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While Many Decry Margin Compression, Report Paints Sunnier Picture of Acquirer Profit

Many merchant-services executives have complained for years about so-called margin compression, a relentless loss of profitability driven by competition on price per transaction. But now two researchers argue acquirer profitability, far from collapsing, is actually much better than widely thought.

“There has been a lot of talk about margin compression, but the reality is margins have been expanding,” Rick Oglesby, senior researcher at Centennial, Colo.-based Double Diamond Payments Research, tells Digital Transactions News.

Oglesby and Marc Cochrane, a researcher and consultant at Double Diamond, last week released a report called “Acquiring Acquirers: Why Insiders Are Bullish on the Acquiring Sector” that looks at acquirer profitability as one factor among many that make acquirers attractive acquisition candidates.

The authors acknowledge that independent sales organizations and merchant processors do indeed confront significant pressure on merchant pricing. In recent years, much of this has been brought on by the nearly 5-year-old Durbin Amendment, which not only capped debit card rates but also led to merchant demand for greater pricing transparency in the form of so-called interchange-plus pricing.

Digital Transactions, February 23, 2015
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Why Billing Revolution Is Betting on Credit Cards for Mobile Payments

Billing Revolution is among a crop of startups that are trying to build mobile-payments businesses that don’t rely on new technologies like near-field communication (NFC), a sophisticated interactive technology that has become bogged down in disputes between banks and mobile carriers. That could be an advantage for the startups, say some. “I continually hear from payments-industry players, ‘How do I make money now on mobile payments,” says Todd Ablowitz, president of Centennial, Colo.-based consultancy Double Diamond Group, in an e-mail message. “Anything that can generate revenue?without waiting for macro changes in the landscape (like NFC phones)?is highly attractive.” Ablowitz says he is advising Billing Revolution.

Digital Transactions News, September 24, 2009
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Apple Killed the Mobile Wallet? No, Not in the Least

Rick Oglesby, senior analyst at Double Diamond Payments Research, says Apple has killed the mobile wallet. No offense to Mr. Oglesby, but I think just the opposite is true. In fact, I believe Apple has done itself and its customers a gross injustice by walling off access to its wallet contents, which currently include payment data as tokens.

Apple is the only company that owns and controls the hardware, firmware and operating system of the device used. And it has big enough political chops to push the product through traditional channels, all while signaling the death knell for the mobile wallet supported by the same channel that couldn’t say “no” to Apple the way they did to Google.

Apple killed the mobile wallet? No, not in the least. Has it influenced the way competitive wallets grow? Absolutely. But I wouldn’t run out to buy shares in chip manufacturers because of it. Software-only solutions that use proven token generation, storage and transmission methods are not dead. They will just take a new route to fruitition.

Mobile Payments Today, January 26, 2015
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Google Wallet Eyeing Softcard Combo?

Google Wallet is reportedly in talks to buy NFC-based mobile wallet rival Softcard, causing speculation about how the combination might stack up against Apple Pay and other emerging wallet concepts. The rumors surfaced following news that Softcard was shedding 60 employees and consolidating its operations. Softcard’s sale to Google Wallet could fetch between $50 million and $100 million, according to reports in TechCrunch and the Wall Street Journal.

What are the competitive advantages of Google Wallet combined with Softcard, versus Apple Pay, which is a hit with its iPhone 6 user base? Observers note that Android has about 60 percent of the smartphone market, with latent opportunity to expand now that Apple Pay—and the emergence of HCE technology—has rekindled interest in NFC payments at the POS.

The combination makes a lot of sense, according to Rick Oglesby, a senior analyst and consultant with Double Diamond Group. “Operating system owners like Google and Apple are in the best position to make mobile wallets work,” he says, because each company’s operating system is integrated with available mobile apps and smartphone browsers, enabling maximum functionality for mobile wallets. At the same time, Softcard owns mobile wallet carrier relationships, which offer value, Oglesby believes. “Google is in the best position to make an Android mobile wallet work, but Google would benefit greatly from carrier support that could be achieved from buying Softcard.” Executives at Google Wallet and Softcard were not available for comment.

