Halloween, the annual celebration of the spooky and supernatural, is just a couple of days away.
For many in payments and the vast ecosystem that it powers, the scariest thing about Oct. 31 might not be the sight of a kid in a full-on Frankenstein costume at the door on Halloween night asking for candy.
The day after Halloween marks the 60-day sprint to the end of the year — a year in which the pace of innovation has accelerated materially. The shifts associated with that innovation are beginning to take root, and those impacts are beginning to be felt.
The 2019 planning sessions that will mark the next 60 days will no doubt include topics of conversation about the scariest things in payments that could knock key players off their game — or turn their plans upside down. Or turn into new opportunities as others take stock and adjust those plans.
Here are a few of those scary topics of conversation and the players they could haunt.
Facebook … and the Facebook Community
The scariest thing for Facebook is the people who use it.
Unfortunately, Facebook has given hate speech a platform and hate speakers an audience, which will, over time, turn off its core users and advertisers.
Facebook leadership underestimated the role that platform governance plays in keeping platforms alive and thriving — and it may be too little, much too late to turn things around. Although the vilest voices on its platform are a small minority today, they may be loud and horrible enough to drive its future in a very different direction than it has long intended.
I’ve often written about this topic over the last several years, well before the 2016 election dominated the headlines about Facebook’s future as a content platform. Before “fake news,” there were the public beheadings, live shootings, live suicides and bullying — many of which were very viral.
All of those posts made it through Facebook’s screens and filters, and circulated on its platform for hours, even days, before being taken down. This happened despite sophisticated technology capabilities that successfully flagged many other types of inappropriate postings, like pornography, and kept them off the platform for years.
It took the public scandal of the 2016 election, the “fake news” that it propagated and the Cambridge Analyticadebacle to force Facebook to face these issues publicly — and then they had no choice. Since then, Facebook has hired thousands to police the content posted on its platform, and to remove fake profiles and the posts that perpetuate it.
Facebook reported on their website that their teams have made progress: They removed 837 million pieces of spam in Q1 2018 before anyone reported it, disabled 583 million fake accounts “within minutes” of going online and removed 24 million inappropriate pictures related to violence and nudity.
But they also acknowledged that their technology “still doesn’t work that well” when it comes to hate speech, requiring manual intervention to review and act upon. Only 38 percent of hate speech content was identified by their technology in Q1 2018, they reported, resulting in the removal of 2.5 million such pieces.
Some of you will scoff, as Facebook has a massive audience — currently 2.23 billion monthly active users — that keeps on growing. And some may rationalize that what has been identified and removed reflects a very small percentage of the offensive content across the platform.
But that would miss a few key points.
According to eMarketer, Facebook can count fewer than half of 12- to 17-year-olds as monthly users on any device, and predicts that it will lose two million users under the age of 24 in 2018 in the U.S.
That’s small for now, but it’s a bellwether of Facebook’s future growth prospects and its ability to retain advertisers that want to reach that demographic.
Facebook’s behavior as a platform has also eroded the trust that consumers have in it as an enabler of innovative payment experiences. In fact, according to our recent study, they come in dead last.
It’s tough to trust a platform that has failed to be a responsible steward of consumers’ personal data. That calls into question whatever potential Facebook might have had to drive commerce via payments on its platform.
And its future is very much in the hands of a community that thinks differently about Facebook today, with many now thinking twice about how and how often they use it.
Google … and Ad-Supported Search
The category that Google innovated 20 years ago — ad-supported search — now appears to be one of its scariest things.
Alphabet reported earnings last week, showing — for perhaps the first time — the impact that consumers’ changing product search behavior is having on its core business of ad-supported search.
Alphabet’s stock took a drubbing, and remains down after they reported a decline in the prices it charged advertisers, coupled with the increase in the cost of paying partners to distribute its search engine — some $9 billion to Apple alone, it’s been reported.
Bloomberg’s examination of Google’s ad business showed an increase of more than 60 percent in the number of clicks on Google’s ads, but a 28 percent decline in prices charged advertisers — something that Bloomberg claims is the biggest drop in three years, and a slowdown that has analysts worried.
And as more inventory shifts to the mobile devices that don’t drive the same conversion numbers for Google as desktop does, analysts worry that the slowdown — and the revenue losses that come with it — could continue.
