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Waiting for wearable payments? DigiSEq may have the answer.

It’s taken a while but consumers, merchants and banks have finally fallen in love with contactless payments. Fast, secure and convenient, contactless speeds up urban life and reduces the need to carry cash. Rapid transit, grocery and hospitality are just three of the sectors in which shoppers seem particularly keen to use their contactless cards.

One of the few drawbacks of contactless cards is the actual card. Wouldn’t it be lovely if we could pay by tapping a watch, fitness band, signet ring or other accoutrement on a payment terminal? So, it’s no surprise that the payment industry has been working on embedding payments into popular brands such as Swatch or Fitbit.

This is harder than it sounds.

The technology and processes that lie behind contactless cards are complex. They have to be. This is a globally interoperable set of standards that needs to be 100% reliable and (almost) 100% secure.

A security key provided by the card issuer needs to be recognised by the security key on the payment terminal. Each card issuers’ security keys are different and, of course, jealously guarded but without them, you can’t make a payment.

At the moment there are just two options for brand owners to get these keys into their products – either become a card issuer themselves or do bilateral deals with a selection card issuer in each target market.

Becoming a card issuer (or partnering with one) normally involves equipping the product with a pre-pay card account at the point of manufacture. Consumers then need to sign-up for this account when they buy the device and fund the pre-pay account with (for example) a direct debit mandate or link to a credit card account. This is how bPay from Barclays works.

The technology is reliable but consumers are obliged to sign-up for a new account. Not only is this a poor experience but it requires the brand owner (or partner) to make credit, KYC and AML checks. This costs money. The final drawback of this approach is that the additional payment hop (brand owner’s pre-pay to cardholders preferred) is likely to cause delays in payment processing and extra costs which need to be borne by the brand owner or the consumer themselves.

If brand owners don’t want to become card issuers themselves, they will need to reach commercial agreements with individual issuers that already have large customer bases. These are necessary to get the security keys required to pre-provision the relevant credentials within each product.

This is a good option for wearable owners as they get to use their favourite cards but creates several headaches for the brand owner. The first is to establish relationships with all the major card issuers in a particular market. This is time consuming and expensive. The second is that since the security keys need embedding at the point of manufacture, the brand owner needs to know very early how many products it needs to equip with each of Barclaycard, MBNA, Capital One or other card issuers credentials. There is plenty of scope to over/under produce and be left with significant stock shortfalls or overhangs.

The paucity of wearable payment products on the market indicates that neither option is particularly attractive, from either a technology or marketing perspective. Indeed, despite some eye catching announcements, the only wearable payment products available (or close to availability) are commercialised by payment companies rather than brand owners. And many of these seem primarily designed as technology showcases rather than as credible attempts to launch mass-market consumer products.

So much for the problem. What about a solution? Well, I’ve been intrigued by a new approach from a UK start-up called DigiSEq – a resident at Techstars’ London Fintech Accelerator at which I’m one of the mentors.

Staffed by ex-MasterCard folk, DigiSEq’s aim is to allow any payment card to be provisioned ‘over the air’ onto any product. DigiSEq would do the hard work of establishing relationships with all the card issuers, negotiating the commercials and persuading them to part with their security keys. Brand owners would no longer need to insert the payment credentials at the point of manufacture. Instead, the consumer’s preferred account details can be written to the device later, at some point in the distribution chain.

The customer experience would be like this. When someone buys a watch, the jeweller asks whether they would like it payment enabled. If the answer is yes, the jeweller taps first shoppers’ payment card and then the watch against the DigiSEq “appliance” and the card’s credential are now embedded in the watch. For an online purchase, the shopper would submit their card details via a secure website and the security key would be provisioned at the distribution centre just before shipping.

I love the concept. The advantages for consumers and brand owners are clear but there’s plenty of detail to be worked through. This won’t be plain sailing for DigiSEq.