PayBefore, January 20, 2015
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Small Businesses Have Even More Credit-Card Reader Options

Small business owners looking to ditch traditional credit card readers have more options than ever.

Online retailers Amazon and Etsy are just two of the latest companies to offer mobile credit card readers to small companies, joining the likes of Square, PayPal and Intuit. Mobile credit card readers are small devices that stick into a smartphone or tablet and allow credit cards to be swiped and accepted from anywhere. Small business owners say mobile readers can be cheaper than traditional in-store credit card readers, which often charge higher fees.

Businesses need to do the math to see if using a mobile credit card reader is cheaper than a traditional one, says Todd Ablowitz, president of payments consulting company Double Diamond Group. Bigger businesses that accept a lot of credit card payments may find traditional credit card terminals cheaper in the long run. They charge monthly fees, but they generally take a smaller percentage of each transaction, sometimes below 2 percent, says Ablowitz.

Not all card issuers will be offering chip-based cards right away, Ablowitz says, so small businesses will have to decide if they want to make the switch based on how many chip-based cards their customers start to use.

The New York Times, January 7, 2015
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How Apple Killed the Digital Wallet

iphone image for DT 1.15After years of watching quietly while Bling Nation, Google, Isis/Softcard, PayPal and others tried and failed to popularize the digital wallet, Apple finally launched its product in October. What’s the impact? The concept of the digital wallet is now dead, and it’s been replaced by the physical-digital wallet.

The traditional leather wallet is a storage mechanism for consumers’ cash, credit, debit and loyalty cards and coupons. The first generation digital wallet, starting in the late 1990s with PayPal and eBay, was a software solution that provided convenient way to store cards for repeat online purchases.

Once the iPhone came about and mobile commerce began to take hold, Apple extended this model to iTunes, and Google followed with Google Play, both providing a software solution for repeat online purchase via the mobile device. Braintree and Stripe extended this even further, capturing the in-app and mobile transactions that took place outside of iTunes and Google Play.

Mobile network operators (MNOs) sought to take the digital wallet concept offline by storing payment credentials within the only part of the mobile device that the MNOs could control — the SIM card, and transmitting the credential to payment terminals via a near field communications (NFC) radio. This introduction of hardware componentry into the payments game created a tug-of-war between the haves (those that had influence over hardware components) versus the have-nots (those who did not have influence over mobile hardware).

So, we are left with the death of the digital wallet concept and only the physical wallet survives, but in a mobile form. What does this mean? It means that banks can pretty much give up on their plans to launch their own wallets, they will need to partner with the operating system owners, or go home.

Mobile Payments Today, January 2, 2015
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Payments? Nah, We’re a Tech Company

At The Electronic Transactions Association’s October 2014 Strategic Leadership Forum, I moderated a panel on the changing acquiring landscape, and how technology and technology solutions and services are permeating payments through­ out the various channels and verticals. What really struck me was that none of the companies on the panel would admit they were a payment company. All four companies said they were tech companies, despite some of them originating from payments. Global investments in financial services technology (fintech) ventures have more than tripled during the last five years – from under $930 million in 2008 to more than $2.97 billion in 2013. This shows that value is being placed on technology in the financial services industry by the market and by the investor community. We are in a time of opportunity with disruptions in commerce never imagined when the mag stripe was introduced more than 50 years ago.

The rise of the marketplace model

There is a rapid emergence of the marketplace model, proliferating through many industries. Companies like Uber, AirBnB, and Care.com are marketplaces disrupting their vertical markets, while companies like Wepay are focused on providing payments through slick APIs leveraging a full-service Payment Facilitator model for those marketplaces.