This is happening at the same time that Amazon’s earnings report showed triple-digit increases, quarter over quarter, in the category that includes its ad-supported revenue. It’s been reported that advertisers are shifting more of their search budget to Amazon due to higher conversions, made easier by its one-click checkout experience. According to eMarketer estimates, Amazon’s share of digital ad revenue will grow from just over 2 percent today to 3.5 percent a little more than a year from now.
This also comes as vertical marketplaces and aggregators have become go-to destinations for consumers looking to make specific purchases. Consumers don’t Google for takeout anymore — they go straight to Grubhub. They don’t search on Google for where to buy a coffee table: They go first to Wayfair or Houzz if they want new, or Chairish if they something vintage. They don’t Google when they want to buy a new flat-screen TV; they go first to Amazon, or maybe Best Buy.
Of course, Google knows this, and is working across a number of fronts to counter the threat to its core business.
For instance, it’s turning tokenized browser-based credentials into a more streamlined way of transacting digitally when landing on a merchant site. There’s a big available market with a lot of room to grow that pie — after all, Amazon “only” has about 50 percent of the online commerce market, and the U.S. Census Bureau still wants us to believe that 90 percent of retail sales still happen in the physical store.
But the wildcard for Google might be how voice commerce will change how consumers search for things they want to buy — whether those searches start in an ecosystem where consumers do buy products today, or whether they start in one that consumers use to search for where they could buy those things.
For Google, it’s a scary distinction with an important difference — and a question that they are now asking Google Assistant to help them answer.
Apple … and the iPhone Customer
The consumers who have propelled Apple into becoming the first trillion-dollar company, and made the iPhone an icon of mobile innovation, aren’t buying iPhones at the frequency they once did.
Upgrade cycles that were once every 21 months have now stretched to 31 months, adding nearly a year from purchase to purchase. Some analysts estimate that upgrade cycles will soon stretch to 33 months –just three months shy of three years.
Part of that expansion is because phones — iPhones, in particular — have become very expensive. The top-of-the-line iPhone X is a smidge shy of $1,500 when all is said and done, and the iPhone 8 is about $900.
But consumers are mostly hanging onto their iPhones because they look very much the same from model to model. Meanwhile, operating system upgrades give consumers the benefits of new features on older handsets — for free.
Not everyone feels compelled to buy a more expensive new iPhone just because the camera is better: For many, the differences in quality are not appreciable enough to justify the extra spend. Neither are the benefits of Face ID, since its widespread use as an authentication method isn’t pervasive enough to drive an upgrade.
Apple is banking that the new iPhone XR will break that upgrade impasse. The XR incentivizes consumers by presenting them with an iPhone that looks different — something that is particularly important to Chinese consumers, whose phones have become as much of a status symbol as they are a digital essential — and is also cheaper to buy.
Analysts expect that the XR will a big seller, and Apple is investing heavily into advertising to boost demand, particularly around the all-important holiday gift-giving season. But those expectations are being dashed over concerns of lower-than-predicted unit sales, since many consumers may have just purchased a pricey iPhone 8 or iPhone X a year ago — and over lower sales volumes, given the lower price point.
According to last week’s report in The Wall Street Journal, Verizon reported record-low iPhone upgrade rates and projected further declines in December.
Expanding upgrade cycles don’t just affect Apple, of course — they are troubling to all smartphone OEMs. Overall shipments of smartphones are off slightly: 2 percent quarter over quarter.
But for Apple, the expanding upgrade cycle is causing its share in key markets to slip: It has lost share in China, and has slipped to third place worldwide. Apple, for all of its attempts to diversify away from the iPhone, remains highly dependent on the revenue it generates.
That’s why, for Apple, the scariest thing is also its great paradox: The consumers who love the iPhones they buy so much also want to hang onto them for as long as they can.
PayPal … and Alexa
Amazon has been purported by many to be the scariest thing to show up on their doorstep, at just about any time of the year. But for PayPal, Alexa is a particularly scary sight, all wrapped up in the Echo ecosystem, now 50,000 skills strong and embedded in thousands of devices — some that are Amazon-branded, but many that are not.
And it’s now driving commerce.
Alexa, of course, is the very non-threatening, pleasant-sounding digital personal assistant connected to the Amazon ecosystem, who can play your favorite song, tell you corny jokes and now order and have delivered an expanded array of consumer products.
She’s four years old, but her youth defies her place in the voice commerce ecosystem. A few years ago, I wrote a story about payments’ new intermediary — one that would be game-changing, because consumers would put it there and use it. That intermediary was Alexa, and she has proven to become a strong and growing presence in the digital, commerce-enabled world.
