My Dinner with Steve Elefant

One of the most experienced payments industry participants is Steve Elefant.  Currently consulting to Google on its payments initiatives, Steve's background includes entrepreneurial successes with startups ICVerify, Payment Processing, Inc. as well as his highly visible corporate role as the post-breach CIO of Heartland Payments Systems.  

While at HPY, Steve was a leader in increasing security awareness across the payments industry through participation on multiple boards and industry committees, including the FBI's Infragard Electronic Crimes Task Force and the U.S. Secret Service Electronic Crimes Task Force.  His team at Heartland created the company's encrypting E3 terminal line, worked with Voltage Security to harden it, and helped restore confidence in Heartland after its breach of over 100 million card accounts.

Last Tuesday, over dinner at the Googleplex and in a conversation about payments innovation, Steve talked about innovation primarily in business model terms.  While he agreed that mobility and cloud are behind the new point of sale, on two major industry trends, the issue was all about business model.

Peabody:  What about NFC?  Where is NFC heading?  

Elefant:   The mobile operators are forgetting that ubiquity is what drives volume.  The MNOs are trying to make all of their revenue on NFC through what's essentially a proprietary approach.  They're thinking like landlords with property on Park Avenue that deserves top dollar.  Sure, there are hardware costs, $5 or so for the chipset in the handset, the servicing costs of the trusted services manager function as it managed the secure element aren't cheap[s1] .  

But it's all about usage if you want ubiquity.  Right now, it's not looking good because the MNO business model is all about capturing high margin profits in the short term.  Yes, Isis may gain some traction.  But with NFC payments available only on islands and not everywhere, uptake will be hard.  Google Wallet’s openness to all players can help move us and NFC to that ubiquity. 

Peabody:  What could make NFC take off?

Elefant:  The NFC tap-and-go gesture needs to function beyond payments.  For example, look at NFC and hotel guest room access. If every hotel operator must do a deal for secure element rental access with each mobile operator, there'll be too much business  friction.  And there are plenty of other use cases for NFC.  

Remember, security is just not a high margin feature.  It's table stakes.  The security attributes of NFC, strong as they may be, have to be balanced again cost and convenience.  Banks are looking at Isis and Google because they're worried about not being on those smartphones.  But if something better comes along at a lower cost, say good bye to secure element rental revenues  but not to NFC altogether.  I think Apple's hesitance over NFC is an indicator.  However if you combine NFC with Cloud, then there are some interesting things that can happen.

Peabody:  You've been watching the card networks for a long time.  What's needed there?  

Elefant:  The card brands need a kick in their innovation engines.  They're tied to cards very tightly and everyone's experiencing smartphone-based payments in some fashion.  Consumers are experiencing so many other payment methods and brands.  PayPal, Google, LevelUp, others.  

The card brands need to figure out how to invigorate their model in this new environment.  Now that they're public companies it looks like they'e got more underway but they're still highly dependent on banks adopting the products they come up with.  Banks aren't in great shape so adoption through that channel could be a challenge.  I'll be watching, of course, but it could be late for that play.  Merchants have to adopt it, banks have to adopt it, and so do consumers.  Banks have to make enrollment easy, really easy.  The card brands need to move from mainframe time to internet time and along with that comes much more rapid innovation and iteration! 

Steve loves tech.  He's an instrument and multi-engine rated pilot.  I left Steve just before he got on the two-decker, Wifi wielding Google bus to Oakland.  He was online almost immediately, posting to Facebook.  No surprise there.

Steve's bio over at his company's websige:

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