What is most interesting is that technology companies are starting to enter the payments industry, and companies that were historically payment companies are evolving to become technology companies as well as some becoming full-service marketplaces, and the payoff can be huge, with multi-billion dollar valuations for some of these players.

For years, legacy business models, inertia, and the complexity of payments restricted growth in the payments industry, allowing, at most, a slow evolution. With today’s foundation of the internet, mobility, cloud computing, and new business models, we see a much more rapid convergence of technology, payments and services that puts FinTech on a path of revolutionary change, or at least hyper-evolution. I think we can all agree, it will be fun to watch.

The Green Sheet, December 22, 2014
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Think Apple Pay is the Biggest Thing in Payments? You’re Missing the Poynt

Apple Pay was the talk of the Money20/20 trade show last month, but should it have been? Before Apple Pay can become a dominant payment vehicle, merchants need the ability to accept it (only about 2% of merchant locations can do so today), so it’s far more important to complete that prerequisite.

Why is this transformational? Innovators of any type (payment networks, payment facilitators, digital-wallet providers, loyalty providers, solutions for the automated clearing house, etc.) could obtain instant acceptance at a wide variety of POS locations. It also removes massive barriers to entry, which will create competition across the board.

Under this model, app-store providers can monetize their technology solutions and merchant footprint through a much broader set of software solutions that they would not be able to create on their own. The same is true of software developers. They can monetize their ideas and code in ways that were never before possible.

Last but not least, acquirers and independent sales organizations can monetize their distribution channels across an entirely new set of services (not just payment and POS), without needing to become experts in how merchants run their businesses. And, by creating a wide set of new, marketable services, app stores also reduce the dependency these providers have on the payment networks. The payment networks could soon be just another app within a store that includes thousands of apps. For example, banks or groups of banks could offer payment services directly to merchants via the app stores, cutting out the payment networks altogether.

Apple has proven the app-store model via its consumer app store and devices. Android/Google/Amazon have continued that model and have shown that it is truly scalable. Now merchant app stores are next, and if this takes off everything we know about the payments business could change.

Enablement of NFC payments to accept network-sanctioned solutions such as Apple Pay may cost a merchant from a few hundred to a few million dollars. For the same price, however, merchants could eliminate the need for networks altogether, and that could be priceless.

Digital Transaction, December 8, 2014
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Apple Pay Accounts for 1% of Whole Foods’ Transactions

It’s been four weeks since Apple Inc.’s mobile payments system Apple Pay Oct. 20 debut, and most of Apple’s merchant partners are keeping mum about early results.

But one merchant, grocery chain Whole Foods Market Inc., says it completed 150,000 Apple Pay transactions in the first 17 days following the launch of the payment method that enables consumers to use their iPhone 6 or iPhone 6 Plus smartphones to pay in a store with one touch. That puts Apple Pay transactions at 0.91% of total sales during the period, experts say. The Apple Pay “experience at checkout has been very fast, convenient and secure,” says a Whole Foods spokesman.

But experts say Whole Foods’ numbers likely aren’t typical. “1% is a very big number this early on which could well relate to a higher than average overlap between the Apple/Whole Foods customer bases, Whole Foods’ proactive approach to mobile payments in general, and perhaps some incremental marketing activities,” says Rick Oglesby, a senior analyst at Double Diamond Group LLC.

Internet Retailer, November 14, 2014
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CurrentC, an Apple Pay Rival, Gets Hit by Hackers

A worker uses Apple Pay inside a mobile kiosk sponsored by Visa and Wells Fargo set up to demonstrate the new Apple Inc. mobile payment system in San Francisco.

CurrentC, the retailer-backed mobile-payment system touted as an alternative to Apple Inc. (AAPL)’s platform, was hacked during a test of the technology, resulting in some e-mail addresses being stolen over the past 36 hours.

