no catalyst and difficult comparisons to H1 2014, I still prefer Microsoft, Google and even Apple for the ecosystem.


RFM 2015E – Top 5

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The PC market is likely to offer the biggest surprise in 2015E


  • The technology industry is likely to continue scratching its head over what to do with wearables.
  • It is a segment where there is a clear opportunity but nobody seems to have any idea what the real use case for these devices is.
  • Even Apple, which is legendary in its innovative capacity, has produced a device that is little more than a remote control for a smartphone.
  • Most of the noise at CES 2015 is likely to centre on these devices but the criteria for success have yet to be met.
  • These criteria are:
    • Small OS optimised for device function.
    • Battery life measured in months not hours
    • Bluetooth Low Energy (BLE) radio only.
    • Small, fashionable and unobtrusive form factor.
    • Robust and reliable.
  • The only device that I have seen that comes close to meeting these criteria is the Misfit Shine pedometer and sleep tracker.
  • It comes as no surprise that this device sells in reasonable volumes and is the only one that actually makes money.
  • For wearables to take off an exciting use case needs to be combined with these criteria.
  • I fear that the real growth in 2015E will be in the population of the wearables graveyard.


  • Xiaomi rocketed into the general consciousness with 61m units shipped in 2014A and a fundraising at a crazy $45bn valuation (see here).
  • However, despite significant scale, the company is probably still only making EBIT margins of around 3%. (see here)
  • People are assuming that it is the next Apple, but being a commodity Android maker outside of China is going to put pressure on profitability.
  • This, combined with a great need to invest in developing its ecosystem in China, will mean that investments will have to continue growing.
  • Consequently, I can’t see margins expanding until its ecosystem is wildly successful and Xiaomi can start raising the prices of its devices.
  • This will take time and money which will not be what its new shareholders will want to hear.

Ultra HD TV

  • One of the highlights of CES 2015 is likely to be bigger and bigger TVs with higher and higher resolutions.
  • 4K or UHD made all the running last year and this year I am expecting to see 8K prototypes demonstrated.
  • This is yet another attempt by the TV industry to halt the ravages of commoditisation and competition which has caused the prices of TVs continue to collapse.
  • For example, Samsung is currently selling a 55 inch 4K TVs for $980 upon which I doubt it makes any money at all.
  • Furthermore, 4K does nothing for the consumer because in order to even begin to see a difference between 1080p TV and 4K the consumer needs a 70” TV at the normal viewing distance of 9 feet.
  • The average TV size in the US is 36”
  • To get the full benefit of 4K the user needs to sit 5 feet away from a 100” TV.
  • In my opinion this renders 4K next to useless for almost all consumer applications.
  • This will make user unwilling to pay for the TVs and broadcasters unwilling to bear the huge increase in transmission costs that 4K requires.
  • I do not see any real recovery in profitability in the television industry this year.


  • 2015E should see the beginning of a replacement cycle of the obsolete laptop form factor.
  • The Surface Pro 3 has shown the way for where mobile computing needs to go but the Intel Core M family should take this one step further.
  • This will enable a tablet weighing 650g (1.4lb) to have the power and utility of a desktop computer. (see here)
  • This is 200g less than the superb Surface Pro 3 currently weighs.
  • This enables the user to have a far better user experience offering the full ergonomics of a desktop while out of the office.
  • The device can also be used as a tablet when needed without having to compromise either function.
  • The problem is marketing, as the marketing departments of Intel and Microsoft do not yet seem to have realised the opportunity that their R&D has created.
  • Until the user is properly informed, the replacement cycle of laptops will continue to disappoint my ambitious hopes.

Mobile Payments

  • Mobile payments have languished for years.
  • The combination of vested interests and proprietary systems has meant that the user experience has been ignored.
  • The result has been a series of attempts at offering payments with mobile phones that have been more cumbersome and awkward than digging in one’s pocket for a credit card.
  • The launch of Apple Pay has given this fledgling industry a wake-up call as this system is a cinch to use and everyone who uses it, loves it.
  • In order to preserve the exclusiveness of its hardware (and its margins), Apple will only make Apple Pay available on its devices leaving 87% of the global market for everyone else.
  • As is did with the smartphone, Apple has shown the industry the way forward but has also left plenty on the table.
  • Consequently, I suspect that 2015E will be a scramble to offer an Apple Pay like experience on Android and other devices. 

Samsung vs. Apple – No pay day.

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A great payments service is not enough to stem the tide.