The first challenge for Digiseq is to sign-up enough card issuers to excite brand owners. Each issuer then needs to be brought on board with its own commercials terms and security set-up. Issuers are normally banks and never do anything in a hurry so this may take a while.

The second challenge is that of adding contactless technology in the manufacturing process. To succeed, Digiseq will probably need to develop a managed service capability to offer wearable payments as near to a turnkey solution as possible. Brand owners love their brands. They don’t need to know about secure chip design.

Consumers and brand owners are ready for wearable payments but the mechanics of provisioning card credentials are complex. If DigiSEq can crack this conundrum first, a sizeable prize awaits.


How to make Money 20/20 (even) better

Back from four days in Copenhagen, my verdict on the conference is: outstanding networking, average exhibition but poor content. I had hoped to return with a notepad filled with case studies, new product launches and sundry useful facts with which to surprise and delight my colleagues. No such luck. The curated part of Money 20/20 disappointed.

Let’s start with what was great about the event – everybody was there. Everybody. 3.500 people from over 1.000 businesses involved in Fintech and payments from across Europe and beyond. And exhibitors seemed pretty happy, or at least those that had booked a stand on the main thoroughfare. It was tumbleweed in the boondogs where the Fintech start-ups were banished.

Nonetheless, it’s a tribute to the brand and the organisers hard work that the launch event was so successful.

Here are few things to work on

  1. Because everybody was there so it was almost impossible to find people and, when you did, there was nowhere to sit and limited refreshment options outside of meal times.
  2. The conference app needs a lot of work. The search facility was too basic and there was no way to give in-session feedback or ask questions.
  3. Rudimental. Seriously?? We’re here to network, often with people who don’t speak great English. We don’t need drum and bass blasting us into the corners.
  4. Don’t push us out into the cold on the third evening. For €3000 I could have had an all inclusive in the Caribbean so it’s not too much to expect some food and drink every night. Maybe there was no money left after Rudimental.
  5. Reduce the number of sessions using the panel format. I know it’s easier to get people to agree to get up on stage if they can sit down and shoot the breeze rather than do some work in advance to construct a serious argument but it was frequently deadly dull at Money 20/20. In the wrong hands, panels can allow speakers to bat business buzzwords back and forth rather than tell the audience some things they don’t know. Four out of five tracks were back-to-back panels. That’s too many.
  6. Theme the product launch track. It was great that so many businesses got 10 minutes to pitch but the chances of finding two in a row that were relevant was low.
  7. Find some better moderators. I’ve paid good money and travelled a long way. I want some difficult questions asked. The moderators need to be expert in the subject at hand (some were not) and willing to stand up for the audience.
  8. Let the audience participate. There are number of effective techniques to get everyone engaged the organisers need to use some of them. Otherwise, speaker go off-topic and the delegates begin to snooze (or start playing with their phones).
  9. Invite some retailers. We spent four days discussing an ecosystem but the sharks at the top of the food chain weren’t there. I don’t want to hear what a banker things omni-channel is about, I want to hear Nordstrom or House of Fraser.
  10. Invite some software vendors. These guys are driving the bus so where were they? Not invited or not interested? If the latter, the payment industry may be in more trouble than we’d realised.
  11. Cut the prices. Or at least offer flexible options so people can come for part of the event or share a ticket with a colleague.
  12. Kill day four. Enough already.

Notes from APEX Europe

The convergence of mobile and digital, of money and data, of people and identity is affecting all parts of the retail and payments industries. Every corner of the market is confronting the same challenges but each brings its own specific rules, culture and heritage.

Consumers might say they would like a single app on their phone that does everything for them. But the reality is that a number of global giants have tried and failed to bring a ubiquitous solution to market – Google Wallet and Paypal Instore are just two examples. To these we can add any number of attempts by the mobile phone industry to incorporate payments into its product set culminating in the successive failures of CurrentC (ISIS) in the US and Weve in the UK.

