C&B Notes

Payment Data > Payment Fees?

New market entrants are leveraging mobile technology and, in the process, are putting pressure on payment fees.  While both this innovation and regulatory pressures will disrupt the payments industry, TechCrunch argues that the ability to leverage purchase data presents a new revenue channel that could more than offset losses to these legacy revenue streams.  If privacy concerns prove not to be overly nettlesome, consumers and retailers (and maybe even payment companies) will likely end up better off.

We are in the midst of a great revolution in the payments space: anyone with a phone can now accept credit cards; online-to-offline commerce is allowing online payment for offline purchase and significant friction is being removed from the consumer purchase experience thanks to mobile.  All of this innovation (read: competition), combined with government intervention, means that payment fees are falling, threatening revenue streams for incumbents and startups alike in the payments space.  But a broader opportunity exists: using the data of payments to build a more valuable, more defensible business model, one not dependent on fees.  The result will revolutionize offline commerce and online advertising.

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It comes down to something rather simple: Connecting the bank accounts of buyers and sellers will never be as valuable nor defensible as connecting buyers and sellers… As society goes increasingly cashless, payment companies will have a larger business, and a more valuable one, in closing the loop for offline transactions and helping deliver customers.  The data they possess is without equal; did somebody buy something?  How much did he spend?  What did she buy?  Paper money cannot be tracked in this manner.  In order for Online-to-Offline commerce to take flight, every merchant needs an ability to track online/mobile action to offline purchase, and PayPal Here, Square, GoPayment and others could provide just this for a whole new class of small merchants.

Imagine that Wendy’s, or even a local handyman, wants to advertise on the Internet.  What’s the point?  What does a click, or an impression, really mean?  It’s clear what it means online, since every click can be measured to “action” (e.g., purchase) for an ecommerce company.  Who can tell Wendy’s, or the local handyman, if that online advertisement worked?  In an increasingly cashless society, the answer is pretty clear: the payment infrastructure.  Tracking that purchase back to the originating source (Google? Yelp? Patch?, etc.) is known as “closing the loop” and will revolutionize offline commerce and advertising alike.

The million-plus merchants walking around with Square, PayPal Here, and GoPayment dongles want more customers, and these dongles provide a means to “close the loop” and let those merchants acquire more customers, remarket to those customers, understand those customers, and do everything that ecommerce companies have taken for granted for over a decade.  Legacy POS systems were poorly integrated and insufficiently verticalized, often requiring a merchant to have separate relationships with every player in the payment chain (hardware vendor, merchant bank, CRM system, etc); moreover, they were priced out of reach of the sole proprietor.