Mondays52 2018

BY KAREN WEBSTER

A YEAR OF CONVERSATION ABOUT PAYMENTS IN 2018 TableofContents

Payments 2018: Think This — Not That ...... 6. Has Unbundling Lost Its Cool? ...... 216.

What Payments Innovators Can Learn From Monkeys ...... 20 How Uncertainty Kills Commerce ...... 228

Why Innovation Is Nothing Without Distribution ...... 28 Why Household Finances Under The Hood Don’t Look So Good ...... 238

2018: The Year Of The Mobile Wallet Reset ...... 38 Could Grubhub Become The Amazon Of Restaurants? ...... 250

eBay/PayPal: What Everyone Missed ...... 46 Payments’ Stranger Things ...... 260

In The Age Of Big Data, Why Are We Still Flying Blind? ...... 56 Online Platforms: Why Consumers Rule And Regulators Don’t ...... 270

Mobile Wallets: Where’s The S-Curve? ...... 64 Loyalty’s New One Percenters ...... 280

Who’ll Win When Facebook Advertisers Flee? ...... 76 What Innovators Can Learn From Uber Cash ...... 286

The Amazon Effect On Consumers And Grocery Shopping ...... 84 Why Certainty Rules Payments ...... 296

The Curious Case For Breaking Up Tech Giants ...... 92 Who’s Going In The Connected Car Driver’s Seat? ...... 304

Can Google’s Shopping Actions Take On Amazon? ...... 104 Bitcoin: 10 Years Of Smoke And Mirrors ...... 314

What Everyone Missed About Facebook ...... 112 The Roil Over B2B Payments Rails ...... 324

Consumer Convenience, Retail And Payments Disintermediation ...... 122 How Much Of The Consumer’s Paycheck Goes To Amazon? ...... 338

Can FinTech Walk The FinTalk? ...... 132 How Connected Devices Are Revolutionizing How And Who We Pay ...... 352

Facebook And Dating: It’s (Not) Complicated ...... 144 Seven Big Threats Facing Seven Big Tech And Payments Players This Halloween . . 362

Bridge Millennials And The Threat To Physical Retail ...... 154 The Apple iPhone Sales Rope-A-Dope ...... 376

The Gig Economy’s $1 2T. Digital Payments Potential ...... 164 The Walmart/Amazon Whole Paycheck Matchup ...... 384

Is GDPR EU’s Frankenstein Monster? ...... 174. What Black Friday Tells Us About The Future Of Retail ...... 398

The Case For Contextual Commerce ...... 186 Why Consumers Will Shrug Off The Marriott Breach ...... 406

Amazon: QSRs’ Big Threat Or Essential Lifeline? ...... 194 Decoupled Debit — Again? ...... 412

Are Retailers Ready For Amazon’s Prime Time? ...... 204 Did Payments 2018 Predictions Come True? ...... 420

Hi everyone!

Astrologists say that people born on Mondays have the psychic ability to 52 Mondays 2018 is the second annual edition of those columns, which understand others – making them better able to see what’s next . offer a play-by-play perspective on the developments in the most dynamic ecosystem in the world . They are presented in the order published, giving Executive coaches say that Mondays are the most productive day of the you, more or less, a mini payments and commerce time capsule for 2018 . week – since it represents a fresh start and an opportunity to set and achieve new goals . I am pleased to share this collection with you – and hope you enjoy the look back, Scientists have offered seven reasons why the “Monday Blues” might be a as we all prepare to look ahead to real thing – using data to back up the claim held by many that Monday is the what’s next in 2019 . most dreaded day of the week . Until next Monday, I wasn’t born on a Monday nor do I think that it’s the worst day of the week – well, most of the time, anyway. But I do think it’s the right day to reflect on the week that we just left behind as a way to move, clear-eyed, into the week that’s yet to come .

That’s why I’ve chosen Mondays to publish my weekly perspective on all things payments and commerce: To start a conversation about the moves – Karen Webster and the movers and shakers making them – and the transformation that is CEO | PYMNTS .com unfolding right before our very eyes . #52Mondays Payments 2018: Think This — Not That

n 800 B .C ., when people wanted to It’s a very good thing that happened know the answer to “what’s next” after the king introduced the world’s first I about their personal futures, they general purpose payment method, the flocked to Delphi and askedPythia , the Lydian Stater — the official coin of the Oracle of Delphi . Lydian Empire — otherwise, who knows what we’d all be doing today . It was a bit of an ordeal . Thousands of years later, people the Only after engaging in a variety of rituals, world over still look for answers about the including drinking holy water, burning future, particularly at the start of a new laurel leaves, bathing in a specific body year . Fortunately, getting those answers of water near her cave, sacrificing a goat no longer involves animal sacrifice or and eating a pie offered by the answer- asking delusional people living in caves seeker, would she speak . This whole for answers . Payments 2018: process took a day or more, plus the time required to trek to the cave . It was said Since PYMNTS was founded more than that her highly valued pronouncements eight years ago to answer that very Think This — Not That were often incoherent, mostly because, question about payments, commerce experts speculate, the gasses inside her and retail, I’m going to share my cave made her delusional . thoughts on what 2018 has in store for us. Those thoughts reflect a few big The Oracle of Delphi wasn’t always right . themes organized around a couple of frameworks that I hope give you food for Croesus, the king of Lydia and one of her thought about what it means for you, your most ardent supporters, asked her advice organization and the future of payments about waging war against the Persian and commerce over the next twelve king Cyrus the Great, which she advised months . him to do . The decision to take that advice led to the fall of the Lydian Empire . And you didn’t even have to bring me a pie .

POWER BROKERS BOOST THEIR POWER to enable those purchases: type, click, Merchants from the smallest Mom-and- so many different ways consumers and text, voice, click, blink or swipe . Pop store to the biggest brands like commerce and payments can connect OK, you say, but hasn’t it always been that Nike and Gap can be found on Amazon without it, including other smartphone way? It has, but 2018 puts a different spin That also means the criteria for making and accessed via any device across any brands . Commerce-centric players can on who those power brokers are and how that power broker list has changed: The platform consumers want to use . make a thousand connected devices they will influence the future of payments. names on the list today are quite different bloom and influence how and where from those who might have appeared Ironically, the largest merchant app in Connected devices, and the access consumers shop and buy and how they even a couple of years ago . Apple’s ecosystem, Amazon, has built to consumers they make possible, pay . a Prime customer base that it’s now now shorten the distance between the Here’s why . taken to any device, increasingly giving Device-centric players with closed consumer and what they want to buy — at a multitude of other connected devices ecosystems remain at the mercy of the same time they increase the distance Think commerce first, not connected access to those consumers via its voice- producing smash hits that enough between the business the consumer devices. That means think Amazon, not activated assistant, Alexa . She (Alexa) consumers want to buy and use and keep once bought from and the brand of the Apple . and Amazon can direct any consumer buying and using . Year in and year out . payment method with which they may use purchase on or off Amazon, using to pay . When the iPhone and Android devices Amazon Pay to complete a payment . It’s why Apple and Siri struggle while were introduced about a decade ago, Amazon and Alexa prosper . It’s why the That’s shifting the balance of power in the pundits told the world to make way Alexa, the voice-activated assistant, HomePod remains a question mark and payments — and not necessarily to those for the new power brokers in payments: is now in everything from glasses to Apple Pay’s power as a payment method who make connected devices . Apple and Google . A decade later, it thermostats to washers to lights to will continue to sputter . It’s why even if hasn’t turned out that way . While their In fact, it’s quite the contrary . bathroom fixtures to cars, in its own Echo Apple would buy a car OEM, like a Tesla, operating systems and devices have devices as well as hundreds of others, it would remain just another one-trick enabled consumers to shop anytime The power brokers of 2018 and beyond and can enable commerce anywhere the hardware play, like the iPhone . and anywhere using smartphones, their are the players that control access to consumer wants to take her . respective attempts to control access to those devices through the commerce Connected devices enable commerce, but the consumer via their “Pays” have failed and payments platforms that consumers Device-independent but very much only if there is a commerce ecosystem to gain traction — on and offline. use — across any device, any platform Amazon payments-dependent . for them to tap . Hardware alone doesn’t and any operating system — when they control access to the customer anymore . Think about what has . Device-centric players, like Apple, are at want to buy something, using whatever risk of losing ground — and control — Think intent, not content. That means interface that consumer wants to utilize over the customer, since there are now think Google, not Facebook .

Google, the search engine, is the more opportunities to shop via its News Think ubiquity, not niche. That means the explosion of digital and connected consumer gateway to search . It’s why Feed and on Instagram, the launch of think card networks, not niche alt pay devices, have struggled for that reason . Google is investing heavily in commerce Marketplace as a challenger to Craigslist, plays . enhancements through its shopping and the ability for users to buy tickets The riches may be in the niches in many carousel, capturing online travel sales to movies and concerts on Facebook, As the world of commerce moves ever areas, but payment acceptance isn’t one via its newly launched travel bookings commerce inside the company’s walled more digital, so does the consumer’s of them . site and enabling those capabilities via garden seems more like an asterisk to its expectation to use the same method a Chrome app that can also be found main business — mobile advertising — of payment everywhere she wants to Think Tencent and Alipay. Period . on Android and iOS devices . Its Chrome than a serious entrance into the world of shop and with every device she wants to browser form-fills store payments payments and commerce . access to enable those purchases . U .S . regulators may have put the kibosh credentials for use when checking out on the ambitions of Chinese players from for those who’ve opted in . Its suite of It’s yet to be proven that consumers, Today, in the digital world, just like buying some businesses in the U .S ., smart speakers is a way for Google to trolling through their social networks, the physical world, that means using based on supposed national security create its own commerce ecosystem want to use that time or those platforms network-branded card products that run concerns, but they won’t stop them from of participating retailers who want in to buy — and whether Facebook and its across the ubiquitous global rails they taking stakes in or forming partnerships on the voice-activated shopping game, related properties are serious about using operate — worldwide . And the more that with key players the world over — ones including Walmart and Target, who want that precious inventory to encourage that connected devices add more commerce that can help them scale outside China, an alternative to their rival’s Alexa . behavior when they can rake in boatloads waypoints on those consumer’s digital including here in the U .S . more dough selling ad space to brands . shopping journeys, the more difficult it And since queries via search reflect will become for any small, alt payment It’s what Alipay has done already with an intent to buy, Google is hoping Context is important, and contextual brand to get enough scale to enable those First Data and Verifone, and in places devices that can “ask Google” will bring commerce opportunities represent an consumer-buying preferences . like India and South Asia, where it’s taken consumers back into the habit of “asking emerging opportunity for many players . stakes in digital payments players such Google” — and not Amazon — when Eliminating friction is what those who as Paytm and GCash . It’s what Tencent they’re looking for something specific to But context and content, without a today have and control access to the has done by investing more than $3 purchase . consumer’s intent to buy or without consumer are working hard to do . That billion over the last seven years to take prompting an opportunity to buy, is an means eliminating decisions, steps and stakes in 40 U .S . companies, like Snap, Facebook’s been trying for years to experiment — possibly an expensive one obstacles on the way to a purchase . That and global players like Spotify . parlay the massive amount of consumer — in changing the behavior of a consumer means, among other things, delivering time spent inside its walled gardens who isn’t in the mindset to take the bait . ubiquity . Niche alt pay plays, even before Ecosystems that control access to more into a big-time commerce play . Despite than 1 billion users of its payments

method are too big for anyone to If we thought that mobile introduced Think remote (via the cloud), not The lowly QR code is used by a billion- ignore — nor are their moves to create a new set of expectations about how contactless (via the terminal). plus Chinese consumers in China for easier on-ramps to establish payments consumers shop and pay and the frictions making payments in store — to taxi acceptance or build interoperable mobile- they would no longer tolerate while doing The disappointment of the digital wallet drivers, to panhandlers and for just about first payments networks. Acquisition is so, the proliferation of connected devices as a method of payment in-store has everything else . It’s also the interface for but one of the many arrows in the quiver — cars, wearables, smart speakers, been well-documented on these pages many payments schemes in developing of these players that bring the trust and appliances, televisions — will only amplify for more than three years . So, too, countries, like India, and for emerging the spending power of billions of digital those expectations . has the myth about NFC (near-field mobile payments schemes in the U .S ., consumers with them to many with communication) payments being the like Chase Pay . complementary offerings . So, think commerce — and enabling it salvo for moving payments, mobile and first — and devices second. Ask who digital, at the physical point of sale (POS) . But that’s a distraction and also not Now, with this as a framework, think is leveraging environments where what’s next . about how these power brokers — and consumers have or could express an For every data point about Australia and others like them who control access to intent to buy . Ask who recognizes that its success is a countervailing data point That moniker is reserved for “order massive numbers of consumers — will scale is about achieving ubiquity and about its highly concentrated merchant ahead” — the remote payments plays change the future of payments and who may have gigantic user bases and and banking bases, which make getting that are the ultimate in contactless commerce . focused on eliminating obstacles on the the entire ecosystem, including its 21 payments technology, since they require way to the sale . million consumers, on board a much no touchpoint at all with a merchant in a Consumers aren’t going to ask Alexa to easier lift . physical store . help them shop on Facebook . Then line up who today connects those dots, or enables those dots to be And how the success of NFC contactless Today, those use cases are more Nor are they going to start their shopping connected, given their ability to control in the U .K . is driven almost entirely by its typically associated with QSRs (quick- journey based on where they can use access to the consumer . transit use case in the densely populated service restaurants) and coffee shop [fill in the blank payment method] – even city of London . use cases, using smartphones and though they may abandon a sale if they And then make your own list . apps . For Starbucks, order ahead get to checkout and can’t use the method So, those who say that 2018 is the year represents 20-plus percent of Starbucks’ of payment they want to use . Those are the power brokers of 2018 . contactless payments, defined as NFC transactions — in just three years . This payments in the U .S ., will ignite, since particular category of retailer, the fast Nor will they organize all their shopping REMOTE PAYMENTS KILL THE merchants will have more NFC-enabled food/QSR operator, would rather invest around a single connected device . PHYSICAL POS terminals, are simply wrong . in this technology than the integrations associated with enabling NFC at the point

of sale since the long term payoff for data proves that when consumers pick consumers will be able to come in and of those dead bodies already, such an them is much more than just “checkout ”. things up in the store, more of them tend inspect, try on and then buy online what approach requires too much time and to add more products to their tabs . they want to keep . This behavior will capital to build, then ignite . Sure, using tap and pay, in theory, can accelerate the shift to digital versus make lines go faster, but so can quick, And multi-tasking consumers, including physical store sales, even if those If we’ve learned anything about chip-enabled EMV terminals . Order ahead commuters, are increasing the frequency purchases happen while consumers are innovation’s prospects over the last skips the line completely — and that by which they order groceries online standing right inside those same physical decade, it’s that time is a currency that saves consumers many, many minutes, before leaving the office and picking them stores . works against as many innovators as it not nanoseconds . up on the way home . may advantage . And no one, including INNOVATION WILL HAPPEN AT THE investors, has the appetite for an While giving merchants the opportunity Given the favorable economics EDGES expensive, decades-long build that is to drive more incremental spend and associated with those transactions, likely to collapse under its own weight Think incremental, not big bang. frequency at their establishments . expect merchants to offer more and more long before it could ever ignite . incentives for consumers to do that . And If you buy into the fact that the big guys, Remote payments also reduce the need with the ability for consumers to hop into Instead, what we will see in 2018 is a with scale, will only get bigger, then for those restaurant operators to pay an Uber or a Lyft or rent a Zipcar for a few further doubling down of the commerce that means there are only two possible cashiers and/or gives them the chance hours or swing by the store on their way and payments power brokers exposing outcomes for the smaller guys: to to redeploy them in back-of-house areas home from work, expect more and more APIs and creating SDKs for innovators disappear or to leverage the assets made preparing products that consumers have consumers to take them up on those to tap and use to enhance payments and available to them by the power brokers as ordered . offers to avoid delivery charges and get commerce ecosystems and infrastructure they seek innovators with fresh ideas to what they ordered the same day . that exist today — and that consumers drive innovation . But it’s not just QSRs for which remote already use . payment has great appeal – and Over time — but not over such a long time 2018 is the year (at least I hope) in which potential . — that will marginalize POS checkouts The enormous opportunity, in 2018 the notion of pinning one’s hopes — and in stores, as well as how consumers use and beyond, is for power brokers to investment dollars — on creating “the next Consumers are ordering groceries them . harness the creativity of innovators big thing” that guts the existing payments ahead and picking them up curbside . to enhance what exists in order to and commerce ecosystem in exchange Throughout the holiday season, Stores will become showrooms and further differentiate their strengths and for something revolutionary just withers merchants were practically begging fulfillment centers. The shopping capitalize on market opportunity — for all and shrivels into oblivion . Not only is online shoppers to pick things up in store experience will evolve to become parties . to avoid incurring shipping charges . The a reserve-ahead experience, where the innovation highway littered with lots

FASTER PAYMENTS GET FASTER BY and sales payouts for small businesses Of course, no one disputes the fact shopping apps . That’s less than two USING EXISTING RAILS (SMBs) . that core banking systems should be minutes of the five hours that consumers modernized, and building new real-time spend on their mobile phones every day . Think smarter, not just faster. On the B2B side of the house, blockchain settlement rails is something we’d do if Of course, they’re using their browsers to technology running over existing, global, Faster payments has been a recurring we had enough money and time to do it . go to websites instead . compliant network rails is facilitating the theme in payments ever since the Federal But the world isn’t perfect, and payments real-time movement and settlement of Most of the time they spend online with Reserve assembled its Faster Payments — on a global scale — is a complicated digitized assets, including data, between their smartphones — about three hours Task Force to study the issue back in beast . No one has all the money in the banks and across borders . a day in the U .S . — is spent on a few key May of 2015 . Some three years later, the world to do it, and no one really wants to apps, with Amazon and Walmart .com result of that effort is a massive tome for wait . Banks, who need to all be on board for occupying the number one and two spots, making payments faster . And a pilot with any of this to work as advertised — see 2018 is the year that will shift the respectively . That’s because accessing a handful of banks that sent a couple of my earlier point about ubiquity — aren’t conversation from faster payments those two apps gives consumers access transactions across its rails . exactly complaining about the state of tomorrow to smarter and faster payments to millions of SKUs, which is a whole lot faster payments affairs . What they’re Meanwhile, payments are moving faster right now . faster and more productive than popping using today is a business model for than ever . from app to app to find and buy what they enabling (close to) real-time (or quick SKILLS TAKE ON APPS want . Existing rails — network debit rails and enough) payments — and it doesn’t come Think access, not apps. ACH — are zipping payments back and with a billion-dollar price tag to build If consumers aren’t going to the App something new that will then take years Store and searching for what’s new forth between people and businesses Apps have plateaued . As App Annie data to become ubiquitous enough to be very and downloading and using new apps, like there’s no tomorrow — safely and shows, the average person downloads useful . developers aren’t being asked to create securely . Same Day ACH for credits and zero new apps and uses about 30 a them . debits is ubiquitous, and faster payments month . Those mobile apps are mostly And, as it’s always been, banks and schemes are using technology and debit centered around a few categories: social networks that wish to enable instant Now, compare that to voice commerce cards to push funds into consumer bank networking, messaging, utilities, tools like payouts today to anyone can do that . and the skills ecosystems that are accounts in real time . At the same time, weather and ridesharing and productivity All that’s needed is a business model to emerging around it . they are enabling new use cases, like apps like search and email . support it — and that is something that the instant deposit of loan proceeds, they can decide and control based on Voice commerce puts products or insurance claims, airline voucher App Annie also reports that consumers their use cases and customer base . services before stores . Skills in a voice payments, payroll for hourly workers spend a whole 50 minutes a month on ecosystem build bridges from the digital

environments that exist today to the And why, if it was so crazy, were And one day we’ll wake up and all the news won’t be about payment methods that hardly connected devices that consumers respectable players like Goldman Sachs anyone actually uses — for legitimate purposes, anyway . use to access that ecosystem and buy getting in on it and the government hadn’t something — and on-ramps for brands yet regulated it? [By the way, have I mentioned that PYMNTS has been renamed PYMNTSBLCKCHN.com?] that want a direct relationship with the consumer but found it difficult to achieve He left before I had to answer why just in the past . about every country in the world but the U S. . has taken — or is close to taking — Voice ecosystems become the new power steps to ban initial coin offerings (ICOs) . centers, shifting control from app stores and retailers to the consumer, her voice Why some company that changed and the skills that connect her requests its name from Long Island Iced Tea for what to buy with the brands in that Company to Long Blockchain Corp . saw ecosystem that can fulfill those requests. its value increase by something like 7,000 percent . CRYPTO WILL REMAIN INEXPLICABLE And why some guy who created a crypto Think irrational. token that banks don’t use and that only 100 banks (out of tens of thousands in Have you ever tried to explain bitcoin to the world) have signed on to run pilots an 82-year-old man who used to run his is now worth almost as much as the In 2018, maybe I’ll be richer than Warren Buffett . own business and is reasonably savvy on founder of Facebook, which has billions investments? of people glued to it daily and is the Or not . second largest ad firm in the world. I had that pleasure over the holidays As I said, think irrational . when trying to describe bitcoin to my dad, There’s not much more to say than this: who wondered why it was all over the It’s a bubble, baby, and there are two So, that’s a wrap . news and what you actually bought – was things we know about bubbles . They it like a stock and a share in a company, burst — but no one knows when . Some Happy 2018 to all . I can’t wait to see how each of you makes “what’s next” or an investment in something tangible, people will get fantastically rich, some happen this year . like gold? will lose everything .

bout 30 days from now, most typically well-ingrained over a period of of you reading this who made a years . New Year’s resolution will have A There’s data on that, too . broken it .

Don’t feel too bad – you won’t be alone . Researchers at University College London say that getting a consumer to By the middle of February, 80 percent change habits, on average, takes about of people promising to change their 66 consecutive days of doing that new behavior at the start of the new year will behavior – with a range of between 18 have nothing more than six weeks of self- and 254 days, depending on the degree imposed misery to show for it . to which old dogs really do have to learn new tricks to make them stick . At least, that’s what leading psychologists say the data shows . It explains why many fitness trackers, gym memberships, home exercise There are many reasons people have equipment, or books or apps on physical a tough time keeping their New Year’s and financial self-improvement bought at resolutions, starting with the tendency the start of the year begin to collect dust for them to set unrealistic goals that are right around Valentine’s Day – just in time broken out of the sheer frustration that for a big romantic dinner . comes from climbing the very steep hills required to keep them . People simply haven’t invested enough time in learning these new behaviors for More fundamental is that most them to become the new routine . resolutions require that people break old What Payments habits – and form new ones . And, they haven’t seen enough of a reward to commit to continuing . Innovators Can Learn And that takes time – particularly when the habits that people set out to break are It also explains why some innovations in From Monkeys payments have been met with open arms

by consumers and others given the cold benefit of switching things up – or not, They observed that the monkeys changed The researchers concluded that brains shoulder. And why advances in the field and sticking with the status quo . their behavior – in this case, looking at make real time judgements about of voice and visual, particularly when the green dots – when the cost of doing tradeoffs where changing habits isn’t the applied to authentication, are poised to What was unusual about their work was so was minimal . In this experiment, the result of dangling a big reward in front of, become such a disruptive force across the “real world” environment they created cost was measured as the time and in this case, the monkey . The application the payments and commerce landscape . to run the experiment . So to do that, they distance required of the monkeys to to the human brain? That money or And why those who enable it will be used monkeys who are a lot easier (and move their eyes to find a green dot and rewards or the offer of free stuff may among 2018’s power brokers . cheaper?) to recruit than MIT kids . receive a reward . Shorter distances to not be enough to persuade someone to a green dot drove a consistent change change a habit . In fact, we’re seeing it happen in a variety But here’s the real trick . Rather than in the monkey’s routine deviating from of retail, banking and broader commerce first training those monkeys to perform their previously acquired habit of going to The bigger the change required pilots and prototypes today . a specific task and then introducing other green or white dots . of a person, the more likely that change, the researchers introduced the considerations related to time, Here’s why . monkeys to a series of experiences that In 2015, these two researchers went back convenience and other intrinsic benefits mimicked the complexity of decision- into the lab to dive deeper . will weigh more heavily on their decision WHAT DOES IT TAKE FOR A NEW HABIT making that humans encounter every to switch or stand firm. TO STICK? day when going about their day-to-day What they found not only supported routines . This method, they believed, their initial findings – that the shortest And where decisions about routines and In 2010, two researchers at MIT’s was the best way to understand not only distance between two points resulted in habits are already hard-wired and made McGovern Institute for Brain Research how habits were formed, but also what it a change in behavior – but that rewards reflexively without people thinking too published a paper that shed new light on would take to change them . would not change that behavior if the deeply about making – or changing – how the brain makes decisions to stick brain’s neurons imputed that the cost of them . with or change routine behaviors . Their The monkeys were exposed to a sea the change was too high . work was credited as the first to explain, of white and green dots, and rewarded WHY CHANGING CONSUMERS’ HABITS scientifically, why routine behaviors – aka when they looked at one of the green In other words, big rewards don’t produce ISN’T ABOUT CHANGING THEM habits – are more or less on autopilot for dots in the grid . Over the course of the lasting changes – or even any change – if humans . Of course, we’ve seen evidence of this experiment, through a series of 1,000 the behavior change was too great — even hard-wired behavior play out in our own daily tasks, the researchers changed how when the monkeys were offered a reward Their study concluded that routines payments and commerce stomping the white and green dots were presented if they did made such a change . are shaped by how the brain’s neurons grounds over the years . to the monkeys . process information about the cost and

For 50 years, consumers have been much of a cost, at least now . It requires using their phones, customers are simply — and comes to them from a trusted trained to produce a plastic card of too much of a shift in consumer behavior . applying their online shopping behavior to commerce intermediary . some kind at the point of sale to pay for a new, and very habituated, use case . something . They know they can do that What’s consistent is that the consumer It’s what Google is hoping Google Home anywhere they shop – the biggest of the produces the same plastic card that has It’s why I believe that remote payments and “Ask Google” will do for them . big stores and the smallest of the mom- worked year in and year out for more than will ultimately change the in-store point and-pop shops – and that their card will five decades. of sale experience . Making that shift In 2016, consumers “asked Google” to be accepted and will work . delivers a reward that’s much bigger perform at least two trillion searches That’s also why investments are being for the customer, without requiring a every year . This year, Google reported It’s why they might have grumbled at made to improve the form factor of a wholesale shift in consumer behavior to that 15 percent of those searches were first about dipping and not swiping when physical card — whether it is introducing achieve those gains . It’s just another use for brand-new search terms, but down EMV was first introduced, but two and contactless capabilities or creating case for digital order ahead . from the 20 to 25 percent they claimed in a half years later still produce a card at cards with biometric IDs — and are being 2007 . checkout in the store . That’s despite an piloted by the card networks and issuers . It’s why consumers default to Amazon inconsistent checkout experience at the And why innovations that introduce more when they buy online, and why the Consumers have other places now in-store point of sale – where dipping intelligence into the digital versions of eCommerce giant now owns north of 40 to “ask” for things – including social can be a short or long wait, and where those accounts that require little to no percent of all online spend, based on Q3 networks and Amazon for commerce . swiping and not dipping may still be the change of the consumer are highly valued 2017 retail sales data . It’s easy to start Research that we did in 2015 on this topic checkout protocol . by consumers, merchants and issuers . and finish on Amazon, as consumers then reported that nearly 60 percent of have been trained that they generally find all searches related to commerce started And it’s why mobile wallets – except It’s also why mobile order ahead has seen what they need when they visit . in Amazon . It wouldn’t surprise me if for a few noteworthy examples such as such speedy growth . that number was well into the 60 percent Walmart and Starbucks, that each have It’s also why consumers are increasingly range today . ubiquity across all of its stores – have Over the last five or so years, consumers comfortable using their voice to “ask struggled to get any meaningful traction have increasingly used their mobile Alexa” to help them buy things – in their But, like Amazon and Alexa, Google – with despite this inconsistent EMV checkout devices and apps to discover and buy cars, on their phones, at the office, in the Google Home – is allowing third-party experience . things . Mobile order ahead eliminates kitchen, in the laundry room and even in hardware and solutions providers to the pain of standing in line at the coffee the bathroom . It’s easy and convenient, leverage its voice commerce ecosystem The switch – that uncertainty about shop, fast food joint or sandwich, salad uses an interface that is ubiquitous — – and is courting merchants who have an whether the merchant has or doesn’t have or pizza place, and rewards the consumer their voice, and with Echo Show, visual interest in competing with their biggest NFC at the point of sale – comes at too at a minimal cost . By ordering ahead retail rival .