  • While Apple continues to expand the reach of Apple Pay, Samsung is looking to save its bacon with a competing offering.
  • This would bring Samsung into direct competition with Google Wallet and it is unclear how this relates to the non-compete agreement that the two companies have in the mobile ecosystem. (see here).
  • Apple has added another 10 banks to the Apple Pay system meaning that 90% of US card transactions could be supported by Apple Pay.
  • The piece that is still missing is the merchants where around 250,000 out of 3m retail outlets in US are NFC enabled.
  • Even if Apple Pay is wildly successful, its reach will still be limited as it will only be available on iOS devices which are in the hands of around 13% of smartphones users across the world.
  • This is the most lucrative 13%, but it still leaves plenty on the table for other offerings should they come up with offerings with similar ease of use.
  • To this end, Samsung has been in discussion with a company called Loop Pay and there is the potential for these two to solve each other’s problems.
  • Loop Pay consists of a piece of hardware that wirelessly transmits the data of the card to the sensor in the card terminal that reads the magnetic stripe.
  • This means that any card can be read by any terminal and LoopPay claims that its technology already works at 10m merchants worldwide.
  • LoopPay also includes an app. to manage all of the stored cards and to ensure that the appropriate security is observed when making a transaction.
  • There are two disadvantages:
    • First: The user still has to sign or enter a PIN to complete the transaction making using LoopPay no less onerous than using the original card.
    • Second: It requires the user to have a case on his device that turns it into a brick or to carry around an extra fob.
  • This is why LoppPay sells itself on “leave your wallet” at home rather than a much easier way to pay.
  • LoopPay expects to enable tokenised transactions in 2015E which should solve the first problem.
  • If Samsung integrates the LoopPay hardware into its mobile phones, this would solve the second problem.
  • RFM thinks that the LoopPay transmitter is small enough to be integrated without any impact on the size or weight of the device.
  • Hence, it is not inconceivable that Samsung and LoopPay together could come up with a solution almost as good as Apple Pay but how would this help Samsung?
  • LoopPay prides itself on supporting any card and a very large range of smartphones meaning that this is not going to be a service that is exclusive to Samsung handsets.
  • If it becomes successful, all the others will begin embedding the hardware as well meaning that any differentiation that Samsung would have created will be gone.
  • To keep it exclusive, Samsung will have to buy the company which is unlikely to come cheap given the hype that has been created by Apple Pay.
  • Consequently, I do not believe that this will save Samsung and that far more needs to be done if the Galaxy S6 and Note 5 are not to be yet more flops.
  • I still fear that Samsung’s handset business will test negative territory in 2015E and still see downside to KRW1,000,000 on the share price.
  • Microsoft, Google and Apple are far safer places to be.

Apple vs. MCX part II – Crash course

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MCX is likely to fail unless something changes.

  • The combined power of Apple and the major credit card companies is likely to exert so much pressure on MCX that something will have to change.
  • Retailers have problems with credit cards. The credit card companies charge them a fee every time a card is used which eats into their wafer thin operating margins.
  • As a result the Merchant Customer Exchange (MCX) was created by a consortium of US retailers to try and create an alternative payment system where the fees would no longer be charged.
  • This involves the use of store cards or direct debit on the customer’s bank account.
  • To date the payment experience has been the same for everybody with the customer presenting a card and signing a slip of paper or entering a PIN.
  • This has meant that MCX was offering a payment experience that was equivalent to everyone else giving a level playing field.
  • However, Apple has thrown a huge spanner in the works by creating a payment system that is much easier for users and that can be used any NFC enabled point of sale device.
  • This is a huge problem for MCX because it threatens to completely undermine all its efforts to move transactions in its members’ stores onto its systems.
  • MCX is developing its own mobile-based payment system called CurrentC but this has two huge disadvantages compared to Apple Pay.
    • First. It is a cumbersome QR Code based system that is more effort than making the payment with a piece of plastic.
    • Second. The merchant has to pay a higher fee to use CurrentC than either Apple Pay or a normal credit card.
    • This is because payment via CurrentC is classified as a “card not present” transaction which attracts a higher fee due to the increased risk of fraud.
    • With the creation of its very secure system, Apple was able to have Apple Pay transactions classified as “card present” transactions which are cheaper.
    • All other forms of in-App purchase also attract the higher fee giving merchants a strong incentive to adopt Apple Pay.
  • These two disadvantages alone are almost guaranteed to ensure that CurrentC fails.
  • The biggest problem with MCX’s strategy is that it is focused on the welfare of the merchants and does not seem to care about the customer experience.
  • This is exactly the kind of thinking that has hobbled the take-off of mobile based payments for the last 10 years.
  • This is where the huge risk lies. If customers start going to stores that accept Apple Pay instead of MCX member stores then there is a huge problem.
  • In the meantime, something has to change as MCX’s current course is almost certain to lead to failure.
  • If MCX is smart, it will quickly move its payment processing infrastructure to support Apple Pay because then it can achieve its own aims while keeping the consumers happy.
  • This would have the benefit of circumventing the fees charged by the credit companies as well as giving consumers and excellent user experience.
  • The consumer is king and there will always be alternatives where he can use whatever payment system he desires.
  • The sooner MCX realises that the financial well-being of its members depends on happy consumers, the better its chance of breaking Visa and MasterCard’s stranglehold on payments processing.