The attack represents a black eye for a coalition that’s working to win the trust of consumers and gain an edge over the Apple Pay system. CVS Health Corp. (CVS) and Rite Aid Corp. (RAD), part of the MCX group, stopped accepting Apple Pay last week, putting a spotlight on their support for CurrentC.

CurrentC is slated to debut early next year and won’t be delayed by the security issue, Davidson said. The system will let customers buy items with their phones by scanning QR codes.

The breach itself appears to be small, but there’s a risk that consumers weary of data hacking will be turned off before the new platform goes live, said Todd Ablowitz, president of Double Diamond Group in Centennial, Colorado.

“If you’re launching a new payment system, you have to project a sense of security and gain confidence,” Ablowitz said in an interview. “If I was in charge of MCX, I’d be worried about how it appears to the typical consumer.”

Bloomberg, October 29, 2014
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What the Mainstream Media Got Wrong About Apple Pay and CVS

Mobile payments is such a new concept that many in the media continue to inaccurately report what happened this week between Apple Pay and CVS. Here’s what really happened, and why, no matter what, Apple wins, some experts say.

There have been some reports that cite sources close to MCX who describe a mobile payments checkout process that requires several steps and two bar code scans. But MCX has not released a final product and has been hush-hush, so only time will tell. Apple Pay requires only one touch of an iPhone’s home button.

“MCX could streamline its payment system by leveraging the Apple Passbook mobile wallet and the development tools that are available through Passbook,” says Rick Oglesby, senior analyst at Double Diamond Group, a payments consulting firm whose specialties include mobile payments. Passbook is Apple’s mobile wallet app, which retailers and other organizations can integrate with to store loyalty cards, event tickets and other “passes.” Passbook is also the hub of Apple Pay, storing credit and debit cards.

Apple Pay and NFC represent just one component part of Passbook. Those that wish to compete with Apple Pay will have to do so through Passbook; stand-alone apps won’t be good enough, Oglesby says. So Apple wins either way because it brings consumers and capabilities that can’t be accessed anywhere else.

“This isn’t about retailers versus Apple, it’s about retailers versus payment networks fighting over how they will access Apple’s customers. If you think about it that way, it’s pretty clear that Apple is in the best position. These retailers consider the payment networks to be unnecessary and expensive middlemen.”

Internet Retailer, October 28, 2014
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Apple Embeds NFC in Its New iPad Air 2, Stirring Speculation About Its Mobile POS Plans

ipad 2When Apple Inc. officially launched its Apple Pay mobile-payments service on Monday, all eyes were on the new iPhone 6 and 6 Plus, the smart phones that carry the near-field communication (NFC) technology that makes Apple Pay work in stores. But now it turns out Apple has also embedded an NFC chip in its new iPad Air 2, the updated tablet it introduced earlier this week.

“As tablets go out with NFC chips, you’re putting out an acceptance device. There’s nothing that has to happen but a software update,” says Todd Ablowitz, president of Double Diamond Payments Research, Centennial, Colo.

To the extent the new tablets are ready for contactless EMV cards, they will also be enabled to accept NFC-based mobile wallets ranging from Apple Pay to Google Wallet to Softcard. But many experts expect Apple Pay to be the dominant wallet. Even before its launch, it had already enlisted enough cards to account for more than 80% of U.S. credit card dollar volume.

Rick Oglesby, a senior analyst at Double Diamond, figures Apple may have left the NFC capability inactive for now because of a plan it’s following that may be even broader than the EMV rollout. “Apple has its own internal agenda as to how NFC should develop,” he says. “They’re staging things, and have a reason for staging them in that way.”

Digital Transactions, October 24, 2014
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COMMENTARY: How Passbook Positions Apple to Command—Not Just Align With—the Payments Industry

apple_pay_multi_issuer_screen_092714

Image Credit: Apple – The key to Apple Pay’s power lies in Passbook

With Apple Pay now confirmed to launch on Monday, we are closer to seeing the impact it will have on mobile-payments acceptance, technologies, and standards.