The How We Will Pay study, just published in collaboration with Visa, shows that a staggering 27 percent of the U.S. population owns a voice-activated device, and 28 percent of those have used the devices to make a purchase during the seven days in which we asked them to tell us about their digital buying and payments experiences.
Alexa and Amazon have the majority share of that market and the wind at its back, as it strives to make Alexa that helpful, indispensable assistant across many financial, retail and payments experiences.
For PayPal — any digital wallet, really — that’s scary. Alexa-enabled purchases are done via Amazon Pay with the credentials registered to that method of payment. That’s not PayPal today. And although “never” is a strong word, it seems highly unlikely that Amazon would ever insert another intermediary into that payments flow.
Why should they? Consumers and merchants aren’t asking.
That’s also relevant given the competition today between Amazon Pay and PayPal for share of payments acceptance and volume as more transactions move online — and outside of Amazon.
Amazon today has about half of that volume — and a growing acceptance of payments acceptance off Amazon.
PayPal, of course, has had a 20-year head start, dominating in payments acceptance online with nearly 70 percent of the top 1,000 merchants. It is also relevant in enabling payments inside of contextual environments like ticketing.
What could potentially make Alexa less scary is the role that PayPal could play in making Google Assistant a strong competitor in the burgeoning voice commerce ecosystem — giving consumers a trusted way to pay with a new payments experience, and a payments option for a merchant ecosystem in search of a voice commerce counterweight to Amazon and Alexa.
eBay … and eBay
“eBay has ruined eBay,” wrote reallyhardtofind on June 6, 2018 — one in the string of 132 comments triggered by a post from a seller questioning why his sales are off a full 100 percent since April 1, 2018. This seller, who has been on the platform since the 1990s, is reporting zero sales.
And this seller is apparently not alone.
Long-time sellers in this six-page thread, one of several I came across, complained of volumes being appreciably down — many say down anywhere from 30 to 60 percent from what they once had.
The threads from sellers complaining about the lack of sales, and corresponding increase in fees, has led them to seek alternatives to eBay, with many citing Amazon as a viable digital port of call.
I’ve felt for a while that eBay has lost its way.
eBay used to be a reliable place to buy good-quality collectibles. It didn’t sell new stuff — collectibles were its niche.
Today, checking out eBay’s home page is just like looking at every other site that sells new products, along with the oddball mix of junky stuff that gets passed off as collectibles. As a buyer, it’s hard to understand what eBay is and why they should start their product search there.
Sellers with good-quality collectibles have other online options that bring better traffic and higher conversions. If the forums are any indication, those sellers have left or plan to cut their losses by using other marketplaces as their primary storefronts.
The sellers who offer new stuff have other places to go, too, including Amazon — the company that eBay CEO Devin Wenig says he wants eBay to be nothing like, and which is suing Amazon for poaching its sellers.
This all comes, of course, as eBay has made the decision to mediate payments and made the move to Adyen as its sole payments processor. The motivation for that move was to create more of a direct relationship with the sellers in order to provide them with more services, including working capital and lower processing fees — fees, they say, that can be as much as 25 percent lower in some cases.
But lower fees are only relevant if sellers are selling things, which many say they aren’t. And whether eBay can make a margin on payments is also irrelevant if sellers aren’t selling.
Some seller complaints reflect concerns over additional fees charged for things that used to be free — so maybe making a margin on payments is harder than once anticipated.
Analysts have expressed concerns that PayPal’s reported GMV on the eBay platform — half of what was estimated — signaled future softness in eBay’s marketplace volume, and impacting its future as a viable place for buyers and sellers to transact.
The scariest thing for a marketplace like eBay is feeling the force of gravity that sends it spiraling down, forcing it to fight to climb up to its point of ignition.
FinTechs … and the Banks They Wanted to Disrupt
Instead of banks being afraid of the FinTech bogeyman, it’s now more like the other way around.
Over the last many years, there’s been a lot of words, and even some entire websites, dedicated to the threat to banks by the FinTechs that were out to “eat their lunch.”
In most of those cases, the narrative was about the rise of the neo-bank targeted to millennials, whose distrust of traditional banks rivaled that of their parents’ or grandparents’ distrust of “The Establishment” in the 1960s.
It turned out to not be the case, for most of the adults living in the U.S.
