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
V.me, 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: http://www.soaringvc.com/html/team-steven.html
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