In the meantime, much of the debate concerning Apple Inc.’s payments venture has missed a crucial point. While the discussion has centered on whether Apple Pay will energize mobile payments and the ecosystem for near-field communication (NFC), it is far more important to consider that Apple Pay is merely a component of Apple’s Passbook app, and then to evaluate what the Apple Pay/Passbook combination could mean for the future of payments.

At first glance, it appears that Apple has positioned itself in alignment with the rest of the payments ecosystem to reinvigorate mobile payments. However, in the greater Passbook context you can see that, by positioning itself alongside the payments ecosystem, Apple has greatly bolstered its potential as a payments disruptor.

The key is Passbook. Through Apple Pay, Apple has incorporated the major payment brands and the largest issuers into Passbook, thereby legitimizing Passbook as a wallet. Apple and its payments-network and financial-institution partners have already begun to aggressively promote Apple Pay in an effort to make Passbook a central payments decision point for consumers.

Digital Transactions, October 16, 2014
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Apple Pay Launch Day: My First Transaction

Apple Pay TransactionMonday morning on my early flight to NYC, I have to admit I was anxious. My plan was to download iOS 8.1 with Apple Pay on landing, and I was pumped to see it in action. I had waited patiently since September 19 when Apple Pay was announced, and finally launch day had arrived.

The topic of mobile payments is not new. Business models, technologies and standards have consumed conversations related to the future of commerce since the early 2000’s. However, after these many, many years, I was finally able to give it a spin and see if my thoughts and predictions had any real world merit.

Did Apple Pay meet my expectations, and live up to my predictions from years ago? It really was very cool. My first transaction was easy, convenient, and with my consumer hat on, it definitely was secure. 

After I landed, I installed iOS 8.1 and loaded Apple Pay with two credit cards and one debit card, I jumped in a taxi to Manhattan. I did not have to type in a PIN to access my mobile wallet or close any apps that were open, all I had to do was wave my phone near the reader, and it automatically opened my wallet. I provided my Touch ID to verify it was me, and just like that, it was done. It took about one second to complete, and my default card was automatically charged – the transaction appearing in Passbook.  So cool!

For years, I have felt that the only way to consumer adoption is simplicity, ease and speed. To achieve those things, it’s imperative that you don’t have to think about it, press buttons, enter codes or any other silliness. Consumers want to pay – simple. With their card, they just swipe – super easy – but definitely not easy for mobile payments to compete with. So, what does that mean? As I’ve said for years, it’s crucial that the simple act of tapping “pulls” your card out, regardless of what screen you are on – even if it’s locked, with the screen off. Apple accomplished exactly this, and it’s the “killer app” that crushes the alternatives.  ONLY Apple and Google, who control the operating system, can control the phone to this degree. It will definitely put pressure on Paypal, MCX and the other contenders – and i just don’t know how they could overcome it. Is this Checkmate?

This all reminded me of a video interview I did on NFC versus Cloud-based payments about a year ago. In the video I talk about this very thing; how tapping for in-person mobile wins, and why the very act of using a mobile device has to behave just as I mentioned above – it has to make it easy by not requiring the consumer to do anything other than tap and verify themselves.

I am not sure when my excitement will start to fade, but I will definitely be using it again soon, and I can’t wait to see what this does for the industry.

Apple Pay: Is It Enough?

Apple Pay: Is It Enough?

With the launch of Apple Pay, Apple and its partners took the single largest step toward mobile payments enablement that the payments industry has seen, but it’s still probably not enough to move the needle for offline mobile payments.

This is, without a doubt, the single biggest move towards the creation of a broad-based mobile payments infrastructure since mobile payments were first conceptualized. However, we also must look at what was not accomplished.

So those of us that were watching the Apple event and expecting payments disruption were left with a case of disruptus interruptus. For now, Apple has chosen to play within the payments system to launch a starter product for offline payments. But this starter product is not enough. Payments companies know it, consumers know it, merchants know it, and Apple knows it. There is much more to come.