People want to keep their money in a place that consumers trust. And that is a bank — one with FDIC insurance and safeguards that keep their money safe.
According to our latest Financial Invisibles Report, out of 10,000 adult consumers in the U.S., 93 percent had a bank account. That’s where consumers want to park their money until they need to use it.
Not only do consumers want to keep their money in the bank, but they also want innovative mobile and digital banking solutions from them that make it easier to access and manage their money. Online and digital bankingis an innovation enjoyed by many consumers, as is P2P payments. So, increasingly, is the promise of real-time disbursements via businesses that use bank and bankcard rails to quickly push those funds into bank accounts.
FinTechs are helping to enable many of those innovations for those banks.
Over the years, and in the last year in particular, FinTechs have understood that payments is a scale business, a risk business and a trust business. Their tech helps accelerate the delivery of innovation to FI customers who have the consumers’ trust and are pretty good at managing risk. FIs are also getting better at partnering, acquiring or investing in FinTechs to up their own services and product game. APIs and other technologies make those integrations more manageable and those ecosystems more robust.
In developing countries outside the U.S., things are different — particularly in China, where closed ecosystems like Alipay/Ant Financial and Tencent/WeChat Pay are the trusted financial services ecosystems that dominate today’s landscape. But even there, innovators are using their tech and platform as service offerings to give banks access to new products and services, since each one needs the other for different reasons.
Amazon, the Rest of the FAANGS … and the Anti-Big Tech Mobs
Waylon Jennings once sang, “Mammas, don’t let your babies grow up to be cowboys.”
Today, big tech might want to tweak those lyrics just a bit: Founders, don’t let your companies grow up to be big tech.
Amazon isn’t the only big tech company that should find regulators terrifying.
There’s a whole group of players in the same bucket.
They are even known by a scary acronym: FAANG.
Everyone better watch out: Those FAANG guys are mostly up to no good. Op-ed pages in major news dailies and tech columns also refer to them as the “Frightful Five,” which includes Apple, Amazon, Facebook, Google and Microsoft.
But since FAANG is so much catchier than FAAMG, why not include Netflix and let Microsoft off the hook?
These companies are being demonized, mostly because they have created products or services that consumers like and use — things for which lots and lots of them are willing to pay. And they have gotten big as a result of innovating on top of the efficient platforms that they created and adding more value to consumers.
But they’re mostly being demonized because they have disrupted the status quo. Take Netflix, which has helped to dislodge the high-priced/low-service cable companies.
A lot of the narrative for the FAANG pile-on has come out of the EU, where regulators have targeted (and continue to target) successful U.S.-based companies doing business in their markets. Google has been slammed — and fined billions — for making a better search product than Microsoft’s Bing. Why? Because consumers don’t want to use Bing. In fact, I suspect most regulators don’t want to use it, and probably don’t.
Meanwhile, Google has also been told to unbundle apps from their Android license agreement (which they provided for free in return for ad revenue) and now charges handset makers $40 for the bundle. Google is now being creamed in the media for doing that. The assumption, I suppose, was that Google should have just given handset makers their valuable apps for free.
After all, they are big and have piles of money, so why not?
But this sentiment has crossed the pond.
Voices — from politicians to op-ed writers — are calling for stricter enforcement of antitrust laws, and suggesting the breaking up of tech companies. The breakup of big tech has become the topic of TED Talks and book tours and talking heads who find no shortage of an audience to egg them on.
Perhaps Google can be divided into two companies, one of which gets keywords beginning with A-M, and the other with N-Z.
Think about what this would mean for Amazon.
Perhaps these individuals would have Amazon broken up into different, separate businesses, ignoring that Amazon’s integrated retail supply chain is no different conceptually than A&P’s was when it was the biggest retailer in the world: Making products, distributing products and reselling others’ products in storefronts was the business of retail then.
And it is the business of retail now. It’s also the business of Walmart, too.
The ultimate victim of the “let’s break up big tech” crowd, of course, is the consumer who benefits from the services of these companies.
So, maybe the scariest thing of all — for consumers, for Amazon, for FAANG, for whatever collection of companies and acronyms come next and for the thriving payments and commerce ecosystem that is using innovation to deliver more value to consumers and businesses — is the energized mob of academics, politicians and assorted gadflies who ignore all the benefits, innovations and competition these companies have brought us.
Unfortunately, it will take more than “boo” to scare them away.