If the future belongs to niche players that understand their customers and eco-systems, the pre-pay industry should be prospering. These businesses provide niche services that supply digital money for the unbanked, loyalty and gifting schemes on behalf of retailers, international money transfer and payroll programmes.

The pre-pay industry is moving from being a market in itself to becoming just one part of a much larger retail payments ecosystem and will need to integrate technically and emotionally with the mainstream mobile app world.

This was reflected in the opening up of the APEX conference to a much wider set of speakers and delegates. Unfortunately, this led to a fragmented and sometimes incoherent agenda of often unrelated content. Many of the presentations were worthwhile but they were not always in the right order and you have to respect the reckless iconoclasm of the organisers to run a three day conference without a chairman.

Nevertheless, three themes became quickly apparent:

  • The pre-pay industry risks being upstaged by Fintech start-ups that are looking simply to solve problems and don’t feel bounded or restricted by the etiquette and regulations of the payments industry.
  • There was a chasm between the questions the retailers were asking – rooted often in the physical challenges of printing and distributing gift cards – and the digital dreams of seamless mobile shopping journeys expounded by some of the speakers. It’s not that retailers don’t think about such things; it’s more that the content wasn’t matched to the needs of the individuals invited.
  • The SEPA area makes life much easier for everyone. The UK – benefiting from a strong and vibrant payments industry – would be ill-advised to withdraw.

Apple Pay

Apple Pay is quickly taking root in the US. Does this provide a model for the future of payments in Europe? Samee Zafar from Edgar Dunn thought Apple faced three significant obstacles bringing its service to this side of the Atlantic.

  • Apple’s market share is much lower than in the States, typically between 15%-30% in most EU countries compared to over 50% in the US
  • European banks still control the payment “switches” and so have more ability to throw obstacles in Apple Pay’s path
  • Recent regulatory reductions in interchange don’t leave enough margin for Apple to charge card issuers as much as in the US

In Samee’s view, this leaves the way clear for other wallets or similar mobile payment services to prosper. Zapp in the UK could be one. Or even the mobile network operators that may have finally arrived at the killer app…

Mobile networks

Christian Van Hommell Bonten from Wirecard (the conference sponsors) used his keynote slot to explain to a slightly bemused audience the three ways mobile operators can deliver a tap-and-pay service: using an NFC SIM, using the secure element (eSE) or via that latest buzzphrase, host card emulation. WireCard has powered a number of NFC SIM projects, most recently Orange in France which links to a pre-paid card embedded in an Orange Cash app.

This kind of solution requires phones to be equipped with new SIMs which costs the operator money and can take up valuable selling time in a mobile network’s retail outlets. Not a bad thing, said Christian. “The best way to bring a new payment type to a user is in a shop.”

Christian said that NFC SIM or eSE give the best user experience as you just tap and pay, even if your phone is locked. In contrast, HCE based services, which store card details in the cloud, necessitate a strong password on the payment app itself which slows things down. But HCE does present clear advantages to app vendors of all kinds – they should be able to add high value contactless payments to their services with as much ease as linking to Facebook Connect. There is a clear opportunity here for digitising gift cards and joining them up with location based communications of various kinds.

Meanwhile, in Italy, Poste Italia Mobile (an MVNO) is going live with an NFC SIM based service which allows its customers to tap and pay (provided they have a Post Italia payment card of some kind) at shops but also on public transport. Loyalty cards will be next. Already, 850K people have downloaded the Poste Italia app, 500K have got one of the new SIMs and 80K have digitised a payment card.

The video is slightly misleading. You don’t just tap and pay. You tap first. Then the app prompts for a passcode. So, it’s actually a two step process. Anyway, by next year 4m SIMs will have been swapped out and Daniela Maurello, the marketing director who made the presentation, was sure that Poste Italia’s reach alone would drive mass adoption of the service. Interestingly, the mobile network is not looking to make any money from this. The business case is about customer acquisition and this has allowed it to focus on customer experience.

Vodafone are expected to launch a similar service in a number of European markets imminently.

Unrelated to either the mobile operators or the pre-pay world itself, a couple of interesting start-ups presented:

LocalZ – winners of the John Lewis prize last year, LocalZ uses geo-location techniques, including beacons, to improve customer service. Pete Williams gave an example from Peter Jones, a John Lewis shop in Chelsea. If a shopper approaches the store and she has a click-and-collect order waiting, staff get an advanced notification so they can get the parcel ready. This cuts waiting time from 12 to 5 minutes. While still conceptual, this is a great example of technology being used to solve a specific and very measureable problem. The central assumption, that the people nearing the store are intending to come in an pick up their parcel, remains to be tested but sounds plausible.

Reward Technology – Paul Sheedy explained that his venture was aimed at the middle aged females that do most of the world’s grocery shopping. His business puts RFID tags in loyalty cards. This allows stores to recognise customers as they enter and to push messages back to their phones – by SMS primarily. Paul sees the need for a bridge from analogue to digital as real consumer behaviour is moving slower than some would like to admit. 45% of Spanish people don’t have a smartphone, for example.

Several other start-ups got a positive mention:

Quixter – a Swedish idea that registers your payment details along with your handprint, then pay by placing your hand on a reading-frame. It works using vein recognition and is live at one University.

SEQR – another Swedish venture, this is a multi-retailer mobile wallet which works by scanning a QR code produced by the till. It is live with McDonalds in the Sweden.

Orderella – order for drinks at counter-service bars and pick them up when you’re ready, avoiding the queue. It’s now available at 1000 location around the UK but will face the usual issues that the bottleneck in bars is not ordering drinks, it’s making them. That’s why there’s a queue. If you increase demand without increasing supply, the (virtual) queue will just get longer.

Tiply – use your phone to tip hotel and restaurant staff by taking their photo. It’s a great idea from the UK with a good tagline: “Don’t feel like a jerk because you don’t have cash.”

REVIEW: Walking to the iBeacon beat on Regent Street

The Regent Street app is one of the first multi-retailer deployments of iBeacons in the UK. The app itself is great – credit to The Crown Estate for nailing the customer experience – but the retailers themselves really need to do better.

The first positive news is that the app doesn’t ask for registration. I really like this. Granted, it’s tricky anyway for a landlord such as Crown Estates to start collecting customer data without annoying its tenants but lack of registration certainly improves the initial customer experience and gets you straight into the useful screens without delay.

First, the app asks for permission to use your location data and then begins to discover your shopping preferences.

Regent Street App first screen

It has a very intuitive Tinder-esque swipe up/down for brands you like or dislike. If you are indifferent, you swipe sideways to move them out of the way.


The whole process took less than a minute and didn’t feel like work. I selected the brands I like – mainly mid market menswear – and gave a thumbs down for perfume and jewellery.



Next the app makes a first guess at what categories you like but gives you the chance to refine the selection. Interestingly, the Regent Street app – unlike others – doesn’t ask any demographic questions. It uses preference information to deduce what it needs to know about you and prepares a personal wall of brands which can be accessed when you’re away from Regent Street to help plan your next visit. Good idea.


Within the app, you can discover the events happening in Regent Street, a helpful map of participating shops and a set of screens you can browse offline containing messages from each brand.



With my preferences registered, I set off down the West side of Regent Street, heading South, to see what iBeacon related messages would arrive.

First, Jaeger offering a discount although (like the other brand communications)  it’s not clear whether this offer is special to the app or how it would be redeemed.


Next, another message from the same brand but from a different app. Jaeger are also working with Iconeme (the people putting beacons into mannequins) but this one suffered from both a technical problem and poor targeting. Iconeme knows I’m a man (it asks during registration) but sent me a womenswear message.

IMG_0884    IMG_0888

After Jaeger, it was Gap suggesting I get fit but not offering any special reason to visit the store.


Then Levi Strauss promoting its loyalty programme.