Mobile Payments Today, September 15, 2014
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Apple Poised to Supercharge Mobile Payments

A mobile wallet from Apple could make all the difference in the world to the mobile payments market, says Rick Oglesby, a long-time mobile payments and mobile wallets industry observer and senior analyst at Double Diamond Group, a payments consulting firm.

“With every new iPhone, Apple sells millions of units within just days of launch, and those users want to test drive all of the new features pretty fast,” Oglesby says. “If Apple is truly making a big bet on payments and has the major card companies involved, there is no other provider that can make a bigger difference. And as for NFC, merchants may not need much in the way of new hardware if Apple does this right. Apple has a long history of reinventing things, and when you are talking about computer-to-computer communication, like an iPhone to a POS system, a terminal really shouldn’t be necessary. NFC is likely a part of Apple’s solution, but it could well be a solution that does not use an NFC terminal.”

Internet Retailer, September 3, 2014
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Will Apple Touch ID-Enabled Mobile Payments Reduce Interchange Rates?

Apple and Visa were rumored to be in discussions about an enhanced mobile payments system that could be announced when the tech giant introduces the new iPhone Sept. 9.

“I’m sure that this (cheaper interchange rates) has come up in those discussions,” Rick Oglesby, a senior analyst and consultant for Double Diamond Group, wrote to Mobile Payments Today in an email.

But Ogelsby said not to expect interchange reduction on Touch ID transactions any time soon.

While Visa and MasterCard set the interchange rates, the banks who issue payment cards are the ones who benefit from those fees.

Mobile Payments Today, August 28, 2014
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Keep Top Agents or Perish, Report Warns

As the acquiring business becomes increasingly complex, it’s more important than ever for ISOs to recruit, nurture and retain the best independent sales agents, a new study shows.

“That’s how ISOs can see success,” said Rick Oglesby, who conducted the study as head of Double Diamond Payments Research LLC, a new enterprise that’s associated with the established Double Diamond Group consulting firm. “The ones that don’t figure that out are going to be left holding the bag.”

The “Agents of Change” survey—which centered on independent agents who run their own businesses and do not work as regular ISO employees—indicated ISOs can’t afford to squander time on nonperforming salespeople, Oglesby said.

“If you go with the basic mass-market strategy—come one, come all—you’ll end up with a lot of nonperforming agents,” he maintained. “A lot of effort goes into recruiting agents, and often there’s not much return on it.”

ISO & Agent, August 26, 2014
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THE AGENT CHANNEL

Major research from Double Diamond Payments Research claims that the channel is not dead or dying, but does need to transform itself in order to accommodate a technology-based ecosystem and rapid growth in the ISV distribution channel.

Learn more about the research:

AGENTS OF CHANGE: THE NEXT AGENT CHANNEL AND WHY YOU NEED TO KNOW ABOUT IT

Agent Channel Chart

ISO & Agent, May 23, 2014
Acquirers Should Learn POS And Software, Report Urges

Change Is Coming for Agents as Merchants’ Payment Products Evolve

Sales agents as a way to sell payment-processing services to merchants aren’t going away, but they aren’t staying the same. That’s according to a new research report from Double Diamond Group LLC, a Centennial, Colo.-based payments-advisory firm.

“This is a period of significant change in acquiring,” says Rick Oglesby, senior analyst at Double Diamond.

Despite all of this change, Oglesby dispels the notion that the agent channel will die. “There’s always a drastic reaction when people see a new change,” Oglesby says.

Indeed, in the report, “Agents of Change: The Next Agent Channel and Why You Need It,” 33% of the 21 merchant-acquiring executives interviewed believe the agent channel is increasing in importance, while 38% said it is staying the same and 29% said it was decreasing in importance.

Digital Transactions, August 14, 2014
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