THIS IS THE HUMAN BRAIN ON HABITS associated with the variety of connected in the normal and ordinary course of her opportunity to do business . And not devices inside that smart home? day-to-day routine . just in a retail setting . Smart people Today, voice technology is being used have been working on adapting very mostly to remove friction from routine We’ll have to wait and see what Amazon Locking and unlocking the front door . complicated technology to use cases tasks – asking Alexa (mostly) or Google has in store for Blink, the Boston-based in banking, healthcare, insurance and Home to turn lights on or off, lock and outdoor security camera company it Looking into a car rearview mirror . government, to name but a few . unlock doors, play music, find out how bought last year . And Echo Show, the many cups in a quart while cooking, device with a screen and television, Talking to someone in a store . The beauty is that in each case, they build adding items to a shopping list, turn now that Prime and Alexa are available on old habits – not new ones – to provide washing machines on or off and now, through Apple TV . Looking at a screen . significant gains across the ecosystem. um, even flushing the toilet. It’s a way for consumers to use what they all know Or if, as we saw at CES last week, Now think about the endless number of It’s been proven that’s good enough to get how to use – their voices – to do a series rearview mirrors in cars were used to use cases where consumers today speak monkeys in the lab to change their habits . of things that they’d perhaps use their authenticate consumers via iris scans to or look at something in the course voices to ask someone to do for them, when they sat down in the driver’s of enabling a commerce transaction — My guess is that it’s going to be good anyway . Instead of asking Mom to turn on seat, and preauthorized them to make and how innovations in authentication, enough for their more evolved and the lights or Dad to turn off the television, purchases at the places they might want digital commerce, and tokenization could smarter primate cousins, too . Alexa or Google Home can just make it to buy things on their digital drives – gas eliminate checkout friction by, well, happen . stations, QSRs, parking garages . making checkout part of check-in .

But what if instead of producing a key to Or, if as the folks at Amazon are fond of By triggering secure ways to pay digitally lock and unlock the front door, a peephole saying, check-in does, in fact, become into doing what comes naturally to in that front door was a camera that the new checkout at retail . And the consumers . used iris scanning to allow access only combination of voice and visual in after the owner or other authorized users Looking . Talking . Asking a question . stores becomes how consumers are presented themselves? And used voice authenticated when they enter the biometrics to confirm that the request Voice and visual biometrics have the store, or at some point in their shopping to lock or unlock the door was coming great potential to build on that idea and journey before checkout . In each of these from an authenticated user? And if that make commerce a secure, contextualized hypothetical use cases, authenticating front door authentication was integrated experience for consumers wherever the consumer, staging her for a secure, with the various commerce use cases there’s a connected device and an digital commerce transaction, was done

harles Babbage is considered of their more famous lead players, was “the father of the computer ”. But how their contributions accelerated those C it was Lord Byron’s daughter, innovations’ time to market . the mathematician Ada Lovelace, who wrote the first algorithm that made Innovation in payments and commerce computing machines more than just fancy has an unsung hero, too . But it’s not a calculators . person so much as it is a concept .

Why Sir Edmund Hillary is the first person to Distribution . have reached the top of Mt . Everest, and was knighted for that achievement . But In an ecosystem in which success is Innovation it was his Sherpa, Tenzing Norgay, who defined by scale and time to market, carried the equipment, prepared the route it’s no longer good enough to have a Is and took the risks to make sure that great product, a well-known brand or Hillary reached the summit alive . a compelling technology . Success is now defined by the ability to reach a Nothing Winston Churchill said that Alan Turing’s critical mass of users — consumers or ability to crack the Enigma code during businesses — efficiently and effectively … World War II enabled the Allied Forces where time is an important currency, as is Without to win the war — and years sooner the ability to influence and/or control that than it might have happened . But the end user experience . Distribution significance of Turing’s role was kept secret until the 1970s, two-plus decades It’s why I wrote at the start of 2018 that after his suicide following his arrest, the year’s power brokers will be those conviction and forced chemical castration who can use their scale, reach and in the U .K . for being a homosexual . momentum to drive innovation forward . And who will influence how innovation These unsung heroes remained largely happens . out of sight and, therefore, out of mind for decades . More important, perhaps, And it’s why, when I read last week that than the innovations they made on behalf General Mills was rumored to have an

interest in investing in and/or acquiring Farm, El Paso, Larabar and Jeno’s frozen reported that one in four trips to the grocery store included the purchase of at least one of Boxed, I wondered whether the motivation pizza — to name but a few . its products . might be distribution and controlling more of it . Its iconic brand personality, Betty That was then . Crocker, was created by General Mills’ Who’s to know whether they do have an PR department in 1921 as a way to sell Grocery shopping and eating habits have since changed . Consumers now opt for healthier interest – or whether, if they do, they’ll be flour by having “her” promote recipes that food options and are shifting their spending accordingly . For instance, General Mills’ successful at winning the bid? There are required it as an ingredient . In 1945, Betty decades-long grip on the yogurt category, with Yoplait, has been loosened by “Greek” some other serious, motivated players Crocker was the second-most famous yogurt brands like Chobani, which boast less sugar and fewer calories . More recently, courting Boxed, including Kroger, who’s woman in the United States, behind General Mills has introduced gluten-free varieties of its stalwart favorites, like Cheerios and said to be the frontrunner . Eleanor Roosevelt . Bisquick, and acquired organic brands like Larabar, Cascadian Farm and Annie’s .

Regardless, it’s an interesting data point An amazing achievement for someone At the same time, General Foods’ more recent “innovations,” like all-marshmallow Lucky for why the country’s oldest (and one of who wasn’t really a someone . Charms and Reese’s Cocoa Puffs, are selling like hotcakes. Go figure. Let’s hope, at least, the world’s largest) CPGs — with a market they’re being eaten with organic 2 percent milk and some fruit . cap of $34 billion — might be willing to Speaking of someones who aren’t really wager at least some part of its future on someones: Alexa isn’t the first woman But, I digress . a five-year-old company with $100 million to read a recipe aloud to cooks from an in sales that sells bulk food online . electronic device and be regarded as a trusted “kitchen confidante ”. That was FROM BETTY CROCKER TO BOXED Betty Crocker in 1924, when General Mills introduced Recipes by Radio . More Chances are you have a bunch of General recently, Alexa and Betty have become Mills products in your pantry, and that you BFFs — there’s now an ASK Betty skill on probably grew up eating many of them . Alexa .

From its start as a flour mill in 1866, The typical grocery store carries between General Mills is now the brand behind 500 and 600 General Mills products . In Gold Medal Flour, Cheerios, Haagen a 2012 interview, then-CEO Ken Powell Dazs, Nature Valley, Yoplait, Pillsbury, Progresso, Annie’s, Chex, Cascadian

The grocery wars led by Amazon and and more efficient option for many who drive more than 25 percent of their through both its in-store and online Walmart have forced grocery prices way employees, regardless of where they business . channels . Selling Whole Foods’ 365 label down . For brands like General Mills, that’s work, to cook more dinner the night on Amazon has reportedly added $11 a good news/bad news story . before to take for lunch the next day — And now, Amazon . million to its sales in the four months or to make lunch at home to eat at their since the acquisition . Overall, Amazon’s On the good news front, the cost of food desks while they work . THE AMAZON EFFECT ON CENTER OF 2017 private label sales are estimated eaten at home is well below the 2017 THE STORE at nearly $450 million — not too shabby, Consumer Price Index, and well below It’s a trend that, in a different time, might given that its private-label business Amazon’s public interest in grocery goes the cost of eating out . That’s a boon for have made CPGs grin from ear to ear . started in 2009 with just a handful of back to the launch of its Dash buttons in consumers who see their grocery dollars items . March of 2015 . buy more — and are buying more food to Last year, IRI reported that 36 percent of eat at home . shoppers said eating healthier meant they It was also a tacit admission that Thought of then as an April Fool’s joke, spent more time and money on the items capturing more grocery spend required these Wi-Fi-enabled plastic buttons have Or at their desks during their lunch hour . sold on the perimeter of grocery stores: more than just relying on the natural since evolved to become a convenient produce, seafood, meats and bakery . evolution of the growth of online grocery way to replenish more than 350 In 2016, NPD reported that restaurants sales . And it revealed their intention of consumables across multiple grocery lost more than three billion dollars in That leaves those center-of-store items, doing that, over time, by using their scale, categories — now including third-party sales from lunches that never were — like soups, cereals, snacks and boxed reach and pricing algorithms to favor their manufacturers that want to integrate reportedly the lowest dip in lunchtime staples (such as flour and mac and own store brands . the capability into their products . Later, sales in more than 40 years . Higher cheese) — General Mills’ sweet spot — as the launch of Amazon Pantry leveraged restaurant labor costs, which forced the discounted hooks to get shoppers At the expense, of course, of the branded Amazon’s brand and Prime reach to higher menu prices, were to blame . into stores . Once there, shoppers products offered by CPGs like General offer consumers the convenience of are introduced to a variety of brands, Mills . buying online the bulky items they once But so were two other things . including private-label store brands . For schlepped home from the grocery store . players like General Mills, competing THE BATTLE FOR THE (FIRST) BASKET Employees at work don’t want to spend for that center-store share is a margin- Amazon’s 2017 acquisition of Whole At $627 billion, the U .S . grocery business the time it takes to go out to a restaurant eroding experience . It’s also one that Foods added 470 brick-and-mortar accounts for about 6 percent of the GDP to eat — say hello, mobile order ahead limits their opportunity to build a direct locations to Amazon’s ambitions of and 6 .4 percent of consumer annual at QSRs . More workers are also working relationship with their end customer . capturing more consumer grocery spend spend . But for as much as we talk about remotely, where lunchtime involves Those decisions are the domain of the — and driving more private label sales grocery shopping moving online, 98 taking a trip to the fridge . It’s a cheaper Krogers, Walmarts and Stop and Shops,

percent of those sales happen in the almost entirely by online sales in the U .S . The items in her first basket were the Amazon and Walmart — the one-two store . market . brands that stayed in our pantry at home punch of online grocery sales — represent for a very long time . important online channels for General At 2 percent of all sales, roughly $13 The center-of-the-store items that grocery Mills to capture that first, full-basket billion in 2017, the online grocery growth shoppers are paying less attention to in That’s what General Mills says it sees opportunity online . General Mills products curve is only now starting to take shape . the store, they’re paying more attention to happening today with sales coming offer important hooks to draw in a diverse online . through the online channels . group of grocery customers . Estimates for the growth of online grocery are all over the map, with some General Mills likes that, for the obvious Shawn O’Grady, SVP of General Mills’ Moving forward, it’s not so sure . And analysts estimating that online sales reason . Right now, regardless of where Global Revenue Management, said in an if you are anticipating 10 years ahead, will more than triple (which would be 6 consumers shop online, they’re buying interview last summer that consumers which any good CEO should, you might percent) less than five years from today. their brands using a channel that is who buy groceries online tend to be realize that you’d rather not put all of your Both Nielsen and The Food Marketing increasingly convenient for them to “full basket” shoppers, with an average eggs in the online baskets of those two Institute estimate that online grocery access . spend of $150 . That spend, he observed, retail giants . sales will hit 20 percent of all grocery is nearly four times the typical in-store But it’s more than that . sales by 2025 . shopper’s basket size . CAPTURING THE CENTER OF THE STORE Today, Amazon is said to control the General Mills is out to capture what General Mills’ strategy is to ensure that biggest chunk of those online sales, at 18 they call the “first basket” — something the consumer’s “first basket” has as Boxed was founded in 2013 by two percent; Walmart is second at 9 percent . my mom used to call the big weekly many of their products in it as possible . 20-somethings with a million bucks and shopping . For her, that meant going to If they are able to achieve that, they’ll see a vision to give urban consumers the For General Mills, the shift to online, even the store once a week to stock up on the sales increase in a channel that is poised same great bulk food deals found at if tiny, has been a boon for their sales . “staples” needed to prepare meals for for rapid growth . They’ll also establish suburban warehouse clubs . Without the the household . Every week, Mom would preference for their brands by making membership fee, using mobile and with CEO Jeffrey Harmening reported on its buy more or less the same brands and it easy and automatic for consumers to door-to-door delivery . Q2 2018 earnings call that even though the same quantities of those brands to replenish those products . Online shopping Warehouse clubs are a $200 billion eCommerce is less than 2 percent of replenish what she used the week before . just makes it easier for consumers to be business, highly concentrated among its sales, internet sales have jumped She’d change it up only if there was a sale reminded of what they last purchased — a few big brick-and-mortar players: 82 percent so far this fiscal year. In two on the things she always bought — and and to do it again . years, the company expects that share then she’d buy more . Costco (the largest), BJ’s and Sam’s to more than double to 5 percent, driven Club . Back in 2013, wholesale clubs were

clubs, requiring an annual membership that spend? Of course, it seemed unlikely . to shop there . In an interview last year, But it does offer important insight into Co-Founder Chieh Huang said that how CPGs are thinking about their future what attracted him and his co-founder — and the growing importance of online to the business — and the investors distribution as a way to drive preference who’ve ponied up $160 million over the and future spend . last five years — is the massive market opportunity that is less than 2 percent of Not to mention, real-time data about how all grocery sales online, only 2 percent consumers make those decisions . What of warehouse club sales online and 0 CPGs know today is whether consumers percent of those sales on mobile . in grocery stores leave with their items in their baskets . What they don’t know For Boxed, it was nothing but upside . is what influenced those decisions, and what might have tipped the scales in their What has been dubbed the “Costco for favor . If General Mills asked Betty, she’d millennials” sees 81 percent of its sales probably say $500 million — what some coming from consumers ages 25 to 44 say it will take to buy Boxed — is a small who buy 10 items each time they order . price to pay to keep all of their options Those customers also include offices and open and learn more about this new schools who buy in bulk to stock snack generation of grocery shopper . rooms, vending machines and micro- markets . Asking Alexa would probably yield a different answer . Those center-of-the-store products are also General Mills’ sales engine .

Would the acquisition of Boxed cure all of what ails General Mills and all CPGs facing the shift in consumer grocery spend, as well as the intermediaries who now control access to that consumer and

t’s time to talk more about what what most end users would say they want 2018: The Year Of we’re really trying to accomplish next from a payments and commerce I for consumers — and for our experience . businesses — and less about the tactics The Mobile Wallet some are trying, with mixed success, to Maybe the reason that no one is talking accomplish that . about profound impacts is because so far, there haven’t been that many . Reset It’s seemingly all about tactics these days . So, this should be the year to tone down the talk about tactics — and to turn up The 2018 predictions seem more like a the discussion about what’s needed to laundry list of trends and tactics that’ve take full advantage of the opportunities emerged over the last several years than to transform the future of payments and a discussion of the profound impact commerce . these trends have had on the consumer and business payments experience . Starting with mobile wallets .

It’s seemingly all tactics all the time Instead of talking about 2018 as the year in conferences filled to the gills with mobile wallets will finally ignite tactic, sessions dedicated to that same laundry let’s talk instead about why this might list than a conversation about the be the year they could end up taking a frameworks needed to examine the ability backseat to something else that solves a of these tactics to solve real business more important problem for consumers problems that real businesses have — and and businesses . then to do it at scale . Mobile wallets were built to solve a You can especially see it when we payments problem in the store that no examine the progress, or the lack consumer ever had . thereof, of some of the “next big things” in payments and commerce that have And, with a few exceptions — Starbucks neither turned out to be all that big, nor and Walmart Pay, to name two — it’s

a platform the average consumer account credentials at the beginning of on the friction encountered on those Collectively, we estimate the opportunity hasn’t really wanted to use at all — or her shopping journey . shopping experiences . cost across our sample of merchants to consistently enough to make it a habit . be on the order of $200 billion a year . Where “buy” becomes an affirmation of a What’s surprising — or maybe not, since Online, mobile wallets were a digital tactic transaction she’s already started, shown all of you are also online/mobile shoppers That’s not real money lost, of course, pointed at a problem consumers actually an intent to complete — and then does . — is how little change there’s been to the since to the merchant with the best online had — faster friction-free checkout on overall Index score since we started . experience goes the spoils of higher the smaller screens that were driving the Tomorrow, we’ll publish our latest online conversion rates and those sales . In our growth of online sales . Checkout Conversion Index (CCI), a That’s not good news . report, we examine what makes a top- study we do every quarter . It measures performing merchant a top performer — But the chance to use those wallets the friction associated with checking out What we’ll publish tomorrow shows an but I’ll save those details for you to read was offered to the consumer at the online and via mobile devices . For the aggregate Index score of 51 .4 — out of when it publishes . very end of her online/mobile shopping last two and a half years, we’ve shopped 100 — for the portfolio of merchants journey . And often, only after forcing that the same random sample of 750 online we track . On a scale where 0 is “How What I will offer in the meantime is consumer to complete the friction-filled, merchants, which collectively represent can you even be in business?” and 100 that the overall poor performance merchant-required login or registration 70 percent of online commerce sales, is perfection, there’s still way too much isn’t because of a lack of wallets or that risked driving her away . exclusive of Amazon . friction in the online checkout experience acceptance marks that make checkout for consumers . easier . We show that, on large and small The real problem mobile wallets are trying We examine more than 50 features sites, the availability and use of wallets to solve is actually three problems in one: critical to delivering a streamlined online Let’s not say that 51 .4 is a failing grade; and buy buttons reduces checkout friction eliminate online buying friction for the shopping and buying experience, from let’s just say it means we’re barely and improves conversion appreciably consumer, increase conversion rates for the time the consumer hits the homepage halfway to our destination, about five when a consumer shows an intention to the business and ensure that payments to the time they exit . We look at a range years after consumers have had fast buy things from that merchant’s site . happen in a secure and compliant way . of things, like the availability of live help; enough cellular networks to access shipping, delivery and pickup options; merchants and conduct commerce But for most sites, the ability to use one That should make the job of a inventory availability and the number of anytime and anywhere with their of those options is a well-kept secret until mobile wallet less about eliminating payments methods offered, including buy smartphones . the very end of their shopping experience . friction at checkout, at the end of the buttons . We estimate the lift or loss in shopping experience, and more about conversion — and therefore sales — by That friction costs merchants big . And by that time, it’s just as likely that authenticating that consumer and her merchants, by segment and collectively many of those would-be buyers have long across the 750 merchant portfolio, based since said bye-bye — and not buy .

In an increasingly digital world, where believe their identity had been somehow establish a profile and store their account Second, there was concern over the connected devices — mobile phones, compromised . credentials . uncertainty of the safety and security cars, speakers, wearables, appliances, of their account credentials and the televisions — will become more relevant There’s a very good reason for that: The It’s not just the proliferation of “Pays” privacy of their data when tapping into channels for how consumers will pay for identity credentials of nearly every adult that are asking — it’s social networks, new, connected devices for commerce . what they buy regardless of where they in the U S. . were stolen and are now being merchants, tech giants, search engines, If anything would blunt the chances might be at the time they’re buying it, the sold for a couple of bucks on the Dark mobile operators and just about anyone of commerce expanding to those new general purpose mobile wallets that were Web . with a commerce ambition . endpoints, security and data privacy were designed to reinvent checkout by making it . it faster may need to do some of their That breach happened at precisely the These days, that’s just about everyone . own reinventing . moment digital commerce opportunities And third, consumers said they’d trust outside the classic online and mobile In May of last year, we asked a random their bank and card networks to enable Authenticating that consumer at the start channels — wearables, speakers, even sample of more than 2,500 U .S . these new payments experiences on has the potential to shape not only how cars — began to surface . Consumers, consumers to tell us who they regard as their behalf . Seventy-seven percent of consumers pay and the payment method once confident their issuers had their trusted enablers of payments in a world consumers responded that way, and even they use when they do, but, ultimately, backs if their account credentials where payment can happen using a more who owned six or more connected from whom they buy . and/or physical cards were lost or variety of connected endpoints . That was devices . PayPal and Amazon were rated stolen, suddenly became nervous that two months before the Equifax breach highly by consumers too . Merchants, the It also suggests that one of the power cybercrooks were setting up accounts was made public . general purpose “Pays,” mobile operators plays we’ll see unfold in 2018 and beyond right and left in their names and robbing and tech giants were way down on the is the someone, or someones, emerging them blind . Three points were made clear . list . Social networks didn’t break double as the trusted enabler(s) of that identity digits . and the secure account credentials that There were even concerns, fueled by First, that consumers, overwhelmingly, travel with her . media coverage of the breach, that show enthusiasm about using connected (Even though all of these various players, their banks might not know what was devices other than their smartphones to including the “Pays,” ask consumers to Who that will be will most likely be up to happening until fraud had already been buy and pay for things . More than two- register bank-issued, network-branded the consumer . perpetrated . thirds of consumers said the learning accounts as part of their set-up .) curve wouldn’t keep them from trying new Last year’s Equifax breach did something At the same time, consumers are being ways to pay . In fact, many of them had The “Pays” have some work to do . that the 2013 Target breach didn’t: It asked by a growing list of players to already tried new payment methods using gave every single consumer a reason to a variety of devices — and liked it .

As wallets, they’ve been presented to consumers as the way to make checkout easier — convenient, fast, efficient. That doesn’t seem to be enough . In our own recent studies of mobile wallet adoption, we’ve started to see a slight uptick in concerns over security by the large majority of consumers who don’t use them .

That’s a change from where we were two years ago .

In a world where the certainty of a consumer’s identity and her authorized use of those credentials is essential to building trust in a world where the consumer and her credentials become more and more intangible, he who cracks the authentication code will take payments and commerce to its full, digital potential .

And even become the tailwind that moves identity and authentication beyond the retail payments use cases we speak about today .

he year was 1999 . company by the name of Confinity was eBay/PayPal: founded in Silicon Valley by Max Levchin, eBay, then four years old, Peter Thiel and a few others. Confinity’s T bought payments provider first product, released in 1999, was What Everyone Missed Billpoint to improve the payments PayPal — a (peer-to-peer) P2P payments experience on its site . platform that would let users send money to each other via Palm Pilots and on the When eBay first launched in 1995, the web . primary way that buyers and sellers did business was via paper check and snail Levchin and Thiel knew that getting mail . PayPal off the ground meant getting a critical mass of senders and receivers Back then, only the very, very large on board . They looked around for places merchants had merchant accounts that had a large concentration of senders and could accept credit card payments and receivers online and a use case for online . And, since the vast majority of payments that needed a digital upgrade . eBay sellers were very, very small, the only way to get paid was via a payment eBay fit the bill. intermediary known as the postman . For sellers, PayPal solved an enormous At the time, eBay explained that having its payments pain point . own payments platform would give it the flexibility needed to improve the buyer/ PayPal became as the merchant of seller experience . Wells Fargo and Visa record for the little guys who couldn’t were Billpoint backers . At launch, eBay get a merchant account from traditional gave sellers incentives to sign up with acquirers, serving as the stand-in seller Billpoint and gave buyers incentives to to offer buyers a digital way to pay . And, use it . unlike traditional acquirers, PayPal made it easy for tiny sellers to come on board . One year earlier, in 1998 — the same year Billpoint was founded — a software

Meanwhile, buyers could use PayPal Three years later, in 2002, eBay bought It’s not known what the terms of the DIGGING INTO THE DETAILS to buy the doodads collecting dust in PayPal for $1 .5 billion and shuttered deal between Adyen and eBay are, but Headlines immediately following the someone’s basement or attic without Billpoint . it is rumored to be aggressively priced, news gave the thumbs-up to eBay: “A having to share their credit card account in exchange for an important payments Smart Move for eBay ”. And they lowered credentials with that seller . At that time, it was reported that the vast credential outside of Europe . the boom on PayPal: “eBay Chooses majority of eBay sellers — 70 percent — A New Dance Partner While Dunking After a rocky start, PayPal’s technology accepted PayPal . eBay’s pitch to investors is remarkably PayPal ”. street cred became its risk/fraud engine, similar to its pitch in 1999: The ability to which helped it take on and manage the Despite having its own payment exercise more control over payments will Others just got it all wrong . attendant buyer/seller risk that came processor, eBay was willing to pay $1 .5 give consumers more choice over how billion for the payments platform for one along with PayPal’s new business model . they pay when buying from an eBay seller . Analysts, with concerns over the longer- simple reason: Buyers liked using PayPal That risk guarantee helped increase And it will give sellers more choice over term implications of the move on eBay’s on eBay, and sellers liked getting paid buyers’ and sellers’ comfort levels with the payments options they can accept — part to intermediate payments, got that way . doing business online, ensuring there and less expensively . spooked . were protections in place that kept them from being duped by bad actors . EBAY’S GROUNDHOG DAY eBay also said that the move to bring Since eBay’s announcement on Jan . 31, payments in-house and to use Adyen The year is 2018 . PayPal’s stock has taken a drubbing, The flywheel that PayPal hoped for for payments processing is intended to closing on Feb . 2 at $76 .57 . started to spin . reduce the cost of payments to its sellers . Last Wednesday, at the opening of eBay’s 2017 Q4 earnings call, CEO Devin Wenig Two days earlier, it was trading at $86 .17 . More sellers with stuff to unload jumped Today, of course, PayPal accounts for the announced that eBay would, once again, on board with eBay, knowing buyers now vast majority of eBay payments . PayPal eBay’s stock, on the other hand, has seen bring payments in-house . had an easy way to pay them — one that comprised 70 percent back in 2002, and an uptick, closing on Friday at $44 .30, accelerated the time to get money into almost surely a lot more today . eBay said it had selected Adyen to be its down from a high of $46 .78 on Feb . 1, but their bank accounts . primary processor for card payments . up from the $40 .58 where it was trading Perhaps it wasn’t a coincidence that Adyen, headquartered in Amsterdam, moments before the announcement was eBay’s homegrown alternative just eBay’s announcement was made two has built its business on connecting made . sputtered along . days before Groundhog Day . merchants to a variety of online payment The angst over PayPal and the hype over methods, including localized ones like eBay are both overblown — and even feel iDEAL and Swish . a bit like déjà vu .

According to sources at PayPal, under Which also means that the economics for of their payments flows. Via PayPal, these is enough to get buyers on board – all the terms of the deal, Adyen will process the “vast majority” of transactions taking sellers also get access to other value- buyers care about is being able to use the the unbranded card payments on eBay place on eBay — where PayPal makes its added services, such as the option to method of payment they like and want to starting in mid-2018, and then only for a profits managing payments on eBay today extend other services, like PayPal Credit, use . small number of pilots that will account — won’t change much either . and working capital for the entirety of for a small (think single digits) volume their businesses across all their online Assumption: Most Sellers Ditch PayPal of payments . And even though eBay will MITIGATING THE FLIGHT RISK channels and across borders . for eBay Direct Payments require sellers to establish an account eBay has fielded an extremely talented with eBay, it will not be at the exclusion eBay’s bet on becoming a payments eBay’s move to intermediate payments team to get its in-house payments of eBay merchants keeping their PayPal intermediary comes with a lot of risky has been compared to Etsy’s move to do platform off the ground . But it will have accounts up and running . Through 2023, assumptions . the same thing . That journey has come its work cut out for itself if it really wants PayPal will continue to operate as the with a lot of well-publicized bumps and to displace PayPal long-term . payments intermediary for the branded Assumption: Most Buyers Ditch PayPal bruises, including a payments outage PayPal transactions that happen on eBay . for Other Forms of Payment that lasted five days, a turnover of three Over the next two and a half years — CEOs and seller fees that aren’t all that as eBay allocates resources (money The unbranded part of eBay’s business — Making payments cheaper for sellers much cheap(er) . The value proposition for and people) to upgrade its technology the part that Adyen will handle for a few and for eBay means moving buyers off sellers must come with something more platform, build its risk/fraud engine and markets beginning later this year, and PayPal . Using PayPal on eBay is pretty than just “it’s cheaper to process card improve its merchant services capabilities then starting in 2023 for all unbranded slick and seamless — and as we have payments ”. — it is also faced with keeping its core business — is not only the smallest observed, payments habits are hard to business from becoming destabilized in portion of eBay’s current overall payments break . If buyers wanted to use credit Assumption: Sellers Don’t Bail for Other the face of these new developments . volume, but also represents the most cards to pay for things on eBay today — Online Platforms highly commoditized part of payments . and for the last 16 years — they could That means keeping the buyers happy — have . As we’ve been told, it seems the Seller turnover is the nature of the beast and, more importantly for eBay, keeping Of course, eBay hopes it becomes much vast majority don’t — and haven’t . It will on any marketplace, but it’s a real threat their sellers from defecting . more than that . require a big investment by eBay to get to eBay during this critical juncture . It’s enough buyers willing to switch to a new been reported that over the years, fees Most eBay sellers sell on many other For the buyers and sellers who wish to form of payment — and to stick with it . have driven large sellers to defect from marketplaces that also accept PayPal, transact using PayPal, it seems that it will The road to good payments intentions eBay to Amazon and other platforms — and likely value the convenience of having pretty much be business as usual for the is well paved with players who think but I’m not sure that’s the only reason or a single merchant account to manage all next five years. that offering sellers cheap payments

even, perhaps, the primary one for that And at a time when eBay needs to, first some of its billions to buy it . What We live in a world where (almost) churn . and foremost, make itself the place that sounded like a crazy strategy then, for anything is possible . lots of buyers and sellers really want to both eBay and Facebook, might not sound Sellers like to be where there’s a steady do business . all that nutty now . THE NEXT MOVE stream of buyers, since what gets them CEO Dan Schulman told investors last out of bed in the morning is selling stuff . TOMORROW, TOMORROW — YOU’RE Maybe it’s an opportunity for eBay to get week that PayPal expects a continued I know that I’m going to get killed for ONLY FIVE YEARS AWAY Walmart in play . The Amazon/Walmart reduction in the percentage of its saying this, but paying fees in exchange rivalry is at a fever pitch, and Walmart The big eBay payments countdown clock business that is eBay-dependent . He for the ability to access buyers and has made some aggressive moves to isn’t mid-2018, or 2020 — it’s 2023, when expects that percentage to decline to sell lots of stuff to them is a high-class buy online properties in the past . Could the term sheet that eBay and PayPal just roughly 4 percent by 2023 . problem . It’s possible that among the buying eBay give Walmart access to a signed comes to an end . That’s about two reasons for eBay seller defections is not global online marketplace? Maybe that years after eBay expects most sellers will Even though PayPal’s stock has taken a having enough of those buyers to make it possibility isn’t so far-fetched either . have migrated to their direct payments hit over the last couple of days, it’s still worthwhile to stay there . two times what it was this time last year, model . Or a shot at moving buyers to use their with a market cap of $92 billion . Assumption: All of This Ends Up bank accounts and alt credit platforms A lot can happen over the next five years, Cheaper for eBay to Support like Klarna – in an attempt to build their which, these days, seems a lot more like That said, PayPal also has its payments own version of PayPal? That really would dog years than anything else . to-do list for the next couple of years . And that will be a function of all of the be Groundhog’s Day . above, plus eBay’s ability to manage fraud It might also mean that what we heard PayPal, today, remains the leading and risk at scale — and across all of the Then again, maybe it’s a convoluted move last week from eBay is just the first move acceptance mark online but obviously global markets in which it operates today . to negotiate different terms with PayPal . in a very strategic game of payments needs to keep buyers engaged in using it Adyen processes payments, but it doesn’t chess, as the company prepares for on eBay and everywhere else . That means Seems hard . provide the depth of merchant services something bigger and bolder over the PayPal must continue to expand the that eBay sellers now get from PayPal . next several years . number of its use cases and may even It makes one wonder why this move, Is there a world in which Adyen handles require a rethinking of its business model and why now, given the distractions that the low-cost payments processing side of I wrote a piece last year suggesting that to be a contender for some of those such an enormous shift will create for a the business and PayPal’s suite of high- eBay needed such a big and bold move cases . marketplace that analysts still view quite margin seller services are made available to give its marketplace a boost, and that cautiously . to eBay in some way? perhaps Facebook might like to allocate

The emergence of new, voice-activated payments channels represents both an opportunity and a threat for PayPal . Asking Alexa to pay for something using PayPal will elicit the same reaction as asking Alexa to “Ask Google”: She won’t understand .

I’ll mention that Alexa also didn’t think the Patriots would win the Super Bowl, so she might have super powers after all . #painful

Where does that leave us?

Hard to know, but it will be fascinating to watch .

And just think, we have another 11 whole months to go, too, in 2018 .

One thing’s for certain: Whatever happens, with eBay and payments, it won’t be buying PayPal this time around .

n a world where we’re bombarded Yup, physical retail is doing just fine — In The Age Of Big Data, daily — even hourly — by data points despite all the talk of doom and gloom . on everything from stock prices and I Yet, according to Fung Global Retail & market cap to retail sales and consumer Why Are We spending to cryptocurrency’s ups and Technology, 6,985 stores closed in 2017, downs to the impact of innovation on up 229 percent from 2016, and well above the future of payments, commerce and the number of stores which closed in the Still Flying Blind? financial services, we’re all just flying blind year that started physical retail’s death when it comes to the things that really spiral: 2008 . Retailer bankruptcies were matter to businesses and consumers . up 30 percent in 2017, with a number of familiar names in that list of 662 firms: We’re flying blind because we lack Payless ShoeSource, Toys R Us and The relevant data to build and then use the Limited . right frameworks to make confident, reasonable decisions that guide our At the same time, the market caps of businesses, and even our economy . the top 20 retailers have lost more than $230 billion over the last two years, Despite being inundated with data, we’re and mall operators are sucking wind amazingly lost . as overstocked anchor stores shutter underperforming locations, which delivers We see evidence of this every day . a death knell for the stores that depend on anchor store foot traffic to lure PUT ON A RETAIL HAPPY FACE customers in . Some analysts project that one in every four of the 1,100 malls that Apocalypse, Schmapolcalypse, reports operate today will close by 2022 — just say, as a strong economy and historic four years from today . levels of unemployment have driven people to open their wallets and buy more Simultaneously, U .S . Census Bureau stuff than they have in a very long time . data suggests physical retail is just fine, thank you — accounting for more than 90 percent of all retail sales, with lots of

analysts using this data point to push Part of the disconnect with the Census So, we live, quarter after quarter, with And when there was always a price paid back on the notion that physical retail is data is that it measures averages, but these inconsistencies, putting a happy by the consumer to procure those goods really in trouble . nothing is ever average . The average veneer on the state of traditional retail and services . height of a female in the U S. . is 5’4” — while it slowly sinks . This whole eCommerce thing is kinda even though few of the women reading But the internet, mobile apps, overblown they say, pointing to data that, this are exactly that height . The average An interesting side note is that even using smartphones and advances in network on the surface, seems to suggest that all temperature in Boston in February is 37 the Census Bureau data as it stands capacity have changed the definition of is well in the land of physical retail . degrees Fahrenheit, but on Saturday it today, projecting the growth in online output and the business models that was 52 degrees . A week ago it was 28 sales and the slowing average growth in drive the exchange of value between The slowing growth is off a big base — degrees . physical retail sales, we see the 50/50 suppliers and consumers in some cases . and the fast growth of online commerce split of online to offline happening just is coming off a very small one, they say, Census officials admitted to us two about three decades from now . Today, more than two-thirds of the U .S . so it will be a long time before in-store years ago (before they didn’t) that their population owns a smartphone — double sales really tank . recordkeeping systems weren’t set up In a blink, we’ll be there — and very likely what it was just seven years earlier . By to track transactions in a digital world — before we get data from the Census the end of 2018, eMarketer reports that a But tell that to the nearly 7,000 stores where the lines between on and offline Bureau telling us that . full third of the world’s population — some that closed last year, and the nearly 700 are converging and digital channels turn 2 .5 billion people — will own one . that declared bankruptcy . manufacturers into brands from which WHAT INNOVATION? consumers buy directly (think Apple and And manufacturing accounts for about Then there’s the years-long debate that’s And the department stores that Dell) — so they didn’t count . 11 .7 percent of our output, down from raging among economists over whether collectively closed 550 of their brick-and- 25 .4 percent in 1947 . GDP (Gross Domestic Product) is even mortar locations last year . Compounding matters is the fact that the most accurate way to measure how many retailers who report data to the The intersection of apps and mobile well an economy is doing . And the bookstores, music stores, office Census Bureau aren’t set up to report phones and technologies like GPS have supply companies, sporting goods things such as buy online and pick up in- inspired entrepreneurs of all stripes to Much of GDP is based on consumer and apparel retailers who have seen or store accurately . create new and/or to enhance existing spending: price multiplied by how much are seeing big chunks of their in-store digital intermediaries that bring two people buy . It was devised when the business nosedive, as consumers shift What we get from the Census, then, or more stakeholder groups together . world was largely a manufacturing their purchases online — and to one probably underreports online’s cut of In some cases, these virtual platform economy and manufactured goods drove online player, in particular . retail sales — but no one really knows by businesses may be new, but the business the output of goods and services . how much . models that underpin them have stood

the test of time over more than 3,000 sides when the friction is removed from Two weeks ago, eBay’s decision to its move into the $560 billion-a-year years . letting people pay this way . intermediate payments wiped about $8 pharmacy market, pharmacy benefit billion in market cap from PayPal in the managers Express Scripts, Caremark and Igniting platform businesses — virtual or This deficiency becomes a much larger space of 48 hours . A close examination Optimum saw their stocks plummet too — physical — often means having one side issue when applied to ad-supported of the facts suggests PayPal isn’t staring 4 percent across the board — even though of the platform subsidize the other who digital content platforms — from down the barrel of a massive eBay risk stepping into the regulated world of pays (gladly) for the ability to efficiently Facebook to Google to television either short- or long-term, given the prescriptions is a very new business for access it . networks — that exist today . complexities associated with building, Amazon, and we really have no idea how igniting and maintaining a two-sided large the online pharmaceutical market is . The emergence of these models reveals In a recent whitepaper published by platform . that the standard measure of GDP totally Economist and Global Economics Group And, when Amazon bought Whole Foods ignores the economic value consumers Chairman David Evans, he writes that We see it regularly whenever Amazon in August of 2017, Kroger saw its market get from all the free stuff . in 2016, American adults spent 437 announces it’s expanding its presence cap slashed from $30 billion — already billion hours consuming content on ad- beyond its retail/eCommerce playing field, down from $34 .2 billion at the start of How much does it count in GDP? Well, supported media across all channels . even though the U .S . Census Bureau tells the year — to $18 billion in September that would be nothing — even though Those consumers thought that time us eCommerce sales are diddly squat 2017 . It’s recovered since to $24 billion consumers are getting a ton of value . was worth something; otherwise, why — and we know from other sources that — $10 billion off where it was this time would they divert their attention? And Amazon has half of the diddly . last year, even though grocery is an Take Venmo (and P2P more broadly) — a if they valued it just at even an after- extremely fragmented business in the service that’s free to both the sender and tax minimum wage rate, Evans says Amazon announced Shipping With U .S ., with Amazon and Whole Foods’ the receiver . Because of that perk, the consumers must have believed they got Amazon last Friday, and UPS and FedEx, share combined representing less than 3 economic value of making it easier for at least $2 8. trillion in value from those together, lost $25 billion in market cap percent, using 2016 data . Venmo and P2P networks to move money services, since they continued to visit ($18 billion for UPS and $7 billion for between parties isn’t captured anywhere: them day after day, hour after hour . FedEx) . That came a few days after UPS But then again, who really knows, It’s a big zero as far as most economists took it on the chin for getting squeezed since measuring online sales is a real are concerned . Worse yet, banks and DATA DOUBLETALK over the costs of supporting eCommerce crapshoot . What’s driving these market PayPal are dinged when they can’t point deliveries . movements is observing the devastating At the same time, the lack of a consistent to a specific plan to monetize that service impact Amazon has made on the retail way to interpret the data we do have as a standalone, even though there are Months earlier, when it was revealed sectors it has entered, regardless of U .S . can create market imbalances with far- enormous efficiencies and benefits to all that Amazon had applied for a wholesale Census Bureau data reports that suggest reaching impacts . pharmacy license in 12 states, signaling

nearly all retail sales happen in a physical store .

We spend a lot of time in our world talking about the importance of Big Data and the impact of artificial intelligence (AI) and machine learning on crunching the massive amounts of data that washes over us each day — well, that maybe drowns us each day .

It’s been reported that we generate 2 5. quintillion bytes of data daily . A quintillion is 1 million trillions . In other words, it’s a lot .

But instead of leaving it all up to the machines to crunch endless amounts of data, maybe what we need is to spend more time creating the thoughtful frameworks that could lend clarity to some of innovation’s most basic questions and then go out and get the right data to answer them .

Data, in the absence of those frameworks, becomes just a bunch of numbers on a page .

he classic product lifecycle that all of us had drilled into our heads in business school tells us that at the three-year mark for any new product, it’s top of the T S-curve or bust .

Here’s a walk down S-curve memory lane, We used our latest mobile adoption study courtesy of a Harvard Business School as our starting point . (HBS) article written by economist, marketing sciences expert and HBS This consumer study of active mobile professor, the late Theodore Levitt . wallet users is something we’ve done each quarter in collaboration with Now, three years plus four months after InfoScout ever since Apple Pay’s launch the launch of the first general purpose in Oct . 2014 . You might recall that we mobile wallet to hit the market — Apple ask consumers with smartphones that Mobile Wallets: Pay — we thought it was time to see how (a) are compatible with one of the four well it, and the other Pays that followed, mobile wallets we track and (b) who just Where’s The S-Curve? have fared on this S-curve test . bought something at a store that accepts

one of those four mobile wallets to tell us MOBILE WALLET ADOPTION AND Total Number of Smartphone Users Adult Smartphone Penetration (c) why they did or didn’t use that mobile USAGE Q4 2017 Adults All Smartphone Users All Adults U.S. Total wallet to make the purchase they just (18 and Over) (195.0 mm) (252.8 mm) Today, most people in the U S. . have a made . smartphone capable of activating and Apple 95.6 84.8 43.50% 33.50% using a mobile wallet . Of the 195 million In other words, we observed what people adults (18 or older) in the U S. ,. 77 .1 actually did and then asked them why Andriod percent own a smartphone . they did it . Each quarter, we survey Samsung 64.8 57.5 29.50% 22.80% roughly 2,000 consumers for each type of Apple and Samsung, together, as handset Other Android 49.5 43.9 22.50% 17.40% wallet for a sample total of roughly 8,000 makers, have about 70 percent of the U .S . 114.3 101.4 52.00% 40.10% consumers . Total Android market for smartphones — Apple with Non-Andriod 9.9 8.8 4.50% 3.50% 43 5. percent and Samsung with 29 5. . What we’ve learned is that Apple Pay’s Android, as an operating system, has a adoption since its launch in Oct . 2014 52 percent share of smartphones, with Total 219.8 195 100.00% 77.10% looks more like a flat line than an S-curve. iOS having 43 5. percent . When looking at In fact, the overall growth in Apple Pay those percentages as a percentage of all SOURCE: PYMNTS COM/INFOSCOUT. transactions is almost certainly the result adults — not just those with smartphones of more merchants installing near-field — the numbers are 33 percent (for Apple), We’re also at a point in time where As a practical matter, wherever Apple communication (NFC) terminals than 22 8. percent (for Samsung) and 40 acceptance for NFC-enabled wallets has Pay is accepted, every other contactless iPhone users getting more interested in percent (for Android) . grown quite a bit as a result of a liability mobile wallet is probably also accepted, Apple Pay itself . shift by card networks and merchants since the main gating factor is having These figures are really important to keep installing new terminals capable of contactless terminals and the willingness Meanwhile, Walmart Pay looks more like in mind when comparing how well these enabling contactless payments . to turn on the “Pays ”. The lack of it could be on an S-curve and, at least wallets are doing across all smartphone merchant acceptance for contactless given what it’s designed to do — pay at users and adults in this country . On Apple’s last earnings call, CEO Tim wallets is no longer the barrier to usage Walmart — could possibly be on the path Cook said Apple Pay is now accepted at it was at the beginning . (Samsung to success within the Walmart universe . more than half of all U .S . retail locations, Pay’s technology can even be used with including two-thirds of the top 100 magnetic stripe terminals, although retailers . We haven’t audited that yet, but we don’t have data on how often that let’s take it as a given for this piece . happens .)

Last quarter’s results — which are based and people have the time and interest to Of smartphone users who’ve installed weren’t much more interested in using it on a survey done with InfoScout at the take their new phones out for a test drive . mobile wallets and were at a store where in December than they were last quarter . end of Christmas — reflected a bit of they could use it, the percentage who good news for the “Pays ”. Call it the Smartphone users with iPhones who used it at that retailer inched up a tiny To compare the mobile wallets, and to booming economy, the Christmas effect, activated and tried Apple Pay stood bit too. determine whether they’re on an S-curve, a statistical aberration or a take-off — at 29 4. percent, (up from 24 8. percent we need to have a — no pun intended — good news is still better than bad news . the previous quarter), 17 .2 percent for For each wallet, we did the following apples-to-apples comparison . Samsung handset users who activated calculations: the people who had that The percentage of smartphone users and tried Samsung Pay (up from 13 9. wallet installed, were at a store that That means looking at things across who’ve tried the “Pays” has inched up. percent the previous quarter), 13 3. for accepted it and who used it for the last all smartphone users — not just on a Android phone users who activated and transaction they made at that store . particular hardware platform or operating Emphasis on the word inch, since most tried Android Pay (up 11 .0 percent from system . Doing this takes into account of these upticks are quite small, and they the prior quarter) and 24 .8 percent for In December, 23 .1 percent of Apple Pay the growth in the number of smartphone may not be statistically distinguishable any smartphone user who activated and users (up from 22 .9 percent) used it for users who have the relevant handset or from the earlier results . tried Walmart Pay (up from 23 3. the their last transaction at a store where operating system or application and are previous quarter) . they could use it . Just to be clear here, using a mobile wallet . We timed our study last quarter to look that means 29 .4 percent of people have at consumer behavior during the holiday Remember, a trial for these mobile activated and tried Apple Pay, and of PASSING THE S-CURVE TEST (OR AT season, post-Christmas and on the run-up wallets takes place at a store where those people, 23 .1 percent used it the last LEAST NOT FLUNKING) to New Year’s Day . We did that to observe they’re accepted so users can actually time they bought something at a place Walmart Pay looks like it could be on an the impact of the holidays on trial and use them . that accepted Apple Pay . S-curve trajectory so long as we judge it usage. Smartphones tend to find their for what it is: a mobile wallet designed to way under the Christmas tree, and 2017 Now, putting on my Scrooge hat, I should Samsung Pay’s usage was 26 .8 percent be used only at Walmart stores . was a banner year for smartphone gifting . note a preponderance of smartphone of Samsung Pay users (up from 21 .8 users haven’t even tried using a mobile percent); Android Pay was 17 .3 percent of The percentage of smartphone users That’s why we weren’t too surprised wallet . More than 70 percent of iPhone Android Pay users (up from 15 .6 percent) who’ve set up Walmart Pay and who when more people tried mobile wallets users still haven’t tried Apple Pay about and Walmart Pay was 23 .7 of Walmart used it for their last transaction — at a right after Christmas, particularly since 40 months after launch . Still, even slightly Pay users (down from 25 .6 percent) . Walmart, of course — has increased from consumers are also more exposed to better is better than worse . 3 .3 percent of all smartphone users in advertisements about activating them All in all, this suggests consumers who had bothered to install one of the “Pays”

March 2017 to 5 .9 percent in Dec . 2017, it in December to make a purchase in a themselves to be successes or failures from how it does in future quarters . But as you see in Figure 2 . Walmart store . — the adoption curve of Apple Pay isn’t a the fact that only 17 percent of people curve . It’s had its ups and downs but it’s who have installed Apple Pay say they The almost doubling between March 2017 What Walmart may lack in total number essentially flat. use it every chance they get doesn’t stoke and Sept . 2017 suggests an S-curve . If of merchant locations in the U .S . — optimism . December 2017 is an aberration — maybe Walmart Pay can only be used at Walmart The percentage of smartphone users who Walmart shoppers were tapped out at the — it makes up for in the larger universe of used Apple Pay for their last transaction Now, this isn’t all bad news . Apple end of December and began using cash — smartphone users who can access and at a place where they could have has transactions are increasing because and growth continues, then this could be use it and who are apparently motivated changed from 1 .9 percent at launch to there are a lot more places where people a growth story, particularly since Walmart to do so . 2 .6 percent in March 2015 to 3 .0 percent can use Apple Pay . But that growth is isn’t even two years into its product in December 2017, with some ups and the result of merchants adopting NFC launch . Of course, it’s also possible Walmart Pay downs in between . terminals — not from iPhone users could stall . But, in this class, not failing becoming more in love with the product . the midterm is actually pretty good . Based on our study, there’s no evidence, FIGURE 2: And that will eventually taper out . Percentage of smartphone users that therefore, that iPhone users are getting have set up walmart pay and used it So, stay tuned . more — or less — enamored with Apple For Apple Pay to get its S-curve in motion, for the last transaction at walmart Pay . iPhone users will need to learn to love Mar 2017 Samsung Pay might have some Apple Pay . 3.3% 7900000000 momentum building that, unlike Apple Of course, it’s possible that at 40 months Jun 2017 Pay, likely wasn’t fueled by the holiday 5.1% 7200000000 the blip upward in Dec. 2017 reflects Yes, but, you say, they will, since Apple smartphone sales effect . More ubiquitous Sep 2017 some sort of delayed inflection point. My Pay can be used at many more locations 6.0% 7000000000 acceptance, and its broad-based Rewards guess: It has more to do with the recent than just at Walmart stores . Over time, Dec 2017 program, could have accounted for its launch of new iPhones and new device Apple Pay will drive more sales, more 5.9% 6400000000 uptick in usage . activations over Christmas . The bump adoption and usage . Walmart only 0 10 primarily came from more people trying accounts for 7 .3 percent of all U .S . sales; SOURCE: PYMNTS COM/INFOSCOUT. Sorry, but Apple Pay flunks the S-curve Apple Pay for the first time rather than by the numbers, Apple Pay’s merchant Today, 25 percent of adult smartphone test . existing Apple Pay consumers using it base accounts for much more than that . users have set up and used Walmart more often . Pay at least once — and nearly 6 percent Now, nearly 40 months on the market But it’s not hard to see why Walmart is (5 .9 percent) of smartphone users used — four months after the three years Whether Apple Pay is a very late bloomer ahead when it comes to people who’ve that product launches generally show when it comes to the S-curve will be seen installed it wanting to use it .

They probably visit Walmart every week we are — and are comparing it to the There isn’t an S-curve — not even really the glimmer of one — and finding it now looks really (or maybe more) to buy groceries and S-curves of products past and present — hard . other items for their family . And we know at the three-year mark . that frequency drives habituation . Take a look at the growth of the iPhone, The wallet also does more than just iPad and iPod in its first three years. initiate payment . The iPod, on this chart, looks puny only Walmart Pay solves for things other than because of the scale of the chart . The checking out . It automatically applies iPod went from selling 125,000 units in savings and discounts for its users when Dec . 2001 to 10 million by the end of Dec . they’re checking out and makes returns 2004 . S-curves in abundance . simple by managing purchases both online and offline. Then, there are Apple Music subscribers .

More value equals more usage . After a rocky start in 2015, Apple Music is on the upswing — and hoping the release WHAT’S NEXT? of the HomePod will juice those numbers even more . Tim Cook told shareholders a few weeks back that he wasn’t thrilled with Apple It’s also been reported a new set of Pay’s progress, and if you had told him AirPods is on the product release three-plus years ago that this is where schedule too, with hopes for the same they’d be, he wouldn’t have believed it . result on the Apple Music subscriber It’s the first time anyone from Apple, front . particularly Tim Cook, has ever hinted that things were less than terrific and If you want to know why Apple doesn’t fantastic in the land of Apple Pay . release anything more specific about Apple Pay than the fact that it’s doubling That’s because the folks back home in and tripling its non-specific user numbers, Cupertino are looking at the same data perhaps this might explain it . SOURCE: PYMNTS COM/INFOSCOUT.

I wrote at Apple Pay’s launch that as great Unfortunately, for Apple Pay, that doesn’t as Apple Pay may do on iPhones, it will work in reverse . only ever have a share of the population that owns an iPhone . That puts Apple Pay, You can’t use Apple Pay at Walmart, and and any of Apple’s services, at risk . But you probably never will . You can’t use a utility as important as a mobile wallet Apple Pay with Amazon Pay, and you has to follow the user wherever she goes, probably never will . You can’t use Apple and that, increasingly, is across devices, Pay with voice assistants like Google or operating systems and channels . Alexa . And it’s likely to be a cold day in you-know-where before you’ll be able to People with iPhones use Walmart Pay . use Apple Pay on Samsung handsets . They use Amazon Pay too . Apple Pay’s S-curve, then, will be shaped And, increasingly, people with every other largely by itself — totally dependent upon Pay will be able to use it on iPhones too . a handset that doesn’t prevent consumers from using any other mobile wallet . I don’t know this for a fact, but I would surmise that renaming Android Pay And without a clear reason why they to Google Pay had something to do shouldn’t . with breaking the mental association consumers may have had with where they Click here for the charts and graphs could use Google to pay for things . That detailing the latest PYMNTS/InfoScout now includes Chrome, which is a mobile mobile wallet adoption results, as well app on the iPhone, and Google Shopping as the history since each mobile wallet’s when searches for products on Safari launch. are found . I suspect there will be other Pay plays soon that will make this cross- platform, cross-operating systems point further .

rocter & Gamble made headlines questionable and inappropriate content . last week when its Chief Consequently, the company pulled its P Brand Officer, Marc Pritchard, advertising, spawning a digital media confirmed that the world’s largest audit that revealed something else: Some advertiser cut $200 million of digital digital platforms weren’t bringing the right advertising spend in the last nine months eyeballs to P&G’s products . of 2017 . That year, P&G’s ad spend totaled $7 .1 billion . Or, more precisely, eyeballs, to those ads .

That wasn’t the big news . Pritchard said one of the reasons eliminating $200 million in digital ad The big news was Pritchard’s blunt spend didn’t hurt its business was admission that the reduction in spend because too many ads were being “seen” had no impact on the performance of by bots that couldn’t buy or influence P&G’s business . anyone — and not by real consumers who can and do buy products . Transparency In fact, he characterized much of that with respect to metrics and measurement digital ad spend as “largely wasteful ”. is essential, he said, before he and his team can determine the value of those Among those who lost big — 20 to 50 platforms in P&G’s advertising mix and percent of their budgets — were Facebook engage in a meaningful way . and YouTube, although Pritchard didn’t name them . So is platform governance and trust .

He didn’t have to . The ability for a brand to be places that can capture and monetize consumer Who’ll Win He, on behalf of P&G, took a very intent, not simply the content the public stance on brand safety last consumer — or a bot pretending to be When Facebook year when the consumer brand giant one — may be looking at, is crucial, which discovered advertisements for its makes platforms that can not only deliver Advertisers Flee? products on YouTube were placed next to real eyeballs — but convert them into

sales— potentially the biggest winners of horrific content — live videos of people who like Kit Kats and have a dog . Its Sympathizers say the sheer volume of the P&G’s digital ad spend shift . being beheaded, killed and killing algorithms can stop people from posting content makes policing that content themselves . Posts perpetuating hate pornography — remember the controversy challenging . It’s been reported that users Think Amazon, not Facebook . speech and bullying, including ones over the Napalm Girl? (Eventually, the upload nearly 400 hours of content that led to teen suicides, were rife on photo was ruled not pornographic .) every minute to YouTube . Execs at the Think Google Search/Chrome, not Facebook . The platform which said it company told Wired last year that it Google’s YouTube . was founded to do good for the world But its algorithms also couldn’t flag — knows improvements are needed, but that by connecting people began to show the and shut down — violent content or, in nothing will ever be “100 percent perfect” Think intent, not content . cracks in its armor: It began seeming the case of the 2016 U .S . presidential under those circumstances . like a platform that was more focused election, fake news courtesy of the I wrote at the start of the year that on doing good for its investors and its Russians in an attempt to sway the But critics say if there’s one thing Google Amazon and Google were among two bottom line . outcome of the election . and Alphabet know, it’s how to process, of the payments and commerce power parse, synthesize and act on data brokers that could wield their power (But once you understand the importance To this day, Facebook has struggled to appropriately at scale . in 2018 because they monetize the of platform governance, doing good for fully admit its platform’s shortcomings consumer’s intent to buy . the community and creating profits go in exposing more than a third of all There were more than 11 billion searches hand in hand . So, in reality, Facebook Americans to these fake posts and a day across all of Alphabet’s properties In the face of the big brand digital ad probably hasn’t done the right thing for its acknowledging the hit to consumer trust in January 2018 — with those requests spending backlash, it seems now big investors in the long term ). it’s taken as a result — even when user processed across billions of web pages brands are thinking that way too . traffic on the platform has declined. and relevant results returned in a Facebook, the social network, is actually nanosecond . WHOSE INTENT IS IT ANYWAY? Facebook, the massive advertising YouTube suffers from the same platform conundrum — how to monetize the Both YouTube and Facebook are in the I wrote a piece in April of 2017 that platform . massive volume of user-generated business of monetizing the content users posited that Facebook had a Myspace It’s first, second and third objectives content put on its platform while, at go to those sites to consume by placing problem . are to monetize the content seen in a the same time, assuring brands their ads in and around that content . “Fake news” on the platform was what user’s News Feed through ads, which reputations won’t be sullied by having Consumers don’t go to YouTube to made headlines then . Facebook’s algorithms can target their ads shown next to questionable or down to a gnat’s eyelash level of detail objectionable content . purchase things, even though there’s But before there was fake news, there — employed college-educated males shoppable content there for them to buy . was a steady stream of violent and living in Cambridge, Massachusetts, They visit the site to view videos .

Consumers don’t go to Facebook to buy convert a consumer’s intent to buy into a “go with” what’s being considered or in user-generated content . Brands may have anything either, even though shoppable sale . the basket to free/same-day shipping to worry about their ad appearing near ads are presented for them to click on with Amazon Prime membership to a competitor on Amazon but they don’t if they wanted to . They go to stalk their And they do it in a place that’s safe for generous cash back rewards if their co- have to worry about it appearing next to friends or read the news . brands to interact with potential buyers branded Visa card is used to layering on a racist rant, online suicide, posting by and where they think they can close a more products and services that keep a Russian troll or videos of teens eating In both cases, content — not commerce — deal . consumers loyal to its platform . Tide Pods . is what motivates those visits . Amazon does it today by making it easy And, now, thanks to Alexa, consumers Google, of course, is well aware of this WHY INTENT MATTERS for the consumer to close the loop and can also order things across a slew of growing and dual threat to its business check out . connected devices and mobile apps . model . It’s a very different story when consumers take a spin on Amazon or Google via Amazon’s also built an entire set of Analysts have estimated the value of Google used to be the first stop on a search . advertising services that tell brands how Amazon’s ad business, in revenue, to be consumer’s path to purchase, but it isn’t much they have sold for every dollar between $5 billion and $18 billion today, anymore . Our own research in 2015 Those are the digital platforms people of media they spend on Amazon . It’s while others say it could be worth as stated that nearly 60 percent of the time visit when they’re in the mood to buy something Amazon can do because, much as $50 billion by 2028 . Experts shoppers started their product searches something or think they might want to as an Amazon ad executive told may disagree on the numbers, but all on Amazon, not Google . buy something . That consumer intent — AdExchanger last year, the company of them agree Amazon’s ad business to buy something — is what Amazon and closes the loop between the media spent is growing annually at a healthy clip — The big question for me was always this: Google’s search business monetizes . and the retail channel that gets the sale most estimate its growth stands at a 40 What fraction of that 60 percent started — because they are the retail channel that to 45 percent clip — faster than either a search on Google but ended up closing Both do that by making it easy for gets the sale . Facebook’s or Google’s more mature the loop on Amazon? consumers to access a broad swath of advertising businesses . inventory fast . Amazon can track the beginning of a The answer matters because Google’s consumer’s intent to buy to a sale and That’s because brands want to be where search business today is about Both do it by giving brands tools to help then influence repeat purchases. It uses consumers go to purchase goods . And monetizing search — delivering responses them increase the odds of being seen . a number of tools to move that process where there isn’t bad stuff . to a consumer’s stated intent to buy along — everything from making repeat something . It’s shifting increasingly to Both also do it by giving brands data purchases an easy subscription option Amazon has that problem licked because, converting those browsers to buyers that can help them understand and then to suggesting products to buy that might aside from reviews, it doesn’t feature

across a diverse set of retail channels for PLATFORM INFLECTION POINT OR In the meantime, they said, they’ll which it enables access . BRAND WIN-WIN? divert their ad spend to strong digital alternatives consumers like and trust . For a brand, it’s a win-win . The greater the distance between those Today that’s Amazon and Google Search, two points — search and convert — the Today’s big brands now demand access among others . more likely it is that buyers will divert to data that helps them make sure the 50 to a place where the journey is shorter Whether they’ll return to Facebook and percent of their advertising that doesn’t (a .k .a . faster) . It’s why Google’s Shopping YouTube, or other social media platforms work doesn’t get spent . Digital platforms carousel has upped its game and why that face the same problems, at the same are already in the business of monetizing Android Pay is now Google Pay — a level they used to remains to be seen . a consumer’s buying intent and are in a simple autopayment option online and in good position to capture that spend . apps that once accepted Android Pay and The big question is whether other brands will follow . merchants that enable Chrome payments’ Platforms that can’t have a tough hill to credentials form fill. climb . My guess is this: If Facebook and YouTube don’t invest in algorithmic, It’s also why Google — and its virtual User-generated content will continue artificial intelligence-based methods for assistant, Google Home — is extending its to flow, and perhaps so will consumer cleaning up their platforms, excluding bad reach into the retail channel . eyeballs . But without advertisers that actors from the community, ad dollars will trust those platforms with their brands, Big brands, including Walmart, have flee to Google Search and Amazon. there’s no business model to monetize signed on to work with Google Home those content assets . to leverage the consumer’s interest in And we’ll all look back at P&G’s $200 million digital ad spending exodus as conversational commerce and to hedge P&G and Unilever, among others, have those digital platforms’ advertising their bets against Amazon . already voted with their pocketbooks and inflection point. put digital platforms like Facebook and YouTube on notice, suggesting they’ll be back when they’re satisfied changes have been made .

f you’re like most Americans, you or grocery shopping consumers in the U .S . someone in your household made a share . run to the grocery store on Saturday I As for using a mobile app before and to get food for the week . during that trip? If you lived in the Northeast, you were The also there to stock up on the three things That depends on where you shop and that everyone always buys when big whether your top pick is a big store — Amazon snowstorms are expected — our third big Walmart, Target, Albertsons, Kroger, storm in as many weeks (for those of Whole Foods — or a Bi-Rite, JustSave, you not keeping score like we are here in Luckys Market, Town & Country Market or Effect Boston) . one of the thousands of smaller format stores that dot the grocery landscape in Like most grocery shoppers, you already the U .S . and often don’t even have an app . On knew most of the things you were going to buy before you even got there — About three in 10 grocery shoppers use a Consumers roughly 75 percent of grocery shoppers store’s mobile app as part of their grocery do . Although your favorite grocery store shopping process to check prices and see probably has a loyalty program and offers what’s on sale if they shop in a big store And digital coupons, that probably isn’t why — only one in 10 do so if their go-to is a you like shopping at that store . In fact, smaller store . Grocery fewer than 20 percent of all grocery shoppers say they chose a grocery store Whether you might have used the app to for that reason . pay for your order depends on whether Shopping you went to the store to shop and to pay Like most consumers, your favorite store — or just to pick up what you ordered is probably your favorite because it’s easy earlier online — and what you value most and convenient to get to, has good prices from your favorite store . and is where you’ve always shopped — a sentiment that nearly 90 percent of all All those data points — and the insights they yield — are just some of things

we learned when we, in collaboration spend when doing it and their access to Bureau . More than 50 percent of that Even though a lot of feet still visit grocery with Vantiv, now Worldpay, asked about connected devices and apps . spending — $4,049 — was on food bought stores to buy food, not many see the 4,000 consumers how they shop and pay at grocery stores to eat at home . value in using an app to pay for them for groceries today and how well their Old consumer habits are starting to break, when they’re ready to checkout; only favorite grocers are doing to support the and new ones are starting to form . That spend is typically done about 1 .5 about 4 percent said that’s important, features they value most when shopping trips a week, mostly at a brick-and-mortar which is consistent with what we found with them . Spend on groceries is starting to grocery store . in our mobile wallet adoption study . fragment and shift across channels — and What they value more — and by a lot — is The short answer is: not all that well . not necessarily across different channels That’s starting to change — slightly — but the ability to use an app to buy and pay with the same merchant . Consumers use in significant ways. online, with either delivery or store pickup The gulf between what consumers want mobile phones and apps, and increasingly as an option when paying that way for and what grocery stores today deliver as voice assistants, to help maximize their More than half of all consumers we securing the items they purchased . consumers move regularly between the time, putting them closer to the brands studied — 55 percent, in fact — said they online and offline worlds is pretty big. they want to buy and new intermediaries use both online and offline channels In fact, more than 53 percent of On a scale of zero to 100, where zero is, from which to buy them . to buy their groceries . Only 41 percent consumers said the feature they valued well, zero, and 100 is a perfect score, of consumers said the only way they the most from their favorite grocery grocery stores scored a pretty lousy 30, All this is forcing grocery stores shop for groceries now is by going to a stores was free shipping and/or delivery . based on consumer responses and a to confront what it means to offer physical store . statistical analysis of store features and consumers convenience and value — as Good prices are table stakes, a given . functionality . consumers now define it. Roughly 3 percent of these consumers said they buy their groceries online and The most convenient location of all for That sets the stage for change . THE BIG SPEND pick them up at the store, and — hold a consumer now seems to be her home on to your hats for this one — 8 percent — or the trunk of her car when pulling up Food is a big part of consumer spending, Habit is the force that drives the majority order their groceries online and have curbside . accounting for more of the typical of grocery shopping behavior today — them shipped home . consumer’s annual spending than most consumers buying what they usually buy, With 55 percent of consumers now anything else, except for housing and where they’ve always done it . All of this has a big influence on what shopping comfortably across physical transportation . In 2017, that amounted consumers now say they expect from and online channels, it’s a measure of to 12 .6 percent of what American But a funny thing is starting to happen their favorite grocery stores . convenience that could dent traditional consumers spend every year — about at the intersection of the consumer’s grocery store business and its profits $7,203 according to the U .S . Census frequency of food shopping, their level of — enough to hurt more than a little as

consumers use mobile apps to cherry week after week by having Amazon HITTING A FEVER PITCH Then there’s the reality of the combined pick where to buy the things they want deliver it to Prime customers for free in grocery market share of Amazon and The topic of grocery shopping — and to buy at the cheapest price, now paired two days instead . (The $4 99. for each Whole Foods, which together in 2017 how consumer shopping patterns were with the most convenient way to get button was refunded once an order was amounted to a mere 2 .5 percent . shifting — hit a fever pitch last June when them . placed ). Walmart/Sam’s Club together hold a 20 .7 Amazon announced it was buying Whole percent share of grocery sales . Kroger, Foods . That was when visions of the The consumer brands that were the early the largest traditional supermarket in THE DASH TO CAPTURE GROCERY “Amazon Effect” landed a sucker punch adopters saw it as a new way to develop the country, is a distant second at 8 .4 It will come as no surprise that one to the stomach of a retail segment that a relationship with consumers outside percent . particular newcomer to grocery, located once thought of itself as insulated from the traditional grocery store format . The in Seattle (but hopefully moving to Boston its reach . product that everyone thought was an But like a lot of retail that’s come face soon), is the biggest catalyst of this April Fool’s joke was popping up for just to face with the Amazon Effect, grocery change in consumer thinking . But even then, the talk was what might about everything . stores have taken it on the bottom line happen “down the road ”. ever since the announcement was made I’ve been talking about the Amazon Effect Dash buttons today have evolved from that Amazon would acquire Whole Foods . on grocery since April 2015, shortly after After all, the fraction of the $1 trillion funky-looking, plastic doodads to digital the Amazon Dash button was launched . in US grocery sales, counting Target, prompts for subscription ordering on Kroger’s earnings last week only raised Walmart and Costco, that Americans Amazon’s site — for everything from analyst concerns over the Amazon Effect Back then, the ability for consumers to spend online is little more than a speck makeup to hand cream to laundry on Kroger and the grocery segment at stick funky-looking little plastic buttons on a flea’s eyelid right now — at about 1 detergent to dog food and much more . large, evidenced by the drubbing its on their washers and dryers and inside percent . That online sales data comes stock price took after Kroger CEO Rodney their kitchen and bathroom cabinets to courtesy of two-year-old U .S . Census More than anything else, those Dash McMullen cautioned that future profits order branded supplies like paper towels, Bureau data, which we know to be buttons — physical and digital — started could soften . toilet tissue, potato chips and dog food inconsistent with the reality of what’s a new consumer habit: the ability to order when supplies were running low put happening in the world of retail — and things consumers always buy (and once He said then that further investments grocery stores on notice that change was should be of about as much comfort always bought at the grocery store) online in tech as part of the Restock Kroger coming . to grocers as it is to department stores from Amazon . initiative announced last October would that are still being told by the Bureau to mean profits would take a hit. Those Early Dash adopters saw a way to remove believe that 92 percent of retail sales still The joke, it turned out, was on the grocery investments include everything from the friction from buying — and hauling happen in a physical store . segment . beefing up the retailer’s private label back home — the same bulky staples brands to being more price-competitive

on individual grocery items to investing 55 percent of consumers who once only foods at grocery stores and eating in . Retaining the consumer’s business isn’t more into its online order, pick-up and bought groceries in a physical store now Restaurant industry analyst NPD said about loyalty programs or even coupons . delivery capabilities . play the field, moving seamlessly between foot traffic to fine dining and casual/fast People would rather have cheaper prices on and offline grocery shopping channels casual establishments was down last than go through the rigmarole of keeping The latter — online order/pickup and/or — and quite possibly not buying from quarter for the first time, while traffic to track of digital coupons at checkout and delivery to shoppers — was a big theme the same grocery store when they shop casual and fast casual establishments the fear of missing out if they don’t . when Walmart CEO Doug McMillon told across those channels . has been off for a very long time . analysts last month that the company It isn’t about having an app that can only was “doubling down” on its investments The two consumer habits that were once Record low jobless rates, higher wages, be used to pay inside a store and not do in grocery to include the expansion of the local grocery store’s greatest blessing strong consumer confidence — all of this much else in the way of adding value to curbside pickup to 2,000 more stores in could turn into their biggest curse . suggests consumers are making dinner at the overall grocery shopping experience . 2018 . home more of a priority . It’s why grocery Unlike most every other retail segment, stores like Walmart, Wegmans and Whole It’s truly about being an omnichannel Target CEO Brian Cornell reprised consumers buy most of the same stuff Foods are making prepared foods more merchant — making it convenient for a similar sentiment last week when week after week — brands they know, of a priority in the hopes of bringing the consumer to buy things wherever describing the retailer’s plans for Shipt, products they like, quantities they use . more traffic into the store and tempting they want to buy them and to get them the personal shopper plus same-day Of the nearly 40,000 SKUs (stock keeping consumers to buy more while there . whenever and however they want them . delivery Instacart competitor it acquired units) in any given large format grocery last year . store, the average consumer usually buys The Amazon Effect on all retailers is The implications for grocers — and the about 260 of them . With the exception about raising the expectations consumers ecosystem that supports them — seems At the same time, Amazon announced of meat and produce, most are things have of the merchants they shop . For clear . an unprecedented guarantee of $22 consumers don’t need to see and inspect grocery stores, it’s about that, with a billion in food futures to Whole Foods, to feel comfortable buying — and are turbo-boost . In many cases, it’s about which analysts said was an indication of buying at great prices . making it easier to get the exact same the company’s commitment to growing thing they’d otherwise spend 45 minutes the grocery segment and boosting the The big winners in the grocery wars are going to the store every week, sometimes fortunes of Whole Foods as the horse it the consumers who have seen grocery dragging the kids along, to buy . picked to ride into that sector . prices remain low for a very long time . So low, in fact, that many consumers have It’s why Walmart paid $3 billion for Taken all together: It’s just further shifted a portion of their spend on eating Jet .com, and Kroger was willing to pay evidence of the looming threat, as the out to buying groceries and prepared $400 million to buy Boxed .

here’s no question that the Cause and effect . world’s weather patterns are T undergoing a massive change . Their twins . Our really, really bad weather . In the last few months alone, we’ve I’d say there’s about as much of a seen snow in Rome and three powerful correlation between our bad weather and nor’easters in Boston in the space of two the birth of those cute little twins as there and a half weeks — with some forecasts is between Google, Facebook, Apple and predicting a fourth this week . 2017 was Amazon’s fortunes getting bigger and the most destructive hurricane season middle class wages getting smaller . The Curious Case in 82 years, with Harvey, Irma and Maria pummeling parts of the U .S . and the Yet, that’s the claim being made by Caribbean, leaving tens of billions of Scott Galloway — serial entrepreneur For dollars in damage in their wake . In Sept . and adjunct faculty member at the Stern 2017, more than 230 people lost their School of Business who wrote a book, lives when Mexico City was struck by a participated in numerous TV interviews Breaking Up 7 .1 magnitude earthquake . and composed a 7,000-word article in Esquire saying just that . To name but a few . Tech Giants His thesis is based almost entirely This must all be because Beyoncé and on what statisticians call spurious Jay-Z had twins in July . correlation — inferring cause and effect from the seeming correlation between Think about it — did any of this happen two unrelated things . A famous one is the before they had those twins? correlation between sunspots and murder rates — there is none . It did not . Galloway’s narrative asserts that “the Those twins were born July 2017 . All of four” — Facebook, Apple, Amazon and these bad things happened after that . Google — should be broken up .

And that we should do that not because its retail business at the expense of But it is simply not right to say that the The company bought Motorola and they’re tax evaders or evil — all things he traditional retail . last two bullet points are the direct result quickly dumped everything except the said they, like all of us, are . of Amazon, Facebook, Google and Apple’s patents . • That Google dominates search and is success over the last 10 to 15 years . And not even because they’re job using its search platform to monetize Who among you bought one of Amazon’s destroyers, which he said is the natural commerce, including its integration And that carving these companies into Fire Phones? consequence of innovation, and of Google Pay into apps and sites and multiples of themselves would make innovation is goodness . the Chrome browser . things better for the middle class . That would probably be none of you (except for you Amazonians reading this But because not breaking them up • That Facebook seemed happy to This topic is as complicated as it is who were probably gifted one to use) . The throws cold water on the American ignore all the bad stuff taking place on controversial for four reasons . Fire Phone was quietly sunsetted before it dream — which is to work hard, save its platform until it got caught — and even turned one, since in the iPhone era, money, be prosperous and even become that its mea culpas are too little, too “THE FOUR” DON’T HAVE A MONOPOLY no one wanted a phone with its own OS a millionaire, as he told CNBC in a recent late . ON GOOD IDEAS and no apps . interview . Before there was Google Pay, there • That Apple uses its closed ecosystem How about Facebook gift cards? A slam were three earlier versions of Google So, as capitalists, he said, it’s now time to and the power of its brand to dunk for Facebook, right? You notice it’s payments, starting with Google Checkout “oxygenate” the economy and “prune [the] disadvantage others by denying your friend’s birthday and have the perfect in 2006 . firms [that have] become invasive, cause access or imposing frictions on opportunity to send a … physical gift card premature death and won’t let other firms competing services like Spotify . that they receive 10 days after the event . They all died . emerge ”. #Fail — along with just about every other • That the middle class is bifurcating commerce initiative Facebook has tried So did a lot of other things Google His premise knits together a series — to the have’s and mostly to the to ignite using its platform, starting with launched to boost its commerce offerings of storylines that regular readers of have not’s as a result of jobs that are Beacon in 2007. (Perhaps our first clue — as well as businesses it acquired to PYMNTS are quite familiar with: disappearing because technology and that Facebook was playing perhaps a bit build commerce experiences around, software is eliminating them . too fast and loose with consumer data .) such as Zagat . It found itself unable to • That the Amazon Effect on retail, compete with other, better-positioned despite the company’s 4 percent • The number of new businesses is at I saved the best for last — Apple and competitors . And how about the purchase share of it, is real and that it uses its an all-time low . Apple Pay . You all know this story so of Motorola and Google’s ambitions to diversified sources of revenue, like well by now that you’re proficient on the become like Apple with its own hardware? Amazon Web Services, to subsidize details . But there wasn’t a person on the

planet, save us here at PYMNTS, who and where their inability to do so causes of selling shoes from a designer I’d never the 2016 U .S . presidential election and back in 2014 didn’t say Apple Pay was them to shift to a provider that can . heard of — but for Google . now the breach of 50 million Facebook going to crush everyone, marginalize the Platforms, like the Big Four and others user profiles without their permission: card networks and kill PayPal . It didn’t — like them, give small players a chance to CONSUMERS PUNISH FIRMS THAT Consumers are disengaging . and the jury is out on whether it ever will . play big where they never ever would have DON’T MEET THEIR NEEDS, INCLUDING had a chance to get to first base. THE FOUR Since all of these issues were made Since 1999, we’ve seen venture capitalists public, engagement on the social The Cambridge Analytica fiasco on (VCs) pour hundreds of billions into For example: platform — in all demographics — has Facebook is the latest in a string of big new ventures in the U S. . There’s declined by 20 percent . missteps made by the social networking been no shortage of capital to start Brad Stone writes in his book, “The giant whose CEO, Galloway told Michael new businesses . There’s just been a Upstarts”, that Airbnb got a huge boost in Simply changing the algorithms and Smerconish on CNN on Saturday, is more shortage of ventures with new ideas that its early days by advertising on Facebook, showing more posts from friends and powerful than Trump or Putin, since he’s consumers and businesses find useful targeting people with a house or extra fewer from advertisers isn’t enough to organized more people than Christianity . enough to try and then to stick with — room to rent out . curate the image of a kinder, gentler, ventures with a business model that can less money-centric Facebook, especially Facebook, he said, is the most successful make money beyond the VC’s checkbook . I ordered Vance Packard’s classic book, when what’s really going on is that fewer commercial product in the history of “The Hidden Persuaders,” written in 1959, friends and family are posting things . mankind . That, of course, minimizes That’s not because the Big Four have or from Amazon last week. They could fulfill the importance of innovations such had the market locked so they never had it because a little bookstore I wouldn’t Facebook, like all social networks, suffers as the telephone or electricity, which, a chance, but because a mobile-centric have ever found sells its books on the from the syndrome of more lookers than like Facebook, are technologies upon world creates a very different set of site . About 50 percent of items sold on contributors, so losing both becomes which innovations were developed and expectations around what consumers Amazon now are from sellers just like a problem of massive proportions for then commercialized . Call me crazy, want from the businesses with which they him . Facebook since it means fewer eyeballs . but between Facebook, the telephone interact . Fewer eyeballs means fewer advertisers, I just had to have a pair of fancy Italian and electricity, I might not rank their and fewer advertisers means less revenue To be relevant now, a business needs shoes from a designer I’d never heard importance to mankind in quite that same for Facebook . scale . of after reading about them . A Google order . search directed me to an online merchant Between the bullying, the videos of people That’s just a fact of life in a world that sent them to me (from Italy) four Regardless, a funny thing has happened being beheaded and murdered, fake news where consumers move easily between days later . A tiny merchant I never heard to Facebook ever since the emergence and now a breach of user information, environments, ecosystems and devices — of fake news, Russian trolls throwing

Facebook is facing a backlash from it comes to search engines — and by and And completely missed the impact to Apple Music . And streaming generally a consumers and advertisers . large they don’t choose Bing . the consumer shopping experience that lot more than iTunes downloads . mobile phones and apps would have and Regulators may be circling the wagons I’ll betcha my new, fancy, sparkly Italian the hit it would make to their businesses . When consumers see something they around Facebook, but it’s not clear what shoes that the regulators in the EU don’t like, they use it, and they use it a lot . And that means, what the remedies might be use Bing either . Today, despite the story the U .S . Census when they don’t, they don’t — regardless (outside the EU and U .K ’s. efforts around Bureau likes to tell — that 92 percent of of whether the business is the biggest of GDPR) or how breaking it up would have As we’ve seen in the EU, after the huge all sales still happen in a physical store the big or the smallest of the small . prevented its bad behavior — or would in $3 billion fine that was levied on Google, — the largest retailers have lost hundreds the future. What will is consumers fleeing on top of being forced to change how its of billions in market cap in a few short Just think, before Spotify was an IPO the platform — just like they did with Shopping results are returned, merchants years . In a sea of product sameness, contender, it was just a tiny streaming Myspace . still aren’t satisfied and want the consumers value convenience over going app company in Sweden that turned out remedies revisited . to the store . Buying from Amazon to to decimate one of Apple’s crowning Then, there’s search . Google’s share have it delivered two days later is easier achievements — its music download of core search in the U .S . is about 64 Why? and comes with less risk than a trip to business — despite its being a nearly percent . Microsoft’s Bing is about 24 the store to buy something that’s out of trillion-dollar company . percent, with Oath (a .k a. . Yahoo) at Because making Google pay a fine and stock . change its business practices did nothing about 12 percent . In terms of mobile THE MIDDLE CLASS WAGE SQUEEZE to make consumers want to use vertical search, Google has a 93 percent share . Is that Amazon’s fault? ISN’T NEW Consumers could download and use Bing search sites any more than they did Ten years ago, the topic of income on their mobile phones — Bing is an app before – just like they don’t want to use Or retailers’ — who ignored the impact inequality was placed at the feet of Wall in iOS and Google Play — but they don’t . Bing . of the Amazon Effect on consumer Street — the 1 percenters who all worked They don’t because Bing search isn’t what expectations and were forced to play for the big banks that were too big to fail . consumers want to use . Department stores used to dominate defense, not offense? retail, and shopping was always done Ten years before that, Microsoft was the If it was, more people would use it . in a physical store . The internet was At the same time, Apple and Amazon source of everyone’s problem in tech . something in the early 2000s that most don’t rule all that they touch, either . Crying foul over Google’s dominance in retailers dismissed as never amounting to Today, it’s the Big Four that are being the EU, as Bing-funded opposition groups much, so they ignored it . Consumers still like Netflix more than called out for robbing the middle class have done over the years, ignores the Amazon Prime . And Spotify more than of the jobs they need to put food on the fact that consumers have a choice when

table . Robotics and technology are taking economy grow from 24 percent to 50 probably thought their future earning by people . Construction workers will jobs from people who need them the percent of GDP — with financial services, potential was pretty solid — until they need to build the houses, roads and most, it’s said . healthcare, consulting and insurance the lost their job and tried to replace it at transportation hubs of the future . big growth drivers — and manufacturing the same level in a world defined by However, the issue of middle class wage shrinking from 33 percent to 12 percent technology and a new set of skills . If anything, the four, and platforms like inequality has a history that’s longer than — driven largely by the demise of the them, can be the catalysts to unlocking “the four” have been around — about three agriculture economy in the U .S . Millennials who largely came of age those new opportunities and stimulating decades, most economists say . during that same financial crisis had public-private partnerships to improve the Advances in technology have made it trouble getting good jobs — or any job quality of what our kids learn in school . I wrote a piece about the fascinating possible for goods and services to be — and got a late start to their earnings research done by economists who looked produced more efficiently, delivering potential . Those with good educations THE BIG FOUR ALL COMPETE WITH at consumer incomes over a series of better outcomes for businesses and and the right skills have the potential EACH OTHER generations . They examined anonymized consumers . Access to data and the to catch up over time . Those that don’t, This, I guess, is the most important point tax data starting in the 1940s until 2015 . ability to mine, analyze and apply it has probably won’t . of all — and one that’s lost on everyone, only expanded those possibilities for including the regulators, everywhere in What they discovered was sobering: 56 .5 both businesses and consumers — and But neither is the result of “the four” the world . percent of today’s millennials will never impacted how nearly all businesses reducing the potential for job creation — make more than their parents . With a operate . or fixing it if there were eight or 10 and Facebook, Amazon, Google and Apple median income of about $56,000 in the not four of them . are competitors — vigorous competitors U.S. today, the financial future of the Accommodating that shift and seizing — not four companies operating largest generational cohort since the these new opportunities requires a The failure of our educational system to independent of each other in discrete baby boomers is clearly in question, and different workforce . prepare young people for the rhythm of silos . that’s a problem bigger than any or all of this new economy bears a huge brunt the Big Four put together . If it’s true that someone’s lifetime wage of that blame . Positioning 25-year-olds Amazon competes with Google for search potential is more or less determined by for success means preparing them over in commerce — and vice versa — and now There are many explanations for this . the time someone reaches the age of 25, the course of the 18 or 21 years they’re with Google and Facebook for advertising 10 years from now, the crisis will have in school, recognizing that not everyone dollars . Apple and Google compete head Over the last three decades, our economy only escalated . needs to go to college to build a great to head for share in the smartphone has moved from a manufacturing financial future for themselves. Self- market — and for commerce with their economy to a services economy . Since Someone aged 45 in 2007, who was 25 driving cars will need repairs . Robots in respective “Pays” even more broadly the 1950s, we’ve seen the services two decades before the financial crisis, fulfillment centers will need to be run

than that . Facebook would like to be a and people spend most of their time on tools they have at their disposal, including commerce platform and has invested in smartphones using apps and browsing the customer assets that they’ve created programs to position it that way, including the web — not making phone calls from a over the last ten or twenty years, to enabling commerce via Messenger, landline in the living room . In 2004 in the find and keep the same customers. As Facebook and Instagram . All of them U S. ., 92 7. percent of the population had a platforms, they all leverage the power of a compete with each other in some way via landline phone; today, only 45 percent of business model to make decisions about peer-to-peer payments . Google today just Americans do . what services or products to subsidize to launched Shopping Actions with Target eliminate the friction of getting suppliers and other retailers to close the loop when Breaking up companies, like the and buyers on board . That’s not a reason shoppers ask “Where can I buy this” as government did with Ma Bell, is to to break them up either, but the reality of part of their search . That’s more than a prevent consumer harm . That’s a tough how these platforms – and every platform casual shot across the bow at Amazon . claim to make when consumers have like them – work . many choices today including Facebook, Voice has introduced an even more Amazon, Apple and Google and others To win their business, and to keep it, interesting dimension to this competitive that compete with them, too . And they companies have to listen, watch and dynamic . Alexa and Google are move freely between and among them . respond . positioning themselves as intermediaries Competition, it turns out, is the best through which consumers find and buy oxygen there is for pruning the forest Regulators and everyone else who thinks products, do their banking, pay their to let new growth sprout because it lets breaking up the Big Four — and the next bills, order an Uber and make a dinner consumers decide who gets pruned and four who happen to come along behind reservation. Apple struggles to find its who gets to grow . them and get big — is the best way to footing here, even though it was a voice let a thousand new flowers bloom might pioneer with Siri . Facebook, if the rumors When consumers don’t like what a be advised to listen and watch what are true, is said to be building its own company is doing — for whatever reason consumers do, too . voice-activated speaker . — they take their business somewhere else . Today, they now have lots of choices People like to compare the power of the and channels available to to find those big four with Ma Bell before the breakup . new options . Before telecoms were deregulated, there was only one way to get phone service — Like any business, Facebook, Apple, Ma Bell . Now, landlines are a dying breed, Amazon and Google are using whatever

n between stories last week to those search queries via sponsored about Jack Dorsey saying that posts . bitcoin will be the world’s single I For example, a consumer searching for digital currency in about 10 years and Facebook’s meltdown over its latest data terra cotta flower pots might first see scandal, you might have missed Google’s those flower pots sponsored by Walmart announcement of Shopping Actions . or Target . They can choose which one they want, put that item into their cart Shopping Actions is Google’s big shot from the Google search page and buy across Amazon’s bow, giving consumers it without clicking through to Target’s Can Google’s access to a universal shopping cart to or Walmart’s (or whichever retailer fill and then buy the things they find she chooses) website. Fulfillment and when searching the web . Payment is shipping remain the responsibility of the Shopping Actions made using the payment credentials retailer . Walmart, Target, Ulta Beauty that consumers have stored with Google and 1-800 Flowers are among the early Take On Amazon? (courtesy of the Google Pay upgrades adopters of Google’s new service . announced last month), including payments credentials stored at a Shopping Actions, Google said, is a merchant site via the Chrome browser . response to the 85 percent increase they’ve seen over the last two years in Google’s universal shopping cart is the number of searches asking where an channel-agnostic: Consumers can start item can be bought . Google also said in their search on a desktop computer, jump the blog post announcing the launch that to mobile to add more items and then 44 percent of voice-initiated searches are to Google Assistant to add even more for things consumers buy weekly, such to their cart, check out and have them as groceries and household items . The shipped by the merchant . convenience of having a single cart to put those items in and then buy them, The program also gives participating Google claims, gives consumers more retailers a chance to attach themselves — and more convenient — shopping and payment options .

Google reports the retailers that have KEEPING THE EYE ON THE BUY more than an artificial intelligence bot. website . I can ask Alexa to help me find tested Shopping Actions have seen their People speak about Alexa as if she’s a and buy stuff from Best Buy, and she will As I’ve written many times, there’s a basket sizes increase by 30 percent, with member of their family . Don’t know what gladly oblige — no app needed . dearth of Amazon alternatives in the higher-than-average conversion rates to have for dinner tonight? Ask Alexa . market today . than using sponsored advertisements Don’t know what kind of new car to buy? Amazon has programs in place that help merchants to be successful. Amazon alone . Unlike Google’s pay-per-click ad That’s because Amazon isn’t just Ask Alexa . Don’t know how badly your manages fulfillment for merchants who model, Google is paid a percentage of an online retailer anymore; it’s a NCAA brackets have been busted? Ask want and need them to and provides the sale when it’s made, just like Amazon marketplace of sellers wrapped around Alexa . Need a joke to take your mind off working capital to its sellers to help them Marketplace . a loyalty proposition so powerful that how badly your brackets are busted? Ask grow their businesses . tens of millions of consumers pay to Alexa . But for Shopping Actions and Google belong — and keep paying every year to live up to its billing as commerce’s Alexa, in other words, is fast becoming All those things set the bar pretty high to continue to receive those benefits “next big thing,” it will have to convince part of the consumer’s day-to-day life . for anyone wanting to cut in on Amazon’s because it’s so convenient and so the more than 60 percent of American turf . The high degree of consumer trust, reliable. consumers who start their search for Alexa’s ecosystem is open to anyone the ease of one-click checkout and the with an interest in teaching her new ubiquity of Amazon (and now Alexa) what to buy on Amazon to break that Amazon is online and offline — but not skills. That’s spawned the interest of across devices, channels and operating habit and instead use Google to start — just in groceries . Amazon has its own developers across just about every nook systems — and products to buy — has and finish — their search there for what to bookstores and high-tech convenience and cranny of every industry segment spawned “The Amazon Effect” that buy . stores and partnerships with some of to find new ways of using Alexa and has become retail’s nightmare, more the same offline players with which That will depend on how successful its Amazon to find and buy a wide range of generally . it’s competing . Kohl’s, for example, will participating retailers are in delivering products and services — from healthcare accept Amazon returns in its stores and an experience that meets or beats what to banking to bill pay to retail to insurance sells Amazon-branded hardware . THE BIG BET ON SCALE Amazon offers consumers today — and to office supplies. Google, now with Shopping Actions, is how many consumers actually do turn to Amazon has a pervasive voice assistant making a bet on scale that it can . Amazon itself is available to consumers Google (not Amazon and not their favorite — Alexa — that started on Amazon- merchant) to find something they want to regardless of what device or operating branded devices, but has quickly moved Scale it hopes comes from turning its buy . system they use. Or whether the retailer into lots of other ones too, including search engine into the world’s biggest they want to order from has an app . cars, appliances and smart home shoppable marketplace . Amazon Places enables food orders devices . Alexa is also a mobile app on for any quick-service restaurant with a smartphones and wearables and is much

Scale it hopes comes from getting the Three years later, Google said searches In an on-demand world, convenience are today largely out of Google’s ability to right roster of participating retailers on for “where can I buy…” are up by a lot means delivering what consumers want control . board to pull adopters in early on — that — suggesting that consumers may be to buy on demand too . That means that drive sales to merchants that keeps them looking to Google to help them find a retail’s success largely, and Shopping That’s a risk to Google and the success of sticky and encourages more to join . particular product type or brand that they Actions more specifically, will be defined its Shopping Actions platform. The first don’t believe Amazon has — or can get to by how well its participating retailers are time a Shopping Actions purchase fails to Scale it hopes comes from giving retailers them when they need it . able to manage that last mile, including get to a consumer on time could be the access to a voice commerce platform using same-day delivery via inventory in last time she ever uses it . with a large and growing user base that Products that, through Google’s Shopping their stores as a competitive advantage . competes with Alexa . Actions, they can buy via its universal Granted, it’s very early days, and Google shopping cart or order using Google Managing logistics and optimizing that has obviously been investing in a vision Scale it hopes comes from the billions of Assistant and pay, via Google, using last mile is why Target bought Shipt in and technologies that give retailers an searches done by consumers today that a merchant-branded payment method December of 2017 and was among the Amazon alternative and Google a strategy can drive new customers to merchants — linked to the merchant’s native loyalty early pioneers of buy online, pick up in- for competing with Amazon in the and that they can monetize . program . store . commerce trifecta: search, payments and online advertising . Scale it hopes comes from all the apps With orders passed to the individual It’s why Walmart — the king of and utilities beyond search where Google retailer to process and fulfill. supply chain logistics — has turned Their first plank was a decision to is now enabling commerce, including its attention to strategies intended improve and standardize the Shopping Maps, Waze and Gmail, that add more And that will be where the Shopping to sharpen its delivery efforts . That carousel at the top of the search return commerce touchpoints for consumers Actions’ rubber will literally meet the road . includes experimenting with a lot of page to make it more consumer-friendly and merchants . things, including using employees and — and therefore more retailer-friendly . Retail is being reshaped by many Uber drivers to deliver purchases to SHOPPING ACTIONS AND CONSUMER forces, including changing consumer consumers, establishing a program called The second was to create and then open REACTIONS preferences . Consumers want to shop at Wam! (that a patent filing says is a new its voice commerce platform, Google retailers that sell the things they want to retail and grocery delivery platform) and Assistant, to merchants to advance their It’s an interesting strategy . buy . They establish their favorites based making investments to expand curbside own voice commerce initiatives and to on lots of little things but start their pickup for groceries and other purchases . developers to write skills . In 2015, only 40 percent of the shopping journey with retailers they know, consumers we surveyed said they started trust and make it convenient for them to All important “make or break” Shopping The third was to standardize its disparate their search for what to buy on Google . do business . Actions experiences that, unlike Amazon, payments options into a single, rebranded

and vastly expanded and enhanced options that help sellers become Google Pay . successful?

The fourth was standardizing checkout All things that remain to be seen . via search by creating a universal shopping cart with a consistent checkout Regardless, it’s nice to see competition experience and Google-enabled payments emerging in a space that many have options that include merchant-branded ceded long ago to Amazon . Competition, payments methods . as I said last week, is the oxygen that markets need to thrive, expand and Could the fifth be the standardization improve . This competition isn’t just about of delivery using one of Alphabet’s Google and Amazon; it’s about Amazon Moonshot initiatives, Project Wing? and the rest of retail, with Google as its enabling platform . Project Wing has been testing the use of drones to deliver packages to suburban Perhaps now we’ll see the retail games areas — most recently in Australia — really begin . and has hired a former Amazon exec and Staples CTO to commercialize that program . Shopping Actions now has merchant partners with the capacity to invest in their own logistics capabilities . Most retailers don’t and therefore can’t . To make search shoppable, Google has to solve not just for the shopping and paying part of the experience, but also for the delivery part of the experience that enables the very long tail of merchants .

And could the sixth be a partnership that helps them deliver credit and financing

here are any number of compliance costs on every player, What Everyone conclusions one might draw making it harder for new players T after watching the Facebook to emerge and scale, and thereby Missed About hearings on Capitol Hill last week . strengthening Facebook’s position . • That most of our elected officials • That lawmakers have now put any big don’t have any clue how Facebook, tech company that uses consumer Facebook much less the platform business data in the same bucket: bad guys models that have powered so much out to make billions of bucks at the innovation across industry segments consumer’s expense . for thousands of years, work . It’s that last point though — one now • That Mark Zuckerberg showed central to the current Facebook data remarkable restraint in the face of debate — that I find most unsettling. being asked, repeatedly, over the course of two days and 10 hours, Not because players such as Facebook, questions that highlighted that lack who’ve allowed unauthorized access to of understanding . (That trait also consumer data and generally haven’t probably makes him a great dad .) been very careful with consumer data, shouldn’t pay the price for what they did • That whoever decided to limit — they should, and Facebook will . That’s lawmaker monologues/questions to what the Federal Trade Commission’s four minutes each should be given Consumer Protection division is there for, the Congressional Medal of Honor . not to mention class action lawyers, as Anyone who gets it down to one well as similar regulatory authorities in minute should definitely get the Nobel other countries . Peace Prize . And not because everyone who touches • That putting what is now the the consumer shouldn’t consider data inevitable regulatory screws to social privacy and security part of the deal they media platforms will impose unwieldly must have with their consumers if they

want those consumers — their crown compromising their trust, their data ads were inserted with the same ambition home moms, financial news for business jewels — to keep coming back . and therefore their expectations of the — build a brand and drive a buy . people) . platforms when using them . It’s why I But unsettling because it fails to consider said then that Google Search and Amazon Consumers read the newspaper and That business model and platform the fact that platforms differ a lot in how and platforms like them — not Facebook watched TV not for the advertisements, dynamic made it possible for consumers they get and use data . They aren’t all like — are among the new power brokers in but for the content . Ads went along for to watch network TV for free and buy the Facebook . our world . the ride . paper for $0 .25 or $0 .50 — all because advertisers paid tens and even hundreds In particular, the one-size-fits-all And now why it’s important not to throw Really, really good ads made it seem as of thousands of dollars to be in front of approach lawmakers seem to be taking all of the platform data babies out with though the brand was talking directly to their eyeballs . ignores consumer intent when using the congressional big tech regulatory the consumer — even though the best these platforms, how that intent varies bathwater . those brands could hope for was that Before digital and mobile and online across the platforms with which they people watching “L .A . Law” or “CSI” or stores, there were physical stores and interact and how that intent shapes the THE EVOLUTION OF THE AD PLATFORM reading The Boston Globe or The Wall shopping malls — and both were among expectations that consumers have of Street Journal all more or less liked the only ways consumers could find the Not even 20 years ago, before digital, those platforms . the same things . That meant neither things they wanted to buy . mobile and the always-on world in which the brands nor the publishers nor the we all live today, there were newspapers And, most important perhaps, what data networks knew a lick about whether those Moms packed up the kids and drove to and television . is — or isn’t — needed to close the loop on ads directly drove a purchase; thus the the store to browse and to buy . Coupons that intent . famous adage about not knowing which or sale circulars or signage in the store People would read the daily newspaper 50 percent of advertising really worked . promoted items on sale or storewide to digest the comings and goings in the It’s also a core tenant that I outlined in my But they all recognized that it was the discounts . Those ads were presented world. On those content-filled pages January 2018 annual opus on trends that best way then to reach a massive number in the context of a conscious decision were advertisements hoping to catch will drive the payments and commerce of eyeballs . on the part of that mother to make a the consumer’s eye, build a brand and ecosystem dynamics this year and in the purchase in those stores . influence a purchase. years to come . The ads also served another very important purpose: They brought the It made perfect sense: Where there is Those same people would also sit in front I said then that the payments and consumer eyeballs for the advertisers intent to buy in an environment that the of the television to watch their favorite commerce power brokers of 2018 and and the right type of content brought the consumer knows and trusts, presenting shows . About every seven or so minutes, beyond understand how to use context right eyeballs (daytime soaps for stay-at- an ad to a consumer increases the there was a commercial break in which to monetize consumer intent without likelihood that a sale will be made .

AWASH IN DIGITAL EXHAUST THE INTENT TO SHARE, NOT TO BE The goal to monetize user eyeballs by They also didn’t sign up to being tracked SHARED selling advertiser access to them ended via the use of cookies when they weren’t Our all-digital, all-mobile, always-on world up swamping the user-generated content logged into the platform . Nor did most is rife with new, digital intermediaries Take Facebook . that Facebook users wanted to see with users have any idea how much of their that all want to attract consumer eyeballs too many ads that they didn’t . Updates personal data was being shared when to monetize the digital exhaust their Facebook’s MO almost from the start was from friends and their shared content using Facebook Connect to log into other interactions leave behind . to assemble a critical mass of eyeballs to their platform that they could use to became too hard to find in between sites . There’s a lot of digital exhaust . attract and monetize advertisers that sponsored content, ads and, later, “fake Over the years, Facebook has adjusted wanted to buy access to those eyeballs . news ”. Brands once enamored with the its policies and practices to stop some In July 2017, business data enabler Domo Becoming a Facebook user meant notion of highly targeted ad buys found of the bad behaviors that compromised reported that 2 .5 quintillion bytes of data completing a profile that gave Facebook they were missing out on big swaths of user data without their knowledge, is produced every minute worldwide . insight into that individual user: their users who were also qualified buyers — including limiting third-party access to “Data as the new oil” has galvanized name, email address, phone number, age, and switched tactics . a user’s social network and adjusting its company executives, their advisors, gender, school, employer, title, marital What consumers didn’t count on, since News Feed algorithms to prioritize user- boards and investors around using status — among other things. That profile it wasn’t their intent when signing up generated content over ads . tools and new technologies to find and data was enriched as the user’s social for Facebook initially or using it on monetize those proverbial gushers . The network grew, users clicked the “Like” an ongoing basis, was being part of The Cambridge Analytica data scandal pitch and the panacea for every business button, commented on posts and shared a platform that would take their most that has dominated the headlines only without a source of revenue to sustain content . Users checking in with their personal data — their name, email, raised the decibel level over why and it is to acquire consumers so the data friends on their News Feeds saw ads age, gender, marital status, sexual how the user data of not just 87 million generated by their interactions on those for brands that correlated to those likes preferences, employer, position, likes, people — but quite possibly all 2 billion platforms will turn into revenue “down the and the interests of those users — more address, school and phone number — users — has been compromised in a way road ”. targeted — but in very much the same and make it accessible to third parties that gives access to that data and those way that they would see ads in other without their permission off the Facebook users without any implied or express But all digital, all mobile, always on content feeds like newspapers or TV . doesn’t change the consumer’s intent nor platform . And have those third parties, permission to do so . their expectations of the platforms with It was in many ways just like any other in turn, serve them content without their It seemed that not only did Facebook which they engage when they do . ad-supported content platform . permission . And do bad stuff with their data . turn a blind eye to the behaviors of these bad actors but turned a blind eye to the Until it wasn’t . consumer’s intent in using Facebook: to

share content with friends, to see what searches are prompted by a consumer’s to in order to deliver a list of relevant sponsored posts, recommendations content their friends have shared and be interest in discovering the answer to places and options for her to buy . If a on what to buy with that product and served ads and content relevant to their something: When are federal taxes due? consumer punches through to a merchant product reviews based on what she types interests, just like any other ad-supported Why has the weather been so crappy that has enabled Google Pay or form into the search bar . If that consumer is content platform would . for the Boston Marathon for the last fill via Chrome, those credentials can an Amazon customer, she’ll probably 10 years? Will it ever be spring in the be used with the user’s permission to also see details about whether it was a Not to be targeted by third parties Northeast? expedite checkout there . Consumers can product she had purchased before and be who accessed their data without their also bypass that step, register with a given the ability to make that purchase knowledge or permission . And, increasingly, where do I buy [fill in merchant, use a card on file or any other in one click and/or to add it to her Dash the blank]? checkout option presented to them . buttons for replenishment if appropriate . And not, it seems, to enable commerce . Asking Google Search demonstrates Think how different this is from Amazon uses that consumer intent Research that we will be releasing shortly an intent to buy — and the consumer’s Facebook . — a search for a product to buy — to suggests that for as much as brands expectation that they’ll get a response in match that consumer with products and may think of Facebook and the News a millisecond with options for where to do A consumer intends to use her News marketplace sellers, so that she can Feed as a natural for enabling “contextual that . They know that they’ll be presented Feed to find out what her friends are up complete that purchase on Amazon . The commerce” on the Facebook platform, with many of them, including some to, or maybe learn some news, not to buy company provides its sellers with the there is an inverse relationship between placed at the top of the search page paid a product . A consumer searches when opportunity to make a sale on its platform the frequency, spend and satisfaction for by brands or retailers to appear there they’re actually interested in something, for a product they can fulfill but doesn’t with a contextual commerce experience when a searcher uses those keywords . and when that looks like it is related to share customer data with those sellers and the use of Facebook as a platform for It’s then up to the consumer to decide a product, Google serves an ad . Most — a position that’s been a lightning rod that type of commerce engagement . whether — or if — to click through and search pages don’t have ads for non- between Amazon and retailers for years . make a purchase . product-related searches . The Facebook Since Amazon is in the selling business, it THE INTENT TO BUY News Feed, on the other hand, always has a real incentive to make sure people Google Search uses consumer intent — a shows ads . are happy with what they buy . That’s not the case with Google Search . search for a product to buy — to match that consumer with a range of places Take Amazon . That’s pretty different from Facebook too . Consumers make 40,000 searches every she can go to complete the purchase . second on Google Search for a total of Google knows where that consumer When a consumer goes to Amazon to If a user clicks on a Facebook ad and more than 3 5. billion searches a day or is but not her name or any personally buy something, she’ll also be presented buys the product, since Facebook isn’t a some 1 .2 trillion searches a year . Those identifiable information, nor does it have with a list of products to buy, including commerce platform, they probably won’t

blame Facebook if the product is poor . If acquisition and find someone willing to brings a massive number of eyeballs to use seems clear — even when the intent a consumer clicks on and buys something rent their car to them for an hour or a day . people who want to sell their houses to of the platforms they engage with isn’t . from Amazon and they don’t like it or it The consumer intent is to make getting launch a house-flipping business. The breaks, they’ll blame Amazon . around town easy and convenient . market didn’t like it much: Zillow’s stock It’s time to close that gap . dropped 9 percent on the news, fearing And yes, I know that in both situations, This new offering is on top of the delivery channel conflicts with realtors whose there’s another data conversation related services provided by Uber Eats — the $10 content populates its pages . to the ability of the merchant or retailer’s billion Uber business that uses location access to and use of customer data, but data and Uber account credentials to Yet it’s another way for Zillow to monetize let’s save that for another column on make it efficient for users to order food a consumer’s intent to find and buy a another day . from local restaurants and have it paid for house by offering a convenient option to and delivered via the Uber app . sell the one they own now . THE INTENT TO SHARE — AND BE SHARED All users had to do to take advantage of THE INTENT OF INTENT those services was establish a profile that There are many other platforms that are The late Supreme Court Justice Thurgood included only a few pieces of information in the business of monetizing consumer Marshall once wrote: “What is the quality — name, email and payments credentials . intent — all related to why the consumer of your intent?” It was a rhetorical Uber uses those credentials to enable seeks out and uses that platform . question with its own intent — to flag the “Uber experience” when completing the difference between what someone a ride, but the most important piece Two made news last week . might say and the intentions, as he wrote, of information that they need is their behind those words . Intent, he said, location and that of the driver . The rest Uber announced that its app will soon always surfaces — the good and the bad . simply makes it easier for that consumer become a transportation hub for intent to be actioned inside the app — consumers . It’s an appropriate analogy for the without being served ads that get in the consumer data debate that started last way of that service experience . Within the Uber app, in addition to finding week and the one that will rage in the a ride using Uber, consumers will be able weeks, months and years to come . The Zillow also made news last week when to find and book mobile tickets for local consumer’s intent when interacting with it announced that it would leverage its public transportation, rent a bike through the physical and digital platforms they reputation as a trusted provider of data the ridesharing company’s recent JUMP on home values and its platform that

isintermediating the And digital wallets face new risks to their Consumer established intermediaries has model on the heels of the card brands’ D become something of an art recent embrace of browser-based, form in payments and retail these days . EMVCo-based online standards (Secure Convenience, Remote Commerce, or SRC) that deliver Physical retail is being disintermediated a robust card-on-file solution experience by a host of new players using digital for their issuers’ products inside a single Retail And technologies and data that further erode “Pay” button . their relevance . Payments To name but a few . Point-of-sale (POS) terminals are being disintermediated by consumers using the The truth is that intermediaries have Disintermediation very device that gave digital payments always found themselves on both sides acceptance to micro-merchants: the of the disruption dynamic, and not all who mobile phone . aim to disintermediate are successful . Survival depends upon how well the Traditional banks are starting to incumbents anticipate a future beyond feel the disintermediation pinch by the one they entered the market to disrupt alternative lenders who lack their legacy — and how prepared they are to change infrastructure and cost structures and their strategy to disrupt their once- use digital-first, artificial intelligence- disruptive ways of doing business . powered processes to underwrite risk and extend credit instantly . Disruptors Being Disrupted

Traditional acquirers are being Sometimes it helps to put things in marginalized by technology players that context . provide solutions — not just payments processing — to software platforms who In 1734, in a city outside London, want more control over the end-to-end shoppers walked into a single store, payments experience for the merchants Bennetts, to buy the things that once with which they do business . required visiting many different stores .

For the first time, shoppers could cassettes of the movies that had recently to consumers who wanted to sell the Until it became a defensive move and conveniently visit one store to see, touch been playing inside movie theaters and stuff that was taking up room in their a new crop of disintermediators used and buy things, many of which were watch them at home. For the first time, attics, basements and garages . Before new technologies that would, like they simply not available to them in the stores local and regional rental stores aside, eBay, sellers and buyers were largely did decades ago, redefine the role of an lining the main streets in their towns . The people across the U .S . who wanted to see limited to their local geographies and the intermediary and the customer value they brick-and-mortar department stores that a popular movie didn’t have to buy a ticket effectiveness of newspaper classifieds. could deliver . disrupted those main street merchants and go to the movie theater to watch it . The retailer became the category leader took off, flourished and remained largely Video rentals and movie nights at home by moving yard and garage sales online Digital swamped physical . unchanged for the next 270-plus years . became the go-to consumer movie ritual and later by expanding into selling new for the next two decades . branded products . That was until Amazon Software swamped hardware . In 1916, Clarence Saunders opened branched out of books and niche players the first self-service grocery store in In 1979, Sony introduced the Walkman, an like Etsy provided a different and better Frictionless swamped friction-filled Tennessee . Just like department stores, innovation that made music both portable product selection with a cleaner user experiences . Piggly Wiggly gave shoppers the chance and personalized . Before the Walkman, experience less than a decade later . to personally see, inspect and then select portable music came via the portable And the ability to deliver the convenience food they wanted to buy in one place . radio and whatever songs the stations In each case, marketing and that once put these intermediary Before Piggly Wiggly, shoppers went to were playing on-air. For the first time, merchandising became the tools used by pioneers in a position of power ended up multiple shops to buy meat, produce and consumers could buy a cassette — and these once-disruptive intermediaries to swamping them all . canned and dry goods — all of which later a DVD — with the songs they wanted hold their competitive place in line . The See the Future — or Face the Inevitable were kept behind counters and required and listen to them anywhere they wanted competitive dragon they were slaying was a salesperson to get . Almost overnight, to go . The “There’s A Revolution In The the “other guy” just like them who wanted In 2018, it’s a little bit of déjà vu all over grocery stores, the brick-and-mortar Streets” ad campaign that introduced in on their turf . The battle was fought again . intermediaries that disrupted main street the Walkman to the U .S . market in 1980 on a playing field that was more about food purveyors, became the way that was said to have been the most effective being a better intermediary than the other Take retail . shoppers bought all their food . And just product launch ad campaign in the fifty- guy — more products, better products, like their department store counterparts, year period prior to its introduction and newer products, cheaper products, unique Those who continue to believe the grocery stores remained largely the same gave Sony a 20-plus foothold on the products, better in-store experiences, Census Bureau reporting that 90 percent for the next 100-plus years . portable music market . rich loyalty schemes — than it was about of retail sales are still done in physical reexamining how to deliver an even more stores are living with their heads in the In 1985, Blockbuster opened a chain In 1995, one year after Amazon was convenient consumer experience . sand. The cycle of failure defined by a of stores that let consumers rent video founded, eBay opened its virtual doors

record number of mall and store closings We asked them what they bought, why across both . In health and beauty, 39 connected devices in their possession to and bankruptcies over the last decade they decided to shop that store and how percent of consumers shop exclusively in find the convenient shopping experience is a very visible sign of the wholesale much of their shopping they do in that the physical store, and 52 percent shop they want . decline of physical retail that we seem store and other physical stores like them both digital and physical channels . now to witness daily . and how much of their shopping is done Convenience Inspires Disintermediation online . The shoppers who play the digital/ As someone I was speaking with about physical field are younger, more educated The ripple effects of this shift are this very point said the other day, “I mean We have complied a pretty compelling and more affluent than their physical profound and are being felt throughout people even buy mattresses online today ”. story . store-only shopper counterparts . the entire payments and commerce ecosystems . Yes, they do . Across the four merchant segments that They are the future of retail, and their drive a large part of consumer spend, shopping habits and preferences are now Software plus digital is swamping Digital and mobile and the use of data most people don’t shop exclusively in well-shaped . physical retail intermediaries and the to enhance the consumer shopping physical stores anymore . ecosystems that support them. experience that have disrupted the But regardless of age, income, education, retail status quo will continue to For mass merchants, only 35 percent spend or preferred retail channel, there Standing in line and checking out at disintermediate retail . said they shop only at the physical store is one constant undertone: What decides counters and terminals will be the — defined as 50 percent or more of their their channel and store preference is exception and not the rule of what people All of it . spend in that channel — with 49 percent convenience . do in stores a decade or so from now — saying they shop both physical and digital because it’s increasingly not what people Playing the Digital and Physical Fields channels . Prices come second . Convenience comes are doing today . first. We’ve been studying consumers walking For grocery, the number of physical store- Checkout is happening in the aisles, on in and out of physical stores every quarter only shoppers was slightly higher at 41 More than rewards . More than loyalty mobile devices while in the store or via an for more than a year . We’ve talked to percent. Fifty-five percent of consumers programs . More than product selection . app before a customer even gets to the 8,000 consumers over that period of time said they shop both physical and digital More than support or service . More than store to pick up what’s been bought . and examined their shopping behaviors channels . what payment methods are accepted . at physical stores large and small across Software and apps and connected four retail segments — mass merchants, The story is the same for apparel: Thirty- Increasingly, the shoppers who are devices are disintermediating the POS including department stores, grocery, three percent said they shop physical leaning toward digital said they’re checkout experience that has been retail’s apparel and health and beauty . exclusively, with 58 percent shopping leaning on technology and the variety of cornerstone for more than 270 years

using a device that, ironically, expanded Top of wallet could be decided by default inconvenience of an in-person mortgage consumer’s need for convenience and digital payments acceptance for small because it’s what’s most convenient for process at a bank for the convenience the requirement of making a sale as merchants in 2009 with Square . the consumer . of an online lender who could give them waypoints . Now — before voice becomes an immediate credit decision — from the the next wave of consumer innovation for Product discovery is happening on mobile In a world in which voice may be comfort of wherever it was convenient which they have to play catch-up . devices and more recently with Alexa emerging as a dominant access channel for that consumer . Small businesses and Google Assistant . These virtual for retail, voice platforms could become are gravitating to online lenders, too, For lenders, it will mean using technology assistants can also buy the products the new intermediary for not only what for the same reason: using technology to rethink data flows that can both consumers find with their help. Stores stores consumers buy from, but how they to instantly underwrite and pay out leverage their balance sheets and — not products — risk disintermediation will pay for what they want to buy . loan proceeds that provide them with expand credit options for consumers and as consumers search for what to buy important sources of working and growth businesses . first and then make the buying decision So, too, could a universal pay button that capital conveniently and quickly . on who can most conveniently get the makes the registered card options already For digital wallets, it will mean product into their hands . a part of a consumer’s digital payments Digital, software and frictionless preserving their current role as a value- experiences available across all of the payments have dented the lucrative lines added intermediary to merchants and Assuming, of course, that consumers merchants they want to shop . of business that were once the traditional consumers by upping the convenience don’t find it more convenient to start and banks’ to lose . quotient, adding new sources of value end their search on Amazon . All of these same forces are disrupting that make transacting across digital and banking and lending. What’s an Intermediary to Do? physical channels seamless, efficient and Frictionless swamps friction-filled ubiquitous — today . payments experiences and the Convenience-driven consumers have That’s up to the retailers, payments ecosystems that support them too. been trained that using mobile and digital players and lenders, all of whom are For everyone, it will require new strategies banking channels are easy and secure . facing a new crop of disintermediators, to and ways of thinking that use the assets Issuers and digital wallets are facing their Physical interactions are no longer a decide — and not all of whom are venture- they have and marrying them with own version of disintermediation , as requirement to get what they want, backed startups with a big hill to climb the new technologies that deliver the consumers set, forget and default to the including loan products . and big intermediary shoes to fill. experience that defines the consumer’s payment method and/or registered card behaviors today . And being open to on file option that they like and always On the consumer side, Quicken Loans For retailers, it will mean standing at partnerships that once seemed like an use . is now the biggest mortgage lender the digital — and now voice-enabled anathema in an earlier time . in the market, with a 6 percent share . — fork in the road and picking a path, Consumers happily traded off the using the requirement of meeting the And two more things .

Understanding that consumer convenience, throughout history, has driven disintermediation and defined innovation — across all sectors .

And recognizing that time is a precious currency .

Department stores have been around for 271 years, but the digital blows that have sent them reeling started, in earnest, about 10 years ago when the iPhone and apps were introduced . Banks have been lending for 150 years, yet it took Quicken Loans only 32 to capture the mortgage lending market .

Ten years from now, the world of retail, payments and lending will look quite different, and intermediaries will play an important role in shaping it .

The question to be answered between now and then is who will disintermediate whom . It’s a question rife with speculation — but with, at least today, few clear answers .

enjamin Franklin is best And one that should be every innovator’s remembered as a signer of the anthem: B Declaration of Independence in 1776 and a prolific inventor who created Can FinTech the lightning rod after flying a kite with a key on it in a thunderstorm . A little known fact, perhaps, is that Franklin is credited Well done is better Walk The FinTalk? with inventing two things that almost than well said. every person has used — or will — at some — Benjamin Franklin point in their lifetime: swimming fins and bifocals .

Mr. B Franklin was also a prolific writer, whose many musings were captured in Poor Richard’s Almanac . Published under his nom de plume, Richard Saunders, It’s a thought that was triggered recently between 1732 and 1758, the almanac was after reading and reflecting on recent an annual collection of poems, puzzles, developments across three innovations prognostications and words to live by . heralded as FinTech’s poster children — disruptors out to change the world and Many of Franklin’s published aphorisms eat the proverbial lunches of incumbents have survived the test of time and remain they say are too big and too unmotivated quite familiar . to change .

A penny saved is a penny earned . Blockchain . Marketplace lending . Digital banks . Honesty is the best policy . Three things that today seem more like In this world, the only things certain are talk than truly transformative innovations . death and taxes .

BLOCKCHAIN 2017 . And in 2017, those investments blockchain so that they, too, can ride its Then, there’s IBM and its most recent were off-the-charts nuts . publicity draft . earnings report . Take the blockchain .

Then, there are the claims being made by However, the reality behind the hype tells IBM has made its blockchain ambitions An alien landing on Earth and reading the innovators about its potential . a different story . clear: It wants to be the first mover, using popular tech press would be thoroughly its “Blockchain as a Service” initiative as a convinced that blockchain is the biggest The blockchain has been hailed as the In January, the International Data way to capture and keep that lead . thing to have happened here since the most significant invention since electricity Corporation (IDC) reported worldwide invention of indoor plumbing . and the fix for the world’s biggest spending on blockchain solutions would In its earnings call two weeks ago, IBM problems and pain points . It’s positioned increase to $2 .1 billion in 2018 from $945 even used those words — a first mover Consider the money being poured into it . as the way to send money to people million in 2017 and will grow more than in blockchain — citing the 50 blockchain According to a Crunchbase article anywhere in the world in an instant and 80 percent year over year to reach $9 .7 networks that are now up and running published in February of 2018, for free . It’s said to be the answer to the billion by 2021 . Most of that spend will be using their platform . IBM’s management investments in blockchain and world’s food safety and digital identity concentrated in the U .S ., with supporting team described its blockchain developer blockchain-related startups (excluding problems . The blockchain can even end use cases mostly related to financial toolkit as another way to make it easier initial coin offerings, or ICOs) were world poverty and transform society by services and cross-border settlement, for for innovators to “stand up” blockchain already 40 percent of what they were in making it safer for total strangers to lend a grand total of $242 million in 2018 . networks . Some 750 such networks, they each other money — without any third- said, were provisioned in the first two party intermediary — and without any risk . To put that into context, the IDC projected weeks of that launch . worldwide growth and spending on In short, there seems to be, literally, mobility solutions at 15 percent a year After reporting those earnings and nothing the blockchain cannot do . from a 2018 base of $1 .6 trillion; on making those claims, IBM’s stock lost 6 security-related hardware, software and percent of its value . The hype cycle on blockchain and services at 10 percent a year from a 2018 blockchain tech has become so frothy base of $91 .4 billion growing to $120 .7 Many were surprised, since IBM posted that companies have even changed their billion in 2021 and on the Internet of an increase in revenue for the second names to include it . Today, corporate Things at 14 percent a year from $772 .5 straight quarter — after five consecutive public relations and communication billion in 2018 growing to $1 .1 trillion in years of losses . teams go to great lengths to find any 2021 . angle to connect what they’re doing to the

Analysts said disappointing performance And we are in the very, very, very early Today, the hype machine, which is the Even before this latest blow to the in its strategic imperatives group was to stages of finding and determining fuel of the investments in blockchain company’s stock price, the bloom was blame . blockchain tech’s true potential . and crypto, rooted in a world run by starting to fade from the marketplace algo-driven, permissionless networks, lending rose . Investors have remained Strategic imperatives include the Now, it’s true that some companies — appears to be little more than a bunch of skeptical that the marketplace business blockchain services IBM has invested including some very big names across academic white papers and blog posts model touted in 2006 is sustainable . heavily in and counts as one of its many important sectors of the economy that sound great in the echo chambers . important strategic cornerstones . That — are taking measured steps and LendingClub’s Q4 2017 results, under new group, collectively, grew 17 percent and experimenting with blockchain tech — aka All you need for proof is to just follow the management, showed four straight years contributed 49 percent of revenue at the distributed ledger technology (DLT) — in smart money . of losses, sales that missed forecasted end of Q4 2017. The first quarter of 2018 the support of use cases that address targets and continued losses in 2018, saw that shrink to 15 percent growth and tough problems MARKETPLACE LENDING seemed to prove investors had every 47 percent revenue . reason to be skeptical . Additionally, LendingClub was hit with a lawsuit by But they’re spending small (emphasis LendingClub’s stock has lost 88 percent the Federal Trade Commission (FTC) last This all comes on top of Warren Buffet on small) amounts of money to do of its value since its 2014 IPO . week over claims of “deceptive” practices . dumping nearly all of his IBM holdings at that . They’re also using software the end of last year . In 2011, Buffett made and cryptographic techniques and LendingClub is considered one of the The FTC complaint alleges that a $10 billion investment in the company permissioned-based networks to digitize pioneers in marketplace lending — a LendingClub’s advertisements of “no in support of then-new CEO Ginni and move assets around the world faster supposedly disruptive model that wasn’t hidden fees” is in conflict with reports Rometty’s turnaround plans . Buffet told and in a secure, compliant manner . about lending money and making money from consumers who received loan CNBC in May 2017 that he doesn’t value the good, old-fashioned way, but about proceeds minus those hidden fees that IBM the way he once did . And to learn . creating a tech-driven front and back were, well, hidden in the fine print. The end to originate loans and then making suit also alleges that some consumers Blockchain, of course, isn’t only to blame . Anyone in a regulated industry — and money when those loans are sold, were double-charged and continued to be The issues at IBM run far deeper . that’s just about all of them — are offered to investors, traded and then billed after their loans were paid off . also plenty dubious about using serviced . LendingClub makes unsecured But its positioning of the blockchain cryptocurrencies as the processing personal loans to consumers, mostly Following that news, LendingClub’s stock as one of its critical strategic pillars rails for supporting those pilots and to consolidate and pay off credit card price took a nosedive . Yesterday, it was emphasizes a bigger and more important incorporating them into their longer-term debt and more recently to refinance auto trading at an all-time low of $2 .70 . point: The hype is only as good as the plans should their pilots show promise . loans . numbers it can deliver .

In an interview in 2013, Founder and Without any skin in the game, like balance threats to its core commercial banking announcement in 2015 of their OnDeck then-CEO Renaud Laplanche boasted sheet lenders have, there’s not much and trading businesses . Goldman Sachs partnership . that incumbent banks like Chase were to prevent making loans to people who reported on its Q1 earnings call that “like Blockbuster Video” in a world in may not be able to pay them back . Fast- Marcus, since it launched, has originated The partnership does what Chase which tech and new lending models like as-lightning credit approvals come with $3 billion of new loans and taken in $9 CEO Jaime Dimon said at the time is LendingClub’s would bury them . All- an unintended sidekick: loan stacking — billion of new retail deposits . something Chase didn’t want to do and digital, all-tech lending platforms that either by fraudsters looking to score big could not do — lend small amounts of could deliver better user experiences and or desperate borrowers with nothing to During that call, Goldman Sachs’ money to SMBs . Mashing up OnDeck’s faster credit decisioning would become lose by stacking up loans for unsecured management said they’re in no big hurry quick credit-decisioning tech with Chase’s the new normal and take share from credit lines that they’ll never have to to grow Marcus by opening the credit risk and underwriting models and capital banks who were too big and cost-laden to repay . spigot too fast or too wide . They said pools gave Chase a way to expand its keep — or catch — up . they have decided not to approve “large community of SMB borrowers without Either way, it’s a recipe for losses and lost numbers” of credit applications, opting expanding its bad debt . Three years later, in May of 2016, investor confidence. instead to slowly grow deposits and high- Laplanche was ousted from the firm he quality loans by offering no-fee, fixed- Marketplace lending models were started after the Board concluded that he Tightening up their risk models to serve rate loans, CDs and interest on checking about using tech to lend money while violated business practices after failing to a more Prime-like customer means accounts through the acquisition of sidestepping the regulatory burdens disclose investment conflicts that some LendingClub would look like every other Clarity Money, a personal financial of being a bank . Tech and a great user say were driven by growing pressure to digital lending platform competing for management tool . Marcus is reinventing experience alone didn’t turn out to be meet sales targets and prove the efficacy the most creditworthy of customers: the lending model not by clever card a great way to sidestep the merits of of its teetering alt-lending model . A competitors with healthy balance sheets, tricks, but by creating a trusted, digital using good, old-fashioned credit, risk and month later, a new management team a lower cost of capital and a broader retail financial services platform to lending models to do it . was put in place to rebuild the business . digital consumer platform to offer help consumers find and use credit consumers . responsibly and save . DIGITAL BANKS It’s now hard to see how even a If the blockchain is all about replacing the new management team can rebuild Take Goldman Sachs and Marcus . They have a big incentive on their books global financial system and marketplace LendingClub — unless it blows up the to make sure that happens . lending is all about replacing traditional marketplace lending model it was Marcus is a digital consumer platform lenders, digital banks in the developed founded to popularize . that includes lending and deposit-taking . JPMorgan Chase and OnDeck have world are about upending the traditional Launched in October of 2016, Marcus made the same point on the small banking ecosystem . is Goldman’s $2 billion annual hedge on business (SMB) lending side with the

There are literally hundreds of digital To make up for those losses, some of Being digital is de rigueur for banks today, Today, digital-only banks are licking their banks — all targeted at people who these challenger banks are selling access and some analysts project that the more chops as open banking directives will reportedly don’t like banks for one reason to their customer bases for a fee — a than 2 billion mobile banking users that soon level the competitive playing field or another . distribution channel of sorts for other will exist worldwide by the end of this and give them easy access to incumbent financial and related services. That makes year is a powerful proof point . bank customers . But, as we’ve seen, Most, though, aren’t really banks in the challenger banks less like banks and simply being digital isn’t enough of a true sense of the word at all . more like ad platforms wrapped around There are, of course, people in developed value proposition for consumers to care . the delivery of a prepaid card product . markets for whom traditional banking Consumers want a bank that’s digital, They’re prepaid accounts that run on Supporters say that’s not a bad thing, services are not viable, but that number but not necessarily a digital-only bank . network-branded rails that come with since investors tend to value ad platforms is small — at about 16 million — and Ben Franklin was famous for another a network-branded plastic card that its like Google over regulated banks . includes a population for whom a variety aphorism that I find particularly relevant customers can use just like they would a of powerful digital alternatives are in to this discussion: Time is money . debit card to make purchases . Which begs the question: Who are these place to serve those specific needs: think digital banks serving — investors or PayPal, MoneyGram, Walmart and some In a dynamic space like banking, lending, These digital banks offer a lot of free consumers? of the other global players like Finablr payments and financial services more services — including overseas cash that are emerging to fill those gaps. broadly, time is a valuable currency . withdrawals — without any additional In the developed world, delivering banking Those players have scale and a variety fees . Some digital banks encourage services must be more than acting as a of services that go well beyond a prepaid Take too long to get something off the savings via the Federal Deposit Insurance prepaid program manager . account and a mobile app . They also have ground, and chances are that a newer Corporation bank behind them . All tout something more: the consumer’s trust . tech will leapfrog it . an easy user experience via a mobile app It’s about meeting the financial needs that helps users track and monitor spend . of people — adding value and delivering In developing worlds, of course, the Take too long to prove value, and chances trust . situation is quite different . Mobile is how are that consumers will lose interest and The business model of these digital banking and financial services are done bail . banks is based on the fees they collect on And doing it using mobile and digital — again, by players with scale (think Ant those transactions . But that’s not enough means . Financial), services and an objective to Take too long to prove you have a viable to support and service these accounts . help consumers achieve a much-needed business model once the VC’s checkbook Monzo bank, one of the larger U .K -based. But digital banks don’t have a lock on path to financial inclusion and a more runs dry, chances are that partners and digital banks, reported 450,000 users at delivering digital banking services . convenient ecosystem in which to provide investors will lose interest and bail, too . the end of December 2017, losing $67 on digital financial services. average per customer account .

Take too long to scale, and chances are that you’ll be outmaneuvered — quite possibly by the very players you set out to clobber .

Spend too long living in the hype cycle, and chances are that you’ll end up wondering how and why it all happened .

inding one’s soulmate isn’t easy . PLEASE DON’T MAKE ME KISS A THOUSAND FROGS In fact, physicist, NASA For millenia, people living in isolated F roboticist and “What If” author villages and towns found it hard to Randall Munroe says that, scientifically meet anyone beyond the borders of the speaking, it’s impossible . The math small communities in which they lived behind his claim suggests that finding and worked, never mind their perfect someone’s honest-to-goodness soulmate soulmate . Village matchmakers would is a once in every 10,000 lifetimes kind of seek input from the parents of children of thing . marrying age in those villages and then use their networks across many villages That does make it seem kinda hard . to find a suitable match. The practice that most describe as “arranged marriages” But it hasn’t stopped people from looking . was often less about “arranging” to a set Or intermediaries from helping them of strict parent-led criteria but using an make that impossible dream their reality intermediary to fish for a possible mate in — or a reasonably suitable facsimile of it . a much larger pool of eligible candidates .

Before online matchmaking The first use case for social networks, intermediaries like Match .com and Tinder started after the birth of the commercial tried their hand at increasing those odds, internet, was helping people find the there was Frigyes Karinthy, SixDegrees, perfect mate (well, seriously, these were Friendster, not to mention village started by guys, so the idea was to help Facebook And Dating: matchmakers . them find girls). And now, Facebook . The basic idea occurred about seven It’s (Not) decades before the first online social networks .

Complicated In 1929, Hungarian author, Frigyes Karinthy, published a series of fictional

short stories, one entitled “Chains ”. In expanding the size of their own social of their friends and their friends’ friends mass one college campus at a time . that story, Karinthy posited that any networks by making it much easier to visible online — that’s become the Students were invited to join by creating a two people could be connected by, at meet new people — particularly, possible underpinning of online social networking . personal profile with their picture. Access most, five personal acquaintances and dates and soulmates . to the user’s personal network was at illustrated that through a game he created In 2002, three years after SixDegrees shut their own discretion after receiving an and wrote about . But not just any people . down, Friendster would emerge with the invitation from someone to join it . same premise — an online, members- His idea was that these personal, social People who were more trustworthy than only site where friends and friends of Like Friendster and SixDegrees, friends networks would become even more the average Joe or Jane, because a friends could find each other and share of friends of friends were visible to users expansive and powerful as the inevitable connection was made via a friend they updates. While finding a soulmate wasn’t and their own network of friends . advances in mobility and technology knew firsthand and trusted too. its explicit purpose, striking up new made it easier to make and then share relationships that turned romantic was a Like Friendster and SixDegrees, access those contacts . SixDegrees com. grew to 3 5. million frequent occurrence . to a trusted network of those friends of members and was sold two years later for friends of friends was the big draw . Over the years, economists, statisticians $125 million dollars . Friendster shut down five years later and mathematicians evolved this concept in 2009, owing its lack of success to Updates from those friends and across more rigorously . But Karinthy is credited Weinreich said growing the user base technology challenges that made the those social networks could be seen, with naming and popularizing the social became difficult, constrained by its ability user experience slow and cumbersome in liked, shared and commented on, creating network theory that gave rise to the first to keep users engaged . Sharing photos the face of a more powerful and focused the user engagement that would sustain online social network some 68 years later . and content was clunky in a world devoid Facebook challenger that launched two and grow Facebook over the next decade- of smartphones with digital cameras, years after they did . Ironically, a year plus . In 1997, SixDegrees .com launched . and the lack of broadband connections later, Friendster sold its social networking necessary to support content-rich patents to Facebook for $40 million . More important, the new online Its founder, Andrew Weinreich, is given sites made it hard to run the site on friendships Facebook fostered could be credit for launching the first social the desktop computers with dial-up The story of Facebook and its rise over easily converted to offline friendships intermediary that invited people to join, connections people had in their homes at the last 14 years as the world’s most and meet-ups, since everyone went to the create and share a profile online, and then the time . powerful social network icon is, of course, same school or one close by . invite their friends to join too . Friends well known . of friends were visible to any friend of But it’s Weinreich’s Six Degrees patent Including friendships that turned those friends in the network . SixDegrees — giving people the ability to see people Zuckerberg and his co-founders chose an romantic . provided users with a new way of they do not know by making the friends ignition strategy that, first, built critical

Unlike the online social networks that In 2014, Facebook added an “Ask” icon the U .S . are unmarried — that’s about 111 Finding a soulmate on those platforms, came before it, Facebook asked its users next to a user’s relationship status, million unmarried people . It also stands in however, comes down to how well these for one piece of information that is, today, inviting others to ask someone they might stark contrast to the state of marital bliss online intermediaries can solve a pretty the cornerstone of the dating app it will have more than just a passing interest in just a few decades before . In 1960, only simple math problem . soon launch . getting to know for more details . 28 percent of the adult population was unmarried . Too much qualifying criteria applied to NOT SO COMPLICATED: THE POWER OF It seems a safe bet that watching user too small a pool of eligible singles means RELATIONSHIP STATUS engagement with that feature was one of Helping singles find a mate is a niche too few potential Mr . or Ms . Rights for many data points that led to Facebook’s that online matchmaking sites like Match . users to see and get to know . When users create their Facebook decision to make finding someone’s com, eHarmony and Tinder emerged to profiles, they can declare any number soulmate a more formal part of its help fill, using algorithms based on user Opening the aperture too wide means of relationship status options: single, platform . profile information to make those perfect presenting users with too many potential married, engaged, divorced, in a matches . Mr . or Ms . Wrongs who don’t match their relationship, “it’s complicated” and many Along with having a lot of eligible fish in criteria . more . Users can also opt to leave that the Facebook pond for those unmarried People have taken the bait . part of their profile blank. eligibles to find. Add to that the problem of embellished It’s been reported that roughly 50 million profiles and profile pictures that make Zuckerberg is reported to have told his Facebook has more than 2 billion active people in the U .S . — or nearly half the a potentially exciting first date a co-founders in 2004 that no one walks users who visit the site each month, 214 unmarried population if those numbers disappointing last encounter — and users around advertising their relationship million of whom are in the U S. . These are true — use dating apps . Tinder reports get frustrated and leave . status, and asking about it in person users check Facebook an average of 14 about 46 million users and has seen a can be awkward. An online user profile times a day, spending 50 minutes each 100 percent increase in subscribers since It’s not surprising that dating apps aren’t with a relationship status feature not day on the site . 2015 . Match .com reports 7 million users . the way most people say they’ve had the only eliminates that awkwardness but most success in finding the love of their telegraphs who’s available and who’s not . Many of whom are also looking for love . Those singles are said to check those life . dating sites an average of 11 times a It also gives users important and LOOKING FOR LOVE IN ALL THE WRONG day, spending 90 minutes a day, or some Most people — 39 percent of singles — accurate information they can act on — or PLACES? 10 hours a week, in search of Mr . or Ms . say what’s worked best for them is having not — depending on their own interests Perfect . friends of friends fix them up. Roughly 15 The Census Bureau reports that 45 and relationship status . percent of people find a relationship at percent of adults over the age of 18 in work, 12 percent at a bar .

Only 8 percent say dating apps have been single and Jane is a great gal but has just delivers a monetization trifecta — • A way to monetize intent around the the onramp to a satisfying relationship . been too busy to meet and find someone something that’s increasingly important commerce opportunities that dating special . as regulators beat up its ad-supported can unlock. I wrote earlier in the year That’s why Facebook has more than just model . that 2018’s power brokers are those a shot at making a killer dating app to And that Joe isn’t a lying, cheating son that can monetize intent and that help singles find a new relationship — of a gun or that Jane is a lot more like • An easy monthly subscription sell Facebook as a content distribution while also finding a new way to monetize Glenn Close’s character, Alex, in “Fatal for singles on the platform today platform doesn’t really create any its platform beyond selling advertisers Attraction” than Meg Ryan’s in “Sleepless who want a safer and more trusted intent to buy . access to its user base . in Seattle ”. intermediary to help them find their soulmate . Ten dollars a month times Dating sure does . A BIGGER POND WITH MORE FISH AND Of course, dating sites conduct basic even 10 or 20 percent of the number LOTS OF GREEN vetting and background checks, but of unmarried adults in the U .S . is Singles looking for a soulmate want they’re no substitute for a friend who an enormous number — and, if the things to do on those first, second and Facebook as a dating platform has the can vouch for the character of someone experience is effective, it’s a number third dates . Booking dinner reservations, same simple math problem to solve as they — or a friend of their friend — knows that will only grow . flights to see a potential Mr. or Ms. Right any other dating site: having enough firsthand. in another city, arranging for a romantic eligible singles to increase the odds • A way to increase the engagement weekend away, tickets to concerts or of any of its users finding a suitable, That means Facebook has the potential of existing users whose eyeballs sporting events — all viable commerce compatible mate . to deliver the online dating trifecta: on the site have value to its core experiences both on and offline. relationship status, an extensive friend advertising business — as well as a Leveraging the payments capabilities of But Facebook has something else that network to vet and vouch for a potential way to revive dormant users with an digital payments platforms could turn no other dating platform has: a network match and a whole lot of potential existing Facebook profile. Ad revenue dating into the catalyst for the payments of friends of friends of friends of friends matches from which unmarried people is what keeps the Facebook revenue and commerce experiences that who can vet any potential match . can choose . engine humming . And if Facebook Facebook has, to date, failed to ignite . manages to capture even a sliver of Six degrees of separation on a site as It’s why Match .com’s stock price took a the time that singles spend on dating Despite Facebook’s well-publicized humongous as Facebook means it’s nosedive when Facebook’s dating app sites today, adding dating to Facebook data scandal, consumers still trust the also highly likely that someone in its news was announced . has the potential to drive user platform with their data and remain loyal . massive network of friends of friends engagement to new and record levels . of friends can vouch that Joe’s status For Facebook, having dating as a formal A new Reuters/Ipsos study released is complicated because he really isn’t part of the Facebook experience also yesterday states that half of Facebook

users in the U S. . haven’t adjusted their usage at all and that 25 percent of users now use it more — at least right now — muting the 25 percent who say they reduced their engagement or removed their profile entirely from the site.

That trust, provided it holds, will become a helpful tailwind as Facebook makes its move into one of the most trusted activities of all: dating .

That combination — a trusted intermediary with a network of trusted connections — is what made the village matchmaker effective and her skills in demand hundreds of years, even centuries ago .

Facebook is sort of like that village matchmaker today . It’s just that its village has 2 billion or so people in it — with potentially a lot more to offer than helping someone find her soulmate.

ometimes it pays to follow the Less than half of all consumers we scent . studied over that period of time reported S being satisfied with how well retailers followed them across physical and digital Each quarter for about the last 18 channels . months, we’ve asked 4,000 consumers to tell us why they shopped in the physical The gap was particularly acute when it store and how the physical store fit into came to something consumers regarded their overall shopping pattern . as a no-brainer in today’s mobile/digital world: knowing them and their purchase Over that time, we examined four history regardless of the channel they retail segments — mass merchants/ shopped . Bridge Millennials department stores, grocery, health/beauty and apparel/accessories — and pushed Personalizing the offer and the experience an online survey to those consumers after was key, and it was where consumers And The Threat To they made a purchase and left the store . expressed the most disappointment in today’s retail experience . It’s why so many Physical Retail This work was done with the support consumers are shifting online, and to a of Worldpay and was intended to small set of retailers led by Amazon and gain greater clarity into consumers’ Walmart, to do their shopping . expectations of an “omnichannel” experience across the digital and physical But something else piqued our curiosity retail touchpoints . More importantly, we as we looked at tens of thousands of data wanted to understand how consumers points — with a hunch that the shopping felt the retailers they shopped measured and spending behaviors of 24-year-olds up . were very different from 34-year-olds — even though they were both lumped The story, as we’ve reported, was that together and labeled “millennials ”. consumers didn’t think those retailers were up to snuff . That’s when we discovered a new demographic cohort: the first real

generation of connected consumer with They are the shoppers whose connected spending power . We called them Bridge devices are the intermediaries they look Millennials . to first for what they buy and from whom they buy it . At 30 to 40 years of age, they are younger than Gen X-ers but older than most And they are the cohort of shoppers who millennials . are reviving a shopping trend retailers thought they might have left in their They are affluent and well-educated. rearview mirror: showrooming .

They are settling into more stable careers FOLLOW THE SCENT and are earning more money . Our omnichannel work uncovered three They are spending their money using consumer shopping personas . connected devices to guide their shopping decisions — from the products • The Digital Shopper — one who they buy to the stores at which they shop . characterizes herself as making half or more of her purchases through And, in that order . digital channels . Forty-four percent of Digital Shoppers report having We believe the Bridge Millennial is the a college degree and a household bellwether for how connected commerce income of $76,000 a year . At 42, she will evolve over the next five to 10 years. is the youngest of the three persona We also think comprehending their groups . As a point of reference, the behaviors today is critical for retailers to Census Bureau reports that roughly understand for three reasons . a third of U S. . adults have a college education . They are the consumers whose expectations of omnichannel and • The Any Channel Shopper — one who omnicommerce are the highest . characterizes herself as dividing her spend between physical and retail

channels . This group is roughly the considered the bastion of physical In almost every retail segment, the vast The consumer’s taste in clothing has same age as the Digital Shopper store purchasing — grocery — shoppers majority of consumers said they did — changed, and that has changed how and reports an annual household reported using both digital and physical and for one of two reasons: They had people shop for clothes . income of $70,000 a year . Twenty-two channels . either shopped there before and knew (22) percent report having a college what to expect and/or they had consulted Business casual Fridays have become all degree . Forty-one (41) percent of shoppers their mobile phones or computers first to casual and every day . Men and women reported that brick-and-mortar buying determine whether that store did have the who once bought “work” clothes and • The Brick-and-Mortar Shopper — dominated their grocery spend . For those item or items they wanted to buy before “casual” clothes are now buying casual one who characterizes herself as of you doing the math at home, that going there . clothes that do double duty . Athleisure conducting half or more of her spend means 59 percent used both digital and has emerged as a work/casual/workout in a physical store . This persona physical shopping channels when buying There was one outlier: apparel . crossover trend . reports an annual household income grocery products — think food plus things of $64,000, and 13 percent report like paper towels, laundry detergent, Sixty-five (65) percent of all shoppers That change has made it easier for having a college degree . This group is garbage bags, etc . and 68 percent of digital shoppers said consumers to buy their clothes online two years older than their Digital and they didn’t really know what they wanted and not spend a lot of money when they Any Channel shopper counterparts . That, I think, is an amazing and before walking into a store . Their visit buy them. Black yoga pants and fleece remarkable development . was to inspect and/or to look at the hoodies aren’t that hard to buy online . Individually and collectively, these merchandise they found online before They’re also a lot cheaper than buying shopping behaviors tell a slightly different The other surprise, though, was apparel, making a purchase . a nice sports jacket, collared shirt and story than what Census Bureau numbers where only a third of respondents pants or pencil skirt, blouse and blazer . might have us believe . reported doing most of their shopping in We wanted to know what happened when “Restocks” of items like jeans and a physical store . they got there . T-shirts, once people have found what Fewer than half of all shoppers said works for them, are also an easy point, the majority of their spend was done There’s something else . STORES AS SHOWROOMS — REDUX click and ship away . exclusively at a physical store . It’s no secret that brick-and-mortar As part of our omnichannel study, we For those with more sartorial tastes, clothing retailers are under intense Most people divided their spend between asked consumers who just came out of subscription players like Indochino, pressure today . physical and online channels, and the a physical store whether they knew what Bonobos, Trunk Club, Stitch Fix, Rent the degree to which they did varied by retail they wanted to buy before walking into Runway and Amazon Fashion — along segment . But even in a segment once the store to buy it . with fashion-forward eTailers like Revolve and FRWRD — have emerged to make it

easy to buy the latest fashions without THE BRIDGE TO THE FUTURE OF • They are also the most fickle: Many are making investments in creating spending much (or any) time in a store . RETAIL? Nearly a third, 30 percent, of Bridge in-store experiences that will appeal Millennials have switched away from to this new generation of shopper: When it comes to clothing and That’s put lots of pressure on brick-and- or tried a new merchant in the last 30 fashion shows, trunk shows, personal accessories, here’s the Bridge Millennial mortar retailers to figure out what’s next. days compared to 21 percent for other appearances by designers and more . punchline: shopping cohorts . So, in early March, the PYMNTS team That’s not what these Bridge Millennials • They buy a lot: Eighteen purchases a conducted a new study of more than • They use stores as showrooms a say they want . year, second only to millennials at 19 2,000 consumers to understand how lot: Fourteen (14) percent of Bridge purchases a year . they shop and buy clothes — and the Millennials say they use retail stores This connected consumer wants role of the physical store in those buying technology — and more of it — to make • They spend a lot: $2,225 a year, to look at things but not to buy them, decisions . If more than three-quarters their shopping experiences in the physical second only to Gen X-ers at $2,367 a compared to 11 percent for other of consumers said they walked into a store as efficient and easy as buying year . groups . physical store to look at something before online . This set of shoppers reports the buying it, we wanted to know if they also • They prefer debit to credit and • They like buying online a lot: Nearly ability to scan items and/or use kiosks in walked out having made a purchase . PayPal much more than store cards. half, 48 percent, of Bridge Millennials the store to query product information, Bridge Millennials use debit more report a preference for making their inventory availability or check out is what And this time, instead of just asking than any other shopping cohort when clothing and accessories purchases they want . people to check a box with age ranges making purchases and credit less online compared to 40 percent of that map to Census Bureau-reporting age Personal shoppers in-store? Not really . than millennials and only a smidge other shoppers . A quarter of Bridge bands, we asked people to tell us exactly more than Gen X . They use PayPal Millennials report Amazon as their how old they were . Chatbots? Nope . only slightly less than millennials do retailer of preference when they do — and much more than baby boomers make purchases of clothing online . That’s when we discovered the power of A personal assistant who is virtual? Yes . and Gen X . Store cards barely register . the Bridge Millennial . It’s not that Bridge Millennials avoid going Roughly 5 percent (4 .8 percent to be • They shop using their mobile into the physical store — they do . It’s just precise) of Bridge Millennials report using phones a lot: Seventeen (17) percent that they don’t always walk out of those a voice assistant when making purchases of Bridge Millennials say they use stores with a purchase in their hands . of clothing and/or deciding what to buy mobile phones to make clothing and Brick-and-mortar retailers, no doubt, and where to buy it — twice as much as accessories purchases — more than understand this too . other groups . millennials at 15 .9 percent .

Above all, this generation of shopper She doesn’t need the physical store Amazon may be the favorite retailer for There’s no doubt the Bridge Millennial will wants the retailer to know who they are to be the intermediary between her 25 percent of Bridge Millennials (against drive the reinvention of retail — she has when they walk into the store so services, and what she wants to buy . For this 14 percent of all shoppers), but most the spending power, the appetite to spend products and promotions can be tailored shopper, physical stores have given consumers say their favorite retailer is a money and the interest in shopping a to their preferences and reflect past way to physical devices like phones and lot of them . large swath of retailers to do it . purchases . speakers and software and apps that make it easy for her to discover what she Product selection is important to The big question is whether retailers will And delivered via their mobile devices . wants to buy and then buy it — using one consumers, and they like to shop with be as quick to master the technology of the three payments methods she likes a variety of merchants to get what they that’s now second nature to this Convenience is what drives the shopping best; debit, credit or PayPal — on her own want . And, for clothes at least, seeing and important retail segment . decisions for the Bridge Millennial, terms . touching and trying something on is still followed by having the product they want important . Thirty-eight (38) percent of to buy . Followed by price . Rewards and This generation of shopper is Bridge Millennials go to a store and then loyalty schemes are way, way down the opportunistic — using the physical store buy in a store, and that’s a start . Using list . to inspect the things she’s found online . technology to identify and influence those Maybe she’ll buy it there and maybe she conversion opportunities for this highly WHAT’S NEXT? won’t, but that’s not up to the store she’s connected consumer can turn a visit into standing in to decide . And maybe not a sale and a repeat customer . There’s a glass half full and a glass half even to influence her. empty story here with respect to how What seems clear is that the Bridge physical store retailers should adapt their Convenience and product selection is Millennial’s shopping behaviors and strategies to serve the Bridge Millennial what she craves, and physical retail patterns, like her baby boomer parents consumer — at least when it comes to doesn’t really check those boxes for her and Gen X siblings before her, are already clothes and accessories . anymore . Online does, Amazon does well-established . Clothing trends may increasingly, and that is the standard by come and go, but her digital shopping The glass half empty says: game over, which this cohort of shoppers will judge habits seem pretty predictable as physical retailer . every other retailer they encounter — more connected devices deliver more online and offline. opportunities for Bridge Millennials and This connected consumer is in charge, brands to connect . and she knows she’s the boss . The glass half full says physical retail still has a shot . And not necessarily in the physical store .

smart entrepreneur dropped out years ago is known today as Kelly of college, identified an unmet Services, the temporary staffing agency A market need and created an once synonymous with temporary office entirely new market segment . workers known as the “Kelly Girls ”.

He did it by establishing a platform Russell Kelly Office Service, established that matched an underutilized source in 1946, gave birth to the idea of what of supply with a growing demand the modern-day, on-demand gig economy for services . One of his platform’s platform would look like — even though competitive advantages was the no one used that term at the time to centralized payments platform he created describe the model he created . Kelly’s to remove the friction involved in paying company supplied office workers to suppliers . local businesses, on demand, in need of a temporary workforce — igniting The idea took a couple of years and a the $480 billion category known today pivot to get going, but soon, the S-curve as temporary staffing and workforce kicked into high gear . This entrepreneur’s management services . platform grew into a multibillion-dollar global business as measured by annual THE DEMAND FOR ON-DEMAND WORK sales and ignited what is today a half-a- Fast forward 72 years, and 35 percent of trillion-dollar global industry . The Gig today’s workforce participates in what This entrepreneur wasn’t one of the we now call the gig economy, according Economy’s familiar big tech giants, even though the to the PYMNTS Gig Economy Index storyline is both familiar and similar . published last week, with the support of Hyperwallet . Some sources estimate that $1.2T His business was not that high tech — at gig economy workers could swell to as least not by today’s standards . many as 50 percent of the workforce over Digital Payments the next two years . The entrepreneur was William Russell Potential Kelly, and the platform he created 72 That may not be too far off .

Based on the work we’ve done over the Only 15 percent of all gig workers said A GIG PLATFORM PIVOTS — AND supplier payments at the largest grocery last couple of years, we’ve seen the gigs were their primary source of income . CRACKS PAYMENTS store chain, A&P, to save the day . percentage of gig worker participation Russell Kelly Office Service opened its swell too — this quarter by nearly 9 Nearly 60 percent of gig workers found At the end of war, Kelly was in search of doors in 1946, right after the end of World percent year over year . More than their gigs via a digital marketplace . These the next big thing . The U .S . economy was War II . Kelly, the son of a wealthy oil 37 percent (37 .2) of workers said marketplaces are highly valued by these booming, and Kelly saw a huge demand executive who died prematurely in 1928 they receive 40 percent or more of workers because they provide leads in for helping local businesses use new when Kelly was a college senior, was their income from gig economy jobs, near real time. Fifty-five (55) percent of technology to operate more efficiently as forced to leave college before graduating accounting for $1 4. trillion of total U .S . gig workers said they used one platform they grew . to support his mother and six siblings . personal income in 2018 (I’m getting to primarily to source those leads . This Over the next 18 or so years, Kelly the $1 .2T in the title of this piece, so hang changed as the nature of the work and The latest technology at the time was an worked in companies that had embraced in there) . skills required became more specialized . adding machine called a comptometer business technology — such as it was at In those cases, workers used multiple and an electric typewriter . that time — and helped them use those For this latest report, we surveyed 10,000 platforms to source their leads . new technologies to streamline their consumers to get a clearer understanding Kelly bought several of each and opened businesses . of how the gig economy has evolved over Unfortunately, fewer than half — 46 his doors . the two years we’ve been tracking it . We percent — of these gig workers said they One of those jobs involved helping the wanted to comprehend the motivations were very or extremely satisfied with At that time, Kelly Services was a “service Army solve a mission critical procurement of a gig worker and to gain more clarity the services provided by those digital bureau” where local businesses would problem during World War II . The Army about what services they perform and for marketplaces . drop off the work they needed done and was facing long delays in getting food to whom . pick it up the next day, completed . the troops because they couldn’t pay their One of those reasons can be traced back suppliers in a reasonable timeframe . War What we discovered is, just like the vein to the problem William Kelly solved 72 Kelly’s workforce consisted of American or no war, payments to suppliers were William Kelly tapped 72 years ago, the years ago that many of today’s digital gig housewives, many of whom had acquired often months late, so suppliers stopped majority of workers who participate in the economy platforms still haven’t cracked: basic bookkeeping, administrative, typing sending food . Kelly was part of a team gig economy, skilled and unskilled, do so an efficient way to match the real-time and organizational skills in secretarial that devised a centralized payments because they can make extra money to nature of the work performed by these gig schools . These stay-at-home moms platform that got money to suppliers in pay bills (19 percent) or to save for things workers with a more efficient — and even were raising their kids but wanted an just eight days, drawing on his experience like an annual family vacation or a kid’s real time — way to be paid . opportunity to make extra money, on a years earlier working in accounting and wedding (17 percent) . part-time basis, while the kids were in school, but only when their schedules

permitted . Kelly tapped into this trained to offices to perform secretarial and workers completed and turned in at the administrative professionals with the and conscientious workforce to build his other administrative, accounting and end of their assignments, along with right skills who could step into any business . bookkeeping services. Russell Kelly Office a fee. Russell Kelly Office Service paid business, at any time, and perform those Service gave part-time housewives a its workers within seven days of Kelly’s tasks . It all worked well — until it didn’t . way to earn money that was otherwise regular payroll period — and still do — unavailable to them . They welcomed upon receipt of those timesheets . Today, that’s increasingly the gig Companies began to realize they needed the platform because it gave them the worker with more technical skills — to invest in the tech that would make flexibility they wanted and needed while Kelly’s model soon expanded to other the long tail of the gig economy that their businesses more efficient and making it easy to find work. In fact, they cities using the same formula and ignited consists of skilled and trained web competitive — and did, which meant really didn’t have to look hard at all . The other complementary businesses . developers, nurses, lab technicians, they no longer needed to outsource their work came to them once they passed doctors, engineers, computer scientists, work to an off-premise provider with the Kelly’s screening criteria . Secretarial schools became even more architects, security officers, even CFOs same technology they now had in their popular in the 1950s and 1960s as and lawyers who could be living and businesses . Businesses welcomed it too . women sought to burnish skills they working anywhere in the world . could turn quickly into a reliable stream What these businesses needed was In Russell Kelly Office Service, they found of temporary work through what would Digital platforms and advances in access to a trained and reliable workforce a reliable source to access trained, vetted become, in 1966, Kelly Services . Some software, communications and other tech to keep their businesses moving when and qualified workers — on demand — of those jobs often led to full-time make it much easier to create a critical there were temporary staffing gaps. without any permanent strings attached, employment at companies following a mass of skilled workers to complete ad That’s when Kelly pivoted his business or the requirement to train them in basic temporary stint . hoc projects in the event of a staffing model from one that had the businesses office skills for a day or a week’s worth of shortfall, or to provide highly specialized come to him to get their work done to one work . THE GIG ECONOMY LONG TAIL: HIGH- skills to a business when it wouldn’t make that sent a trained, on-demand, reliable TECH TALENT. LOW-TECH PAYMENTS. economic sense for the business to hire temporary worker to businesses when Or the hassle involved in paying that on a full-time basis . Like many platform businesses — digital their own workers went on vacation, were temporary workforce . or otherwise — Kelly Services scaled out sick and/or left the firm. Our Index supports that claim . Fifty-four by going market by market to build The company’s secret sauce, in addition (54) percent of specialized gig workers a critical mass of skilled workers to That’s when gig economy 1 .0 took off . to its trained, on-demand workforce, were hired not to fill a temporary staffing satisfy the demand of local businesses was eliminating the hassle of paying shortfall but to fill in an organization’s with temporary staffing problems. Back These temporary workers, known them . Kelly billed the businesses for current knowledge or skills gap . famously as the Kelly Girls, were sent services performed based on timesheets then, that was a competent team of

What seems lacking is paying this Gig workers said when they worked for to pay bills or to save for a special event . If it means getting paid, and the choices specialized, highly technical, on-demand SMBs, they were paid via check (52 These workers earn, on average, as much that a business offers for payment is workforce in a manner befitting the digital percent), PayPal (38 percent) or cash/ as 40 percent of their household income check or check, most gig workers will payments age . direct deposit (37 percent) . this way . take a check . They’re free for them to accept . Checks are also the most Overall, fewer than 20 percent of gig Enterprise businesses paid their gig This pay-me-faster, pay-me-better ubiquitous form of payment businesses workers (18 .4 percent) were paid via the workers using direct deposit (45 percent), sentiment was relatively consistent large and small have and use to digital platforms that source their leads, check (43 percent) and PayPal (40 across income bands — workers with an pay vendors . Gig workers, for most and for many highly skilled workers, that percent) . annual household income of $150,000 companies, fall into the category of percent was fewer than 5 percent . With and those with an annual household vendor . gig workers expected to earn $1 .4 trillion Consumers paid gig workers using cash income of $50,000 were equally in 2018 through gig economy platforms, (47 percent), check (41 percent) and interested in being paid on demand and As a vendor, gig workers are paid like a that leaves roughly $1 .2 trillion ($1 .14 PayPal (37 percent) . via digital payment methods for the work vendor via the accounting department trillion to be precise) of market potential that came their way through a digital — and not the HR/payroll department — for these digital marketplaces to digitize And with the exception of government platform . and via a procurement process tied to — and monetize — payment for those gig and some enterprise businesses, few the receipt of an invoice . That invoice jobs . workers were paid using prepaid/payroll These are also the people who were paid triggers an internal process that leads to cards . via check most of the time — thus the a payment via a 30-, 45- or 60-day cycle THE GIG ECONOMY’S $1.2 TRILLION interest in being paid faster — but who — only after someone at the company But here’s where it gets interesting. DIGITAL PAYMENTS POTENTIAL also reported a 70 percent satisfaction has agreed the work was completed to rate with being paid that way . That’s everyone’s satisfaction . Gig workers told us that, today, they Eight-four percent (to be precise, 84 .3) orders of magnitude higher than the were paid one of four ways: check (40 percent of all gig workers said they would average consumer who, 96 percent of the Many of the digital platforms that source percent), cash (39 percent), direct deposit do more gig work if they were paid faster . time, said they hate getting checks for leads for these more specialized gig (34 percent) or PayPal (32 percent) . any kind of payment . Period . workers are set up today to handle digital Prepaid cards, at 11 percent, were This is the 35 percent of the workforce payouts to credit cards, and maybe used infrequently — in part because gig with the capacity to do more and would So, why the desire to be paid faster if PayPal accounts and only if there is a workers didn’t want to be paid that way . if payments frictions were eliminated . 70 percent of gig workers said they’re way for a payment to be triggered that Remember, they are working another job happy with getting a check? way via an invoice that accompanies that How they were paid depended on who (or jobs), like doing gig work, because it’s payment . Most enterprises aren’t set up paid them . a flexible way to supplement their income to pay using a credit card or PayPal and

may not want to be . Gig workers don’t To start: giving buyers access to a To #KillTheCheck in a gig economy want to be paid that way either, especially marketplace of specialized and vetted world increasingly defined by specialized on invoices that can run several talent who can do the job . Russell Kelly workers with higher billing rates and thousands of dollars and where a fee of 3 Office Service then and Kelly Services invoices that trigger payment, digital percent is material to them . today hires workers as Kelly employees platforms must give gig workers a after they meet specific requirements. choice over how they want to be paid . Our study found that 39 percent of Only then are those workers placed in That means being open to new business gig workers who didn’t use digital temporary roles with Kelly’s corporate models to support how digital payments marketplaces to source leads said the clients that match their skills and can be made above and beyond what is reason they didn’t was because of the availability . currently on the table today . fear of high fees associated with being part of that platform, including how Today’s gig marketplaces must do a The marketplaces that understand that, they’re paid . great job of aggregating the right number and the digital payments players that help and level of skilled workers . They must them close the gap by expanding choice, WHAT’S NEXT also do a great job of vetting those are well-positioned to cash in on the they allow on their platform and put in trillion-dollar-plus opportunity that the gig The gig economy may have developed place strict governance measures that economy offers today and in the years to its contemporary label thanks to the rise includes verified ratings and rankings come . of Uber, Lyft, on-demand delivery drivers so companies can be sure the workers and the digital platforms each of these they’re hiring via those platforms can do Those that don’t, might find themselves players created to match supply with real- the job well . on the wrong side of that choice, time demand . particularly when those who do will Then, these digital marketplaces must use how they pay their workers as their But we suspect it will be the long tail of innovate how payment is made to competitive advantage, just like William the gig economy that will increasingly those workers by creating a model that Russell Kelly did 72 years ago . become the tailwind for the gig eliminates the frictions that exist today . economy’s future growth .

That’s particuarly challenging when gig For that to happen, a few things must workers perceive that the status quo isn’t happen first. so bad and that faster often comes with expensive baggage .

wo hundred years ago, the fit of rage, Frankenstein went after the Is GDPR world was introduced to Dr . creature with the intention to kill him, fell T Victor Frankenstein . into the Arctic Ocean, got rescued, got sick and ultimately died . The creature, EU’s Mary Shelley’s book “Frankenstein” was upon discovering the death of his creator, published in January 1818 and told vowed to kill himself, before walking off the story of a genius scientist, Victor into the darkness — leaving readers to Frankenstein Frankenstein, and his work to create presume that is what he did . the perfect creature from the flesh of Monster? corpses . It was not what we might call a happy ending . Frankenstein’s creation turned out to be not so perfect . His massive size and Tragic as it is, the story line is, I’m sure, looks scared people to death, so he was quite familiar . forced into hiding . That wasn’t exactly the lifestyle this so-called perfect creature What may not be as familiar is its had in mind, so things deteriorated rather potential relevance to the regulations quickly . put in place by the European Union (EU), which forces its idea, from Brussels, of The straw that broke the creature’s back, a perfect regulatory environment on the in this case, was Frankenstein’s refusal rest of the world . to create a female mate for him, out of fear of perpetuating a whole species The actions of the EU over the last several of incredibly large, strong and not so years — the European Commission very attractive-looking creatures who through decisions and fines and via Frankenstein believed could bring great regulatory fiat in the form of GDPR last evil into the world . week, PSD2 next fall and ePrivacy waiting in the wings — are attempts to create In a fit of revenge, the creature killed the perfect set of operating rules for Frankenstein’s wife on their wedding businesses, with ample punishments for night and fled into the darkness. In a those who don’t comply . This is all done

under the guise of protecting consumers perfect should look like and how to create within it — even if it wasn’t always clear claim alleged, never had a shot at getting from the actions of companies the it . that consumers had been harmed or were anyone’s attention — and that was a very regulators have decided aren’t in the the ones complaining . bad thing for these small sites, since consumers’ best interests . When he did, a chain reaction of the only other option for search was an unintended consequences was set in Take Google . otherwise unpopular Bing . Thanks to the proliferation of mobile motion, and things spiraled out of control devices, internet connectivity and — all because the less-than-perfect The saga that is Google versus the Since European consumers weren’t using the platforms that make it easy for creature to whom he had given life was EU over these last eight years is well- Bing to search for much of anything, Bing businesses and people to find each suddenly forced to live a less-than-perfect documented, so I’ll spare you the lengthy generated little traffic for these smaller other regardless of where they live, that’s life . narrative . The Cliff Notes version is that sites . And since these smaller sites didn’t now every business on behalf of every a bunch of tiny websites convinced the have enough of a consumer following to consumer it interacts with anywhere in It wasn’t until Frankenstein personally Commission that Google’s Shopping generate enough clicks to move up the the world . felt the impact of the creature’s rage product put them at a disadvantage when ranks in Google search, nor the budget to and revenge that he realized the serious consumers were searching for products . buy ads to drive clicks, they claimed their ONLY I KNOW WHAT’S BEST FOR — and deadly — consequences of his Google Shopping is that carousel of business was more or less hosed . CONSUMERS — ALL OF THEM actions, driven by, in Frankenstein’s product images that consumers see at own words, a desire that “far exceeded the top of Google’s search results page That, in the eyes of the EU Commission, Frankenstein was written by Shelley to moderation” and, later, filled his “heart and for which marketers pay to be there . harmed consumers . make the point that it’s dangerous to have with disgust ”. one person think they know what’s good In 2010, the tiny websites making those Arguments over many years to convince for everyone and take action on those At that point, it was too late to save either allegations had some big-time help regulators that Google’s so-called beliefs . Her message was those sorts of the creature or its creator . through Microsoft . “dominance” was the result of consumers actions, driven by hubris, will ultimately using Google more because they destroy a person and many of the things EU REGULATORS AND A BACKWARDS The tiny websites, egged on by Microsoft, found it to be a better option, and that they care about . VIEW OF WHO’S BEING HARMED managed to convince the Commission Google’s practices were driven by giving in 2010 that Google was manipulating consumers what they wanted, fell on deaf Frankenstein was motivated to create the EU regulators have long waved the its search algorithms to provide favored ears . “what’s best for the consumer” flag as world’s most perfect creature to improve placement via Google Shopping — all for part of its many actions against “Big the state of humankind . He believed that the sake of making more money . Tiny Arguments that stated limiting the search Tech” to create the perfect business only he was gifted enough to know what merchants without the budget to pay for market to Google and Bing is like saying framework for the 28 countries operating such a favored position on Google, the that grocery store competition is the

domain of Kroger and Stop & Shop were All this only further fuels the big- must acknowledge they understand the servers that were given access to that also ignored . Consumers use Facebook equals-bad narrative promulgated by new terms of service related to how their data to enhance their own . It’s not clear and Amazon and vertical aggregators EU regulators who believe that one firm data is used, and companies must offer who’s responsible, who’s liable and what’s like Houzz and Expedia and others like getting big means others gets smaller — them the right to have their data removed required to comply in a timely fashion . them increasingly to search for what they which must mean consumers are getting from those databases upon request . need — and are among Google’s biggest hurt . Businesses have a month to acknowledge Consumer requests to be forgotten can threats . those requests and comply . also be made by bad guys who have In most of the world, that’s considered taken over the identity of a legitimate In a decision that highlighted that the EU’s a competitive, free market, where Noncompliance is not only expensive; it consumer after committing fraud . appreciation of the dynamics of platform consumers have a lot of choices . can destroy a business . Merchants say they lack clarity about businesses and commerce ecosystems is the rules associated with keeping circa 1995, Google was fined $2 .7 billion HOW 28 COUNTRIES ENDED UP Fines range from $12 million, or 2 percent consumer data on hand in the event in 2017 . EU Commissioner Margrethe REGULATING THE WORLD of annual gross revenue, whichever is of a chargeback . Both situations put Vestager said at the time that their greater for lower-level infractions to ~$24 consumers and relying parties at great The latest regulatory salvo to fix all of actions were “illegal under EU antitrust million, or 4 percent of annual gross risk of being harmed . what Brussels believes is harmful to rules” and harmed consumers by “denying revenue, whichever is greater for higher- consumers is GDPR — General Data them choice and the full benefits of level transgressions . At the same time that Brussels is taking Protection Regulation — which took effect innovation ”. a no-nonsense approach to enforcement, last Friday, May 25 . GDPR now governs Surveys of businesses in the U .S . suggest many regulators say they lack the tools how every single business in the world Of course, it wasn’t the consumer that many firms aren’t ready — and even those and the people to do the actual enforcing . interacts with consumers and uses was egging on the Commission . that are ready aren’t entirely sure they’re their data, regardless of where those fully compliant . It’s been estimated that None of this has stopped activists As they say, the beat goes on . businesses are domiciled, so long as companies have spent millions on efforts from claiming violations, criticizing Europeans are interacting with them . to become compliant to a regulation that the methods businesses use to advise Yelp re-upped its antitrust complaint they claim is vague and overly broad . consumers of their rights and slapping The regulation, which all of you know last week and took to “60 Minutes” to big companies with deep pockets with quite well from the privacy emails filling describe its version of Google’s alleged For example, consumer requests to lawsuits . wrongdoings . The media is lapping it up, up your inboxes, requires companies be forgotten are more complicated to and everyone is piling on to the idea that to provide more transparency over how execute than it may first seem, since In what is likely to become a full-time Big Tech, especially Google, is doing bad consumer data is used and protection consumer data stored one place may job for lawyers everywhere, the same things to hurt — well, you name it . to keep that data secure . Consumers also be stored downstream on multiple day GDPR went into effect, Google and

Facebook were hit with lawsuits claiming Depending on who you are in the They also have no say . These ad-supported business models $8 .8 billion in damages, collectively . ecosystem, those consequences are also made it possible for those severe . Card networks write the rules for They know that it’s hard and time- consumers to access that content free That’s surely just the tip of the iceberg how business is done using their rails and consuming to correct inaccuracies of charge and even to get other benefits, — we’ve not even gotten through the first enforce them . Acquirers can and do shut and that credit bureau information can including discounts on purchases and week . businesses down if they don’t comply, prevent them from getting a personal advance access to special deals . Just and card networks can and do prevent loan, a car or a mortgage and even a job . like the publisher business models in the GDPR advocates say the regulation violators from connecting . A bevy of Since the breach, all of that now comes days of “Mad Men,” advertisers pay those passed in 2016 was necessary to keep regulators take a dim view of companies with the extra sting of having that data platforms for access to those eyeballs . consumers from having their data that have proven to mislead consumers shared with criminals via the Dark Web Today, instead of magazines and stored, used, monetized and potentially and enforce penalties . That’s on top of and the looming threat that it will be used newspapers, they are digital platforms of put at risk by companies without their the dozens of regulations and regulators to harm them . all shapes and sizes . knowledge and consent . They cite the that financial institutions and payments Equifax breach of nearly every adult’s players must comply with to even get and Consumers do, however, understand Consumers also don’t seem to mind the personal data in the U .S . last year stay in business . quite well the quid pro quo when asked to trade-off that comes with the exchange and Facebook’s data issues related to establish a profile in return for access to of information for putting up with Cambridge Analytica as Exhibits A and B But there’s also a difference between a platform or a website and the services advertising and are fully aware of the of what happens when companies play a company like Equifax that keeps they want to receive from them . choices they’re making . And consumers fast and loose with consumer data . consumer data that they can’t control are smart enough all on their own to and that can be used to harm them They not only willingly do this, they spend know when they don’t get value from GDPR, they say, was prescient in its effort and platforms that ask consumers to a lot of their time on those platforms those platforms and vote with their to anticipate and right the inevitable complete a user profile in exchange for getting content and services . thumbs when they don’t . wrongs that can hurt consumers . getting access to services they want from that platform . In 2016, it was estimated that consumers Consumers were given the option to Of course, consumers should have the spent 437 billion hours consuming delete their Facebook profiles in the absolute right to expect that their data In the case of Equifax, consumers don’t content from ad-supported media aftermath of the Cambridge Analytica is kept secure, kept private and is used have any idea how credit bureau data platforms . In exchange for that time, they incident, but only 9 percent did . Since appropriately . And when it isn’t, there is obtained nor how it is updated, nor received value — and continued to use then, 65 percent of people say they use should be consequences . how the black box formulas work that those platforms for that reason . the social media platform as much or ultimately decide whether they are more than they ever have . There already are . creditworthy .

Of course, any business, especially Where they went wrong is imposing their depending . Regardless, the EU regulators to cough up in the event of the slightest platform businesses operating in a views on how that should happen and have denied them that choice . infraction . competitive market, know this too and a set of regulations that reflect those understand the threat to their business beliefs on the entire world — in the It’s also possible that larger companies At the same time, the EU has announced if they lose consumers . They fully absence of a clear understanding of how are having some of the same it is seeking investors to fund tech understand the dynamics of the platforms modern, global, digital markets work . conversations with their investors and startups to compete with the U .S . and they have built and that the eyeballs boards . China . and their revenue streams can easily The world is much larger than the 28 move to other platforms if the balance countries that make up the EU . The cost of doing business in the EU with Good luck with that . of advertising versus content gets out of any business model that uses data as a whack or too many ads interfere with the Forcing compliance to their definition of monetization strategy just rose by $10 So far, GDPR has delivered the ultimate content consumers want to access . what’s best for consumers absent that million — at a minimum . That buys a lot consumer “benefit”: friction. Friction understanding will trigger a series of of people and technology and expansion in the form of more spam emails than Most platforms work hard to strike a unintended consequences . opportunities in economies with an anyone has ever seen flood their inboxes healthy balance because they don’t want appetite for innovators and platform — ever . And friction in the form of the to lose those consumers to a competitor Some of which we are already seeing . innovation, market competition and neverending wave of pop-up boxes on that delivers more value . expansion like India, Africa and LATAM . websites requesting an acknowledgement Some media sites have shut off access of new terms that no one reads because to people living in the EU . The risk of Countries that understand that all anyone wants to do is click the “X” GDPR’S UNINTENDED CONSEQUENCES noncompliance and the huge fines consumers willingly give up their data in in the corner and get on with what they — AND HARM TO CONSUMERS associated with it aren’t worth it for the exchange for value, which often includes planned to do on that website . The EU regulators weren’t wrong to readership in those countries . Some access to services for free or highly take steps to ensure that citizens living gaming sites have shut off access to EU discounted fees, will have an advantage . Yet, thanks to EU regulators, all in the 28 countries in the EU have the citizens too, citing a lack of clarity over consumers in the entire world are now appropriate levels of control over the acceptable terms and conditions . Startups that use data to monetize and subject to regulations made by a central privacy and security of their data . Nor subsidize services to consumers — and government presiding over 28 different was it wrong to expect that all consumers So what, you might say, if people living in many of them do — may think twice about countries that collectively represent less should be afforded that right and for Germany can’t get The LA Times or those setting up or expanding in the EU . Even than a quarter of the world’s purchasing companies to work hard to make sure living in Spain can’t play video games? Big if they don’t, investors may force their power . they do . deal . But those consumers used to, and hand, weighing those opportunities with now they don’t and maybe they never will, the $10 million overhang they might have

This could mean, in the end, one of two Becoming compliant and staying things . compliant with vague regulations, plus paying an army of lawyers on standby to One, that innovation comes to a fight back against the lawsuits that are screeching halt in the EU . certain to pave the GDPR path, can only be supported by gigantic players with Companies may decide that risk of gigantic checkbooks . For as long as they operating there will outweigh the returns are willing to stomach it . of being there . Speaking out on ePrivacy — GDPR on steroids and potentially the It makes you wonder what would happen next shoe to drop — a British member if Google and Facebook pulled a Howard of the European Parliament warns that Beale (the character in the movie the EU “will become a digital backwater,” “Network” who decried that he was “mad citing conversations with tech players as hell and not going to take it anymore”) with concerns about GDPR and outright and shut off access to consumers in the opposition to the ePrivacy regulations . EU?

If you were an ad-supported startup (like Or how much further Big Tech can be Spotify was when it began) and had to pushed before they do . pick a place to commence operations, it’s hard imagine you would pick the EU, Whether GDPR is, in fact, EU’s where the regulations are oppressive . Frankenstein, will be determined by how Almost anywhere else in the world would willing regulators are to recognize that be better . their view of perfection should reflect what consumers want by watching what Or, second, that the EU is left with only consumers do . the largest of global players to serve the needs of its citizens, which is precisely Whether it’s already too late — only time the type of company EU regulators seem will tell . to loathe .

efore there was on demand, By 2012, only 64 percent of consumers there was time shifting . reported watching primetime television “live” — down from 83 percent just four B In 1985, cable companies years earlier . Millennials loved it even introduced consumers to the idea that more: Only 57 percent reported watching The Case they could use their VCRs to record primetime TV live that year, opting instead movies airing on movie channels late at to watch prerecorded and/or streaming night when most people weren’t watching video or to play video games . For TV so they could watch them later . Time shifting was a win for content Contextual The pitch was convenience: no more producers too, who no longer had to bank, getting in the car and schlepping to the literally, on having enough eyeballs tuned video store to rent a VHS to watch a in at 8:00pm to watch their show . Not Commerce popular movie . only did this on-demand programming option add a measure of convenience The introduction of the DVR in 1999 for the consumer, it also expanded made the notion of on-demand television the potential audience for shows and, programming easier, more accessible and ironically, the time people spent watching more robust . television by three hours a week .

Consumers were no longer bound to the Since then, mobile devices connected content tied to a network programming to the internet have further piqued schedule or the selection offered by a the consumer’s penchant for using particular TV or movie channel . DVRs technology to consume television and gave consumers free rein to record any movie programming according to a show broadcast on any channel at its schedule that fits into their busy lives, usual time to watch later . instead of one made by broadcast executives . This innovation ushered in a sea change for consumers, content producers and In 2017, Pew reported that more than content distributors . a quarter (28 percent) of all U .S . adults

said they mostly get television and movie A consumer who wants dinner delivered FROM TIME SHIFTING TO PLACE Whether purchases inside an ecosystem content from streaming services — Netflix now can open DoorDash, pick a favorite SHIFTING are prompted by the recommendation and Hulu — and consume it mostly using restaurant and have the food delivered to of a friend or a fashion influencer, or Introducing new commerce opportunities mobile devices . That’s nearly two-thirds their home 30 minutes later . via a vertical aggregator they trust and to consumers inside the ecosystems (61 percent) for 18- to 29-year-olds and may have used before, consumers who they’re visiting for other reasons is more than a third (37 percent) for those A consumer who wants a new outfit make purchases this way value it for valuable because those contextual aged 30 to 49 . for a hot date tomorrow night can use its convenience, for being able to buy prompts can deliver new, often Nordstrom’s app or mobile site now, pick something without leaving a site to do it incremental, sales . MARCHING TO THE BEAT OF it out, put it on reserve, go to the store the and for the ability to buy what they want next day, try it on and walk out wearing it . “CONSUMER TIME” Booking a dinner reservation on Airbnb while things are still fresh in their minds . In the three-plus decades since at a restaurant a consumer might never Companies understand that having a And because they trust it — and like the consumers were first introduced to a have found near the house they just meaningful and long-standing relationship experience they have when they make technology that gave them the power rented on that site . with consumers means running their purchases that way . to control when and how they access business on “consumer time ”. Buying a lookalike of the pink dress content, innovators have been inspired to These are among the findings we Meghan Markle wore to Prince Charles’ use connected devices, new technologies, Today that means being anywhere on the uncovered when we asked 2,000 birthday party after reading a story about software and data to power a world now web the consumer might be when they’re consumers to tell us about their it in People magazine from a brand that driven by delivering convenience to the looking to buy something a brand has to experiences over the last 12 months was unfamiliar to them . consumer . sell and getting it to the consumer right when making purchases outside the more now, or at least pretty soon . Buying a pair of shoes from a store that conventional commerce channels, like A consumer who wants a ride now can a friend shared on Facebook that they’d retailer sites or traditional commerce open Uber or Lyft and get one . It’s why the next evolution of “on demand” seen but never tried . marketplaces like Amazon and eBay . will see innovators enable commerce at A consumer who wants to read a book a time that’s convenient to the consumer, Booking a massage at a nearby spa with This work, done in collaboration with now can open Amazon and get it in one inside new places that are too . great reviews discovered on Google Maps Braintree, gave us new insight into click on their Kindle, or listen to it via after searching for a place “nearby” with why and where consumers made such Audible books . The buzzword for this wave of commerce availability . purchases, and what kept them buying — innovation is contextual commerce . or not .

SHOPPING IN CONTEXT IS HOW • Evolving: the 11 percent of one-third (37 .5 percent) of consumers Committed users averaged 15 .6 CONSUMERS LIKE TO BUY consumers who were younger (25– saying they’ve bought something from purchases a year, spending $56 each 34), earned upwards of $100,000 a their Facebook News Feed . Facebook, time they did, with only 9 percent of those We were surprised to find that in the year and made between six and 10 and Instagram, is clearly the gateway, users saying they made a purchase via overall evolution of commerce-enabling such purchases a year, spending more if you will, for many of the consumer’s Facebook one time and the remaining on ecosystems that weren’t initially set up than $50 each time they shopped that contextual commerce experiences . other contextual platforms . to power commerce so many consumers way over a 12-month period . have already used them . Fifty-eight (58) But that’s not where the richest Evolving users averaged seven purchases, percent of consumers said they had, and • Committed: the 12 4. percent of contextual commerce vein is to be spending $53 each time they did, with 84 percent of them were so satisfied they consumers who also earned at least tapped . only 17 percent of those users saying said they’d do it again . $100,000, who made between 10 and they made a purchase on Facebook 12 purchases a year and spent more That belongs to the vertical aggregators one time, with the remaining on other We also discovered that there were than $50 each time they did . and ecosystems like Houzz, Yelp, contextual platforms . five contextual commerce consumer SkyScanner, Vivid Seats, blogs, Spotify personas, defined largely by how much • Observers: the 41 .8 percent of mostly and many other ecosystems that help The One and Done users reported they spent and how often they shopped older consumers who’ve yet to give it consumers both discover and purchase spending an average of $43 on that first this way: a try . items when they’re already there . That visit, with 34 percent of those users also often leads to more expensive reporting they made one purchase via • One and Done: the 9 .4 percent Even more surprising was how diverse purchases — a hotel room for a week, two Facebook . of consumers who made a single those contextual commerce experiences front row concert tickets, dinner for two, contextual purchase but don’t plan to were: Only a quarter of those consumers a new kitchen table and chairs, band and This suggests that before there make any more . They’re aged 40 to said they made such a purchase inside concert memorabilia, etc . is commerce to be had in these 45, employed, with annual incomes the social media platforms like Facebook ecosystems, there first needs to be the averaging $53,000 . or Instagram that have become almost As consumers reported an increase right context . synonymous with this concept . in the frequency of their contextual • Regulars: the 25 .4 percent of commerce experiences, the percent of Facebook may be the place where billions consumers who were about the same That’s not surprising . those purchases done via Facebook of consumers still spend a lot of their age as the One and Done consumers decreased as the use of these aggregator time every day, but it’s not — yet — the but who earned $66,000 annually on Facebook, hands down, is the way in ecosystems became more relevant . place consumers use to find and buy average . This group made between which most consumers have experienced things on a regular basis . one and five contextual purchases such a purchase — with more than over a 12-month period .

WHY CONTEXT MATTERS And why Houzz, with its 40 million-plus active monthly users, has a market Commerce in context is a new commerce valuation of $4 billion-plus — equal channel for brands and payments players to Yelp’s but with half as many active because it offers consumers much more monthly users . Houzz is helping than simply making a purchase online . consumers find home furnishings and Commerce enabling new paths to locate suppliers in the context of a home purchase is the next evolution of decorating or remodeling project — and commerce — one that satisfies another turning that context into commerce . requirement of today’s on-demand The demand for commerce to happen consumers: finding something they want outside the more conventional commerce to buy fast and free of friction while channels consumers may already use but they’re doing something else . inside an ecosystem they know and trust It’s perhaps one of the reasons why is driven by convenience and the chance Reserve with Google reports getting to discover new products or services traction and the small businesses that are they hadn’t specifically set out to buy. using it say they are getting thousands Turning those contextual discoveries into of new customers to book reservations actionable commerce opportunities gives since they’ve signed on . Thirty percent brands a new way to capture a sale along of mobile searches reference location, the consumer’s very dynamic, and often and more than a quarter of the 76 unpredictable, path to purchase . percent of all searches for “something Context is what makes these commerce nearby” result in a sale within a day of the opportunities powerful and important search . Reserve with Google is helping for brands and the ecosystems powering those businesses turn that context into the commerce opportunities for them . commerce . Connected devices help everyone connect those dots .

he restaurant industry today is a But that’s not a reason to think that all is Amazon: study in contradictions . well in restaurant land . T Census data tells us that WHAT’S REALLY DRIVING RESTAURANT QSRs’ Big Threat roughly 44 percent of what consumers GROWTH? spend on food comes from restaurants, What’s keeping the industry — across rather than groceries for home . Or Essential Lifeline? the board — afloat is bigger restaurant Yet NPD reports that 49 percent of all checks, up nearly 3 percent over last year . dinners purchased from restaurants are But those bigger tickets aren’t because now eaten at home . people are ordering more things when they eat out; it’s just more expensive to In 2017, the restaurant sector, overall, order from the menu . grew 4 .3 percent over 2016 — its eighth consecutive year of growth . Experts Restaurants are raising prices to cover predict that 2018 will be another year of rising costs, including labor and delivery growth . aggregators . Analysts say that if not for the bigger tickets, the restaurant category Yet, these same industry analysts report overall would show no growth in the that foot traffic is down 2.5 percent decade following the Great Recession . across the board so far this year, and, with the exception of fast casual, so are QSRs are the restaurant industry’s poster same-store sales. Profits are reported children for feeling the pinch from all down too . Some of that decline in foot sides . traffic and profits is attributed to quick- This segment accounts for 57 percent service restaurants (QSRs) and fast- of foot traffic across all restaurant casual chains opening more stores, foot segments, and QSRs have always been traffic being diverted to other locations the consumer’s “go-to” for good food and the costs related to expansion . served fast . Convenience, price and food quality are the QSR’s main selling points .

Yet, consumer eating preferences are grocery stores are expanding to get feet Taco Bell made news when it expanded emphasis by this sector on using new changing — so are the times of the day into the grocery store and up the number its hours and menu options to meet the tech to innovate and remain competitive . that consumers now eat their meals . of visits they make each week from 1 .3 to food cravings of the 3:00am to 4:00am something more . crowd, with great success . This work, the Restaurant Readiness And so is how consumers think about Index, examines a random selection convenience and their food choices . Convenience stores, focused on At the same time that consumers have of 178 QSRs and feeds more than reclaiming the convenience mantle they decided they want to eat breakfast all day, 100 features available at those HOW DO YOU SPELL CONVENIENCE? say they were created to fill, are upping IHOb shifted its focus to highlight burgers establishments online or via mobile apps their game to get in on the higher-quality and other “fast casual-esque” menu into our statistical models to create an Consumers want to eat breakfast food prepared foods and meal kit action too . options for consumers in search of a “innovation readiness” metric for each at 12:30pm, not 8:30am; snacks or quick dinner on the way home . IHOb also establishment and the sample overall . smoothies at 3:00pm instead of a more Not only are the prices of these prepared allows consumers to order ahead from its traditional lunch; bowls and smoothies food and meal kit options comparable app so they can walk in and sit down to Of the more than 100 features we instead of a sandwich or a salad during to QSRs and fast-casual chains, but eat without waiting to be seated and/or to examine to produce the Restaurant the typical lunch hour and dinner at consumers can buy and take away food get their food once seated . Readiness Index, we pay particular 7:30pm or 8:00pm . they can heat up or spend minimal time attention to the 15 that account for 80 preparing at home to eat with the kids or That option is something the Applebee’s percent of the Index metric value — and, QSRs with more traditional menu while watching Netflix. VP of strategy told us he and his team are therefore, help to hone in on what makes offerings set times during which they exploring too — and for the same reason . a QSR innovation-ready or not . offer those items, and set store hours Remote workers, who used to walk or struggle to keep pace . QSRs also aren’t drive to the nearest QSR to get lunch Technology is playing a huge part in That Index score serves as a benchmark the only choices consumers have today when they weren’t remote, now walk to helping QSRs bridge the digital consumer across the establishments we track and for a quick, convenient, affordable and their refrigerators instead to eat leftovers expectation gap . helps us identify and analyze trends quality meal . or the prepared food they picked up the and patterns . As part of this study, we evening before or just had delivered . ARE QSRS INNOVATION-READY? use eight of the leading QSRs — the In 2017, prepared foods and meal kits big names, including McDonald’s, Taco sold in grocery stores accounted for Our work with cloud-based POS provider NAVIGATING THE SHIFT Bell, Starbucks, Dunkin’ Donuts — as our $35 billion in sales and are expected Bypass and Bank of America Merchant control group to add additional context to grow at a rate 5x that of traditional QSRs and fast casual restaurants Services in analyzing the QSR sector to the benchmarking exercise . The Index restaurants, according to NