When to Buy Now, Pay Later, and When to Just Pay Now. “Affirm doesn’t report payments on its four biweekly payment zero-interest loans, it said, or when consumers are offered a three-month payment option with no interest. Afterpay doesn’t work with credit bureaus at all. Sezzle Up explicitly informs users that it will report on-time payments to Equifax and TransUnion. Affirm doesn’t charge late fees, but late or partial payments can hurt your credit score, and may prevent you from using the service in the future. Sezzle Up also reports delinquencies. Klarna and Afterpay revoke access to their platform until payment is made. Both companies also charge late fees, tacked onto your next payment. Afterpay charges $8, or 25%, of the purchase, whichever is less, while Klarna charges a maximum $7, or no more than 25%, of the past due amount. Klarna said it will contact users to collect payment before charging a late fee.“
This delivery app went above and beyond for its workers. Then Uber took over. Cornershop’s original operating model was more beneficial and friendly towards workers. After the acquisition, life became more challenging for drivers. It remains to be seen whether the regulation in Chile will allow workers to unionize and force Uber to recognize drivers as full-time employees. This is a classic case of conflicting interests between gig companies and drivers as well as of the important role that governments play in this conversation.
The Most Important iPhone Ever. “What makes the iPhone and perhaps Apple special is that it seems to deliver things that nobody asks for but then everybody wants while eschewing overshooting a performance dimension that a few demand but most won’t use. The tragedy of overservice and disruption is that if you don’t shift the definition of performance eventually you run out of demand at the top of the performance curve. That opens you up to “good enough” competition from below. Instead you need to re-define the notion of performance: compete on a new basis, reset expectations. That the iPhone can find new dimensions of performance and hence demand is effectively a solution to the innovator’s dilemma.”
PayPal Introduces Customers to the Next Digital Payments Era with the New PayPal App. “The new PayPal app will introduce new features including PayPal Savings, a new high yield savings account provided by Synchrony Bank, alongside new in-app shopping tools that will enable customers to earn rewards redeemable for cash back or PayPal shopping credit and uncover deals with hundreds of merchants. Additionally, the new app offers PayPal customers a single place to manage their bill payments, get paid up to two days earlier with the new Direct Deposit feature provided through one of our bank partners, earn rewards and manage gift cards, send and receive money to friends, family and businesses, pay with QR codes for purchases and redeem rewards in-store, access and manage credit, Buy Now, Pay Later services, buy, hold and sell crypto, as well as support causes and charities they care about.”
Visa Inc. (NYSE: V) today announced the addition of Shipt, Skillshare and Sofar Sounds – as exclusive benefits – for Visa’s U.S. Consumer Credit cardholders. Eligible cardholders can now get a free Shipt membership to receive free same-day delivery on groceries and household essentials on orders over $35; boost their creativity through Skillshare’s online learning community; and get access to presale tickets plus be eligible for a free concert ticket while discovering Sofar Sounds’ global community of music lovers.
Specifically, the benefits vary from one product to another. Signature/Infinite credit cardholders will be able to enjoy more benefits from Visa than other cardholders:
Up to three yearsof free Shipt membership (normally $99 per year)
Free membership for three months plus 30% off annual renewals
Seven-day Visa Exclusive Presale to Sofar-presented events, plus a free ticket with each purchase of one or more tickets to a show during the presale window
Three months of free Shipt membership, then nine months of membership at 50% off
Free membership for three months plus 20% off annual renewals
Same as Infinite
One month of free Shipt membership, then three months of membership at 50% off
Same as Infinite but limit two free tickets per year
You may wonder now if you are qualified for Infinite or Signature benefits. Infinite cards are typically high-end premium cards with a significant annual fee such as Chase Sapphire Reserve or U.S. Bank Altitude Reserve Visa Infinite Card. Hence, if you are already paying in the hundreds of dollars a year for a credit card, chances are that you have an Infinite card.
It’s a bit easier to get a Signature card. Every year, issuers have campaigns to increase credit limit for qualified customers. There are two reasons for it: 1/ a higher credit limit can stimulate more spend from customers and 2/ a Signature card earns an issuer more interchange revenue than a Classic card. One of the key criteria for an upgrade is that customers must have less than $5,000 in credit limit, which is the threshold for a card to be considered by Visa to be Signature. After an upgrade, a Signature card will have more than $5,000 in credit limit.
Therefore, if you have a good credit history and standing, ask your issuer to increase your credit limit to above $5,000. Do check with them if it means you are getting a Signature card. Each issuer will have a different set of criteria to look at, in addition to credit score, to see if they will upgrade your account. There may be a hard/soft credit pull involved and as a result, your credit score may take a hit. However, if your monthly balance doesn’t change, a bigger credit limit means that your utilization would be lower and hence, your credit score would bounce back soon.
I don’t know the exact agreement between Visa and these companies, but if I have to guess, it won’t be Visa that subsidizes these benefits. Visa only earns a tiny piece from every transaction (like 0.2% give or take). The maths don’t add up for them to subsidize these benefits. On the other hand, the likes of Shipt, Skillshare and Solar Sounds have a perfect partner in Visa to market their services and acquire new users. Visa is the biggest card network in the world and in the U.S. It will be highly challenging to find an issuer that doesn’t have a Visa product. After this announcement, issuers will include the new benefits in their marketing: social media, direct mails, emails or websites. Credit card is a highly competitive and fragmented business. Every player pours millions of dollars into marketing and user acquisition every year. Hence, the names of Shipt or Skillshare will be more popular. I also think they will get more new users to the door. The difficult part is to make them stay. But hey, if you want to keep someone close, they have to be familiar with you first. This is about it.
For Visa, this is a good move to deepen their moat. Not only does the network have the biggest pool of merchants AND consumers in the U.S, but they also have the same advantage globally. While powerful, this moat doesn’t guarantee future successes. Visa has competitors circling. Apart from the traditional competitors such as Discover, Mastercard or American Express, there are new challengers on the horizon such as this startup Banked from the UK as well as alternative payment methods such as BNPL via ACH. This new slate of benefits is a plus for consumers as well as card issuers, at no additional cost. It is aimed to acquire new cardholders and keep them on the network as long as possible.
In this post, I will touch upon digital wallets & checkouts as well as some market movements that make me believe that it will be strategically important for issuers to occupy consumers’ digital wallets.
Fast checkouts and payments are on the rise
Consumers love convenience. Instead of spending time to fill out addresses and credit card credentials, shoppers can finish the job with just a couple clicks. The same goes for in-store check-outs. It’s a far more convenient experience for consumers to hover the phone or a smart watch over a card reader than to drop whatever they are doing with their phone, reach for a wallet and pick out a card. Granted, even though they may not appeal to less tech-savvy shoppers, these fast checkouts, when absent, may be a deal breaker to the more technologically shrewd crowd. I mean, there has to be a reason why many stores accept the likes of Apple Pay or PayPal, despite losing a bit more revenue. Businesses know that by not enabling convenient payments and checkouts, they risk losing a whole lot more.
The more these payment applications are accepted at stores, the more they become useful to consumers and the more consumers they can acquire. The more consumers these wallets acquire, the more they can appeal to stores. The virtuous cycle keeps going. As they become popular, the mobile wallets become something like downtown Manhattan to card issuers. While it doesn’t guarantee success, being present in consumers’ phone and wallets suddenly becomes more critical. Furthermore, there are developments on the market that highlight the importance of this point, starting with Visa.
In April 2022, Visa will introduce updates to existing domestic interchange programs with categories and rates for card not present Visa EMV token transactions. This includes both network tokenized transactions and digital wallets. With this update, a roughly 10 basis point reduction will apply for many card not present transactions that are Visa EMV tokenized in most segments.
In some cases, interchange rates for non-token transactions will go up, so while the net benefit may not reach 10 basis points, merchants that do not take advantage of the digital wallet incentive will undoubtedly be leaving money on the table. As ecommerce continues to grow, shifts like these to the overall cost of payments will have significant cost implications and influence a merchant’s product development roadmap.
The gist of this news is that Visa will allow merchants to keep more money from mobile wallet transactions but make them pay more whenever customers have to type in their information and card credentials. A few basis points may not sound much, but if your online sales is $1 million/year, the savings can be up to $10,000. Visa is the biggest network out there, accepted in virtually every store around the world. When the new rule comes into effect in 2022, its impact will be wide-ranging. I expect Mastercard to follow suit soon. The question for issuers now becomes: can they sit idly and let their rivals occupy the valuable real estate on our phones?
Apple Pay is a proprietary mobile wallet by Apple that enables convenient payments by just a phone tap in stores or one click online. The feature is compatible on iPhone 6, all the models that came after and all Apple Watch. That should cover pretty much every iPhone user in the U.S, which makes up 60% of the mobile market domestically. Since its debut in 2014, Apple Pay has grown increasingly popular over the years. As of January 2021, Apple Pay is available in 90% of stores in the U.S and hundreds of websites, including those of major brands. According to the 2020 Debit Issuer report by Pulse, mobile wallet debit payments in the U.S in 2019 by Apple Pay, Samsung Pay and Google Pay totaled $1.3 billion, of which $1.1 billion came from Apple Pay. As of this writing, major cities such as Chicago, Los Angeles, New York City, Portland, San Francisco & Washington D.C already allow passengers to ride transit with Apple Pay. This kind of integration will only boost its popularity more in the future.
Almost all issuers in the US enable integration of their cards into Apple Pay. American Express lets users who are instantly approved add their cards to Apple Pay immediately. In July 2021, it’s reported that Apple is working on a BNPL service for Apple Pay transactions. Historically, Apple offers a payment plan for its select products & services via Apple Card. Apple Pay Later will allow approved customers to make four interest-free payments due every two weeks or monthly payments at an undisclosed yet interest. Customers can connect their Apple Pay with any card that they want and it’s not required to own an Apple Card. This service will make this mobile wallet even more attractive to customers, though right now whether or when it goes to market remains to be seen.
Many people know PayPal as the known P2P platform or that payment option that used to be on eBay. Over the years, PayPal has transformed itself into something much bigger. It now provides a lot of services for both consumers and merchants. No longer restricted to online purchases, consumers can now use PayPal online and in stores with services such as QR Code, mobile wallets, contactless, debit card, credit cards, PayPal Credit and PayPal in 4.
The brand and the scale of PayPal are not to be underestimated. In Q2 FY2021, PayPal processed $311 billion in transactions, almost twice as much as $170 billion in the same quarter two years ago. The company’s YoY growth in transaction volume topped 40% in the last two quarters despite operating at an incredible scale. If you take out eBay, the growth rate was never lower than 45% in 2021. Additionally, there were 403 million active accounts, including 76 million Venmo and 32 million merchant accounts. Venmo’s transaction volume doubled in the last 18 months from $29 billion in Q4 FY2019 to $58 billion in Q2 FY2021. The scale of PayPal is also reflected on how fast they roll out new features. PayPal in 4 was launched in August 2020. Since launch, the service generated $3.5 billion in transaction volume, of which $1.5 billion alone took place in the last three months. Meanwhile, the number of merchants that enabled payments by QR codes leaped from 500,000 in Q3 FY2020 to 1.3 million in the most recent quarter.
On the earning call, the CEO of PayPal highlighted its imminent push into the in-store space.
Clearly, on the branded side, we think we add a tremendous amount of value, things that John talked about, buyer and seller protection, Buy Now, Pay Later at no incremental cost, fraud protection, highest checkout conversion, etc. But we took down rates for basic full-stack processing. That also was reduced somewhat substantially from the 2.9%, plus $0.30 to 2.59%, plus $0.49. And that is going to enable us to aggressively compete for all of the payment processing of the merchants that do business with us.
And you’ve heard us say time and time again, David, that we were going to move into the in-store space. We’re going to move so aggressively in there. We rolled out Zettle in the U.S., is a really beautiful full package. It doesn’t just include card reader but inventory management, sales reads out and allows a merchant to seamlessly load inventory in both their online and in-store locations and then, across multiple channels as well.
And so we’re, obviously, gonna be very aggressive on moving into in-store, and it’s always been part of our strategy. And by the way, if a small merchant does all of their business with us, they can actually see their overall costs come down. And we wanna encourage them to do all of their business with us because we are a trusted platform. They do turn to us, and we price, we think, the right way.
If PayPal successfully becomes one of the de facto checkout methods in stores, given it’s already a popular checkout option online, how would smart issuers ignore the need to get into consumers’ PayPal wallet?
Shop Pay is the native checkout feature by Shopify. Shopify is an eCommerce platform from Canada. It provides businesses with the tools necessary to build a customized online presence. When merchants list their products on Amazon or Walmart, they just rent a space and have little flexibility for their own branding. Plus, these merchants have to pay numerous fees to the likes of Amazon and Walmart. With Shopify, they pay a monthly subscription and a usage-based fee for some paid services. But stores can keep their own branding and gain more control over their destiny.
Shop Pay works similarly to Apple Pay, PayPal or Visa SRC. Once a credential is stored, customers can use Shop Pay across all stores powered by Shopify. In February 2021, Shopify expanded their checkout feature for the first time to all Shopify-powered stores on Facebook and Instagram. The collaboration was successful that a few months later, they decided to roll out Shop Pay to all merchants on Facebook and Google. This move can bear significant ramifications. Facebook owns the most popular social networks in the world like Facebook, Instagram, WhatsApp and Messenger. Their access to billions of consumers is what retailers want. Google has the dominant market share in search and as a result, a unique access to consumers globally. As these tech giants make a push into eCommerce, Shop Pay will benefit from this partnership and grow even more.
Between its launch in 2017 and the end of 2020, Shop Pay facilitated $20 billion in transactions. The cumulative figure increased to $24 billion as of Q1 FY2021 and $30 billion as of Q2 FY2021. As you can see, Shop Pay is growing increasingly fast. The growth of Shop Pay coincides with the growth of Shopify. In the last quarter, Shopify processed more volume than it did in the entire year of 2018. As this company continues to expand and by extension, so does Shop Pay, how long can issuers be absent from this checkout option?
Engaged customers will add their favorite card to their mobile wallets. The challenge is for issuers that don’t occupy the top-of-wallet position yet. Customers can still rotate cards and choose a certain one at the time of purchase. Hence, being in a customer’s wallet doesn’t mean a card will be used often. Card issuers still need to offer values and work hard to increase engagement. But as the saying goes, you have to be in it to win it.
Japan launches bid to regain its semiconductor crown. “Japan’s plans are less about boosting output than about avoiding being caught in the crosshairs of global tensions, notably the fierce competition between the US and China for dominance of future technologies.” It will be hard to play catch-up in the semiconductor industry, but I wouldn’t rule out Japan.
Universal films will head exclusively to Amazon Prime Video after their run on Peacock. Amazon has been aggressively investing in content on Prime Video. First it secured rights to stream NFL Thursday games starting next year. Then, it bought MGM Studios. Now, it will bring over Universal films after the initial premiere on Peacock. Amazon has been on the record pleased with Prime Video as an acquisition and retention tool for their lucrative Prime customer base. The Prime customer base in the US, since streaming rights are geographically dependent anyway, should be big enough to justify Amazon’s outlay.
Didi Tried Balancing Pressure From China and Investors. It Satisfied Neither. “The regulators in Beijing were under the impression Didi would pause its initial public offering while it addressed data-security concerns, according to people familiar with the company’s conversations with regulators. In New York, Didi offered assurances that Beijing had given it the green light, said people close to the listing process.”. It sounds like Didi wasn’t honest and straightforward with investors; which you know is a crime. On a side note, unless somebody lives in China or really understand what goes on in the country, for the life of me, I don’t understand why they will invest in Chinese companies. Just look at Didi and Alibaba as examples.
What I found interesting
The Senator Who Decided to Tell the Truth. I’d have a beer with this Senator. As a GOP politician, he was brave to tell the uncomfortable truth when his constituents didn’t want that truth. Whether you agree with his report, we definitely need more truth-telling and honest people like McBroom
A new road to an inaccessible land. An awesome write-up on the highly remote Wakhan Corridor in Afghanistan. The area looks pristine and beautiful. I love this kind of exploratory pieces that can educate people on places that they would not hear about
Steve Jobs in Kyoto. Just a beautiful story on Steve Jobs. He made the world a better place and was gone too soon. But he is still an inspiration to many now and in the future.
Casualties of Perfection. “If your job is to be creative and think through a tough problem, then time spent wandering around a park or aimlessly lounging on a couch might be your most valuable hours. A little inefficiency is wonderful.”
The latest memo from Howard Marks, just like his previous, doesn’t disappoint. He mentioned all the common senses in his memo which a lot of analysts and investors don’t seem to remember, myself included.
This video clip is about how much Swedes trust their government and believe that their high taxes are in their benefits through free healthcare, education, great infrastructure and a great living standard. It can’t be more different from the US. Here, every time social benefits are mentioned, a lot of people can’t call them “socialists” or “communists” fast enough. It’s super fascinating to see people increasingly pay more taxes (as %) compared to billionaires and are convinced that a little bit of saving on taxes every month is worth having a low living standard and paying a lot of money for everything else. There is a natural and inherent distrust in the government that is the root of so many problems around here
Trump’s coup attempt of 2020-21, like other failed coup attempts, is a warning for those who care about the rule of law and a lesson for those who do not. His pre-fascism revealed a possibility for American politics. For a coup to work in 2024, the breakers will require something that Trump never quite had: an angry minority, organized for nationwide violence, ready to add intimidation to an election. Four years of amplifying a big lie just might get them this. To claim that the other side stole an election is to promise to steal one yourself. It is also to claim that the other side deserves to be punished.
When that violence comes, the breakers will have to react. If they embrace it, they become the fascist faction. The Republican Party will be divided, at least for a time. One can of course imagine a dismal reunification: A breaker candidate loses a narrow presidential election in November 2024 and cries fraud, the Republicans win both houses of Congress and rioters in the street, educated by four years of the big lie, demand what they see as justice. Would the gamers stand on principle if those were the circumstances of Jan. 6, 2025?
In this post, I want to share with you what I found while I was doing some research on credit card trends.
Tap to pay
As of March 2020, one in three card present transactions by Visa is tap to pay, up from one in four a year ago (1)
In 2019, excluding the US, 55% of Visa transactions were contactless (1)
In the US, there are 145 million contactless credit cards in circulation and Visa expects that the number will reach 300 at the end of 2020 (1)
17 out of the top 25 issuers are fully issuing tap to pay cards. 8 out of the top 10 merchants are accepting tap to pay. 60% of all in-store transactions in the U.S. are now taking place at terminals that are enabled for tap to pay. (1)
Globally, tap-to-pay has resulted in 20% life in card transactions. (2)
In the US, tap-to-pay cards led to plus 4 more transactions per month and $160 increase of spend per month (2)
“CEMEA now has the highest tap to pay penetration of any Visa region. 2 of our CEMEA countries, Russia and Georgia, are in the top 10 tap to pay countries in the world. Georgia is, in fact, number one, with an incredible 96% tap to pay penetration.” (2)
77% of active terminals in South America are contactless-enabled. Tap-to-pay penetration was doubled in one year. Chile and Costa Rica have a leading 50% contactless penetration
“For example, on transit for London services, we saw double the transactions and 70% higher growth in spend by tap to pay transport for London users versus those not using tap to pay. In New York City, Visa is partnering with Chase to promote tap to pay in and around subway stations that are contactless enabled. As a result, Visa has crossed 4 million taps within the MTA system and contactless payments will be accepted system-wide by the end of 2020.” (2)’
In Asia Pacific, tap to pay penetration increased from 29% in 2016 to 41% in 2019. Post activation, tap-to-pay card saw 3.8 times more transactions and 1.8 times more spend per card. Specifically, tap-to-pay cardholders made 3.9 times more transactions at fast food restaurants and 2.3 times more at supermarkets and grocery stores
On average, an American makes 12 cash transactions a month. 55% of all transactions under $10 were made in cash (2)
In daily segments such as gas or supermarkets, card penetration stood at 60% for the US (2)
Retail digital spending has grown at CAGR of 23% since 2016, yet it still only makes up 14% of global retail spending (2)
Cash and check penetration remains at 92% for Sub-Saharan Africa, excluding South Africa (2)
“The macro trends are incredible. It (Sub-Saharan Africa) has the fastest-growing population among major regions, double the global average and half of sub-Saharan Africa is under 18 years of age. It has 46 countries, and 6 of which are in the top 10 fastest-growing economies in the world. The market is still greenfield. Cards have only penetrated 3% of PCE, and 2/3 of the population does not have a bank account. Yet Africa is home to nearly half of all mobile money users. Sub-Saharan Africa is mobile first. People use their mobile phones daily to make and receive payments. This opens immense, immediate and long-term opportunities for Visa.” (2)
Rise of contactless payment reported by Visa and Mastercard
It is so much faster and easier to just tap your card or phone on a reader than to use the chip or swipe. The frictionlessness of this payment method has clearly wowed users enough that it is on a rise, especially in the US.
In the card-present environment, we continue to see meaningful momentum in tap to pay, what we consider to be the most friction-free way to pay in person. We have reached a point where 1 in every 3 card-present transactions that runs over our network is [tax] versus 1 in 4 a year ago this quarter. This past year, we’ve doubled the number of countries whose face-to-face transactions are at least 2/3 contactless.
Transit continues to be a key user case and an important way to habituate tapping behavior. In New York City, on the NPA, Visa crossed 2 million taps in November from the beginning of the pilot and 3 million in January. The FDA recently announced the tap-to-pay expansion to their entire system by the end of 2020, and we are currently pacing a 350,000 Visa taps a week on the MTA and nearly 1 in every 10 transactions in the New York Metro area is a tap-to-pay on a Visa card.
Source: Visa in its Q1 2020 Earnings Call Transcript, provided by Atom Finance
Echoing the sentiment was Mastercard in its Q4 2019 Earnings Call
..On to contactless, where as I said, we’re making real progress. This quarter, contactless made up over 30% of global card-present purchased (inaudible). Contactless provides a frictionless and fast payment experience, which is opening new categories of spend, including displacing cash on small-ticket purchases. The U.S. point for growth on this front and the New York City MTA is a good example of the potential for rapid adoption by consumers. In fact, they surpassed 5 million taps since the launch in May. And the MTA has planned to roll out contactless acceptance system-wide by the end of 2020.
I’m pretty certain that U.S. contactless will keep growing throughout 2020 quite attractively. Because if you look at the numbers of the number of bank partners that have committed to issue contactless cards for a [minute], let’s even forget Apple Pay and Samsung Pay that enable every card through their archive to be used. If you just look at the number of cards, we are talking about 70% of our total cards in the U.S. market will be reissued over this 12-month to 14-month period. My own personal cards are already contactless from Citi.
On the acceptance side, kind of all new terminals going on are embedded with contactless. So (inaudible) large retailers Target and 7-Eleven and CVS have announced that they will accept contactless payments. And in fact, over half of U.S. card-present transactions are now happening at contactless-enabled merchant locations. And when the MT rolls in on system-wide in New York City, and there are other transit systems beginning to do the same in their cities, I think you will get the impetus.
My country was mentioned repeatedly in the latest earnings call of Apple. In a positive light that makes me think that we are going to be, if we are not already, an important emerging market for the Cupertino-based company
Geographically, we established all-time revenue records in many major developed and emerging markets including, among others, the U.S., Canada, Mexico, Brazil, the UK, Germany, France, Italy, Spain, Poland, Thailand, Malaysia and Vietnam.
Phone revenue of $56 billion grew 8% year-over-year, as we saw a great customer response to the launch of our newest iPhones. We set all-time revenue records in several countries, including the U.S. Mexico, the UK, France, Spain, Poland, Thailand, Malaysia and Vietnam.
Productivity and Business Processes keeps leading the margin game for Microsoft
Microsoft has three main business lines:
Productivity & Business Processes that includes Office 365 Commercial and Consumer, LinkedIn and Dynamics
Intelligent Cloud that includes server products and cloud services led by Azure, and Enterprise service
More Personal Computing that includes Gaming, Search, Windows and Surface
Azure likely receives the most attention, yet it is Productivity & Business Processes (PBP) that consistently took the crown in the margin game at Microsoft. In the latest earnings report, Microsoft reported almost 44% margin for PBP
Even though there have been only 2 quarters so far in 2020, the segment has generated more revenue and operating income than the full year 2019