Levi iBeacon

Followed by Brooks Brothers advising on its new collection.

Brooks Brothers iBeacon

And Reiss suggesting some personal shopping.

Reiss iBeacon

And finally, on the East side, Wolford reminded me about its new collection. I’d excluded womenswear in my preferences it’s no great secret that people who like menswear (men) often also like lingerie.

Then I crossed the road and headed back up towards Oxford Circus.

Only one brand on the West side of the street wanted to talk to me. That was Gant with a (small) discount offer.


Stepping out of Gant, I was buzzed a second time by the Jaeger store across the street through the Iconemene app.


Some notable brands didn’t get in touch at all. I’d given a thumbs up to both SuperDry and Clarks but neither sent me an iBeacon message. Neither did Gaucho even though I’d ticked “I like Argentinian food.”

The Regent Street app’s user experience is excellent but the volume of messages I was sent while walking down the East side of the street could quickly get annoying. Each time the iBeacons contact your phone, you have to pick it up, and click through to the Regent Street app to see what’s on offer. Most of the time it’s going to be easier to just to look at the shop window and read the posters – “Come and see our new collection”, “£100 off when you spend £300” or whatever.

For iBeacons to be genuinely useful, they need to be deployed to send personalised messages about stuff you can’t know about just by looking at a shop window or by following a brand on Twitter. Otherwise, shoppers will quickly become bored and switch off.

I did notice that the Regent Street app has been live since September 2014 but hasn’t published any user statistics yet. It’s not widely promoted either (just the bus shelter poster below) and together this suggests that it’s still in the experimental phase. That’s sensible.

Landlords and brands can only learn by trial and error but the measured pace of progress on Regent Street underlines  why 2015 (like 2014) is not going to be the year iBeacons revolutionise retail.



Adyen’s $1.5b Valuation Takes Much on Trust

Adyen, a global e-commerce payment service provider, received $150m investment from General Atlanic at an eye watering valuation of $1.5b. This represents 150x 2014 earnings ($10m) and 8x revenues ($185m).

Adyen provides services for large retailers and other online merchants that need to accept multiple payment types from consumers around the world.

There’s plenty going in Adyen’s favour:

  • The global e-commerce market is growing and won’t slow down anytime soon
  • Payments is getting more complex and large companies normally like to keep things simple by using a one-stop shop
  • Adyen was late into the market and has built (probably) the best technology in the industry. This means its customer service is excellent.
  • It has scarcity value: it’s a rare independent in a rapidly consoidating market

E-commerce margins have been good. WorldPay reports its e-commerce and face to face transactions businesses separately and makes twice as much on the e-commerce ones. It’s unlikely that this differential will persist longterm and e-commerce margins should drift lower because:

  • Large companies will start to unpick the convenient one-stop shops offered by Adyen and its competitors. Once volumes reach a certain point, it’s worth hiring in-house teams and procurement specialists to ensure best value from each element. We are already seeing big retailers appointing payment teams (often hired from the payment indsutry) to do this. Dual and triple sourcing will ensure and unit prices will come under pressure.
  • Foreign exchange margins will only fall. It’s remarkable that global payment companies make so much money on currency conversions – margins of 120bps are not uncommon. This can’t survive in the digital world. Note: Adyen claims to be more transparent that most in this area.
  • Competition will increase. Visa, Mastercard & PayPal all want a slice of this market. Apple too. Technology moves on and Adyen’s leadership could be eroded.
  • Payments will get simpler. The rise of mobile and in-app payments sitting on two standard technolology platforms – iOS and Android – offers an opportunity for the global giants to offer more elegant and lower cost payment options.

Unit margin declines are manageable if the total market size is growing fast. Even so, a valuation of 150x earnings requires 10 years of 30% compound profit growth to get you to a “normal” enterprise multiple of 14. That’s very rare in the business world.

Adyen is a great company; well managed and in a long term growing market but General Atlantic will need a slice of luck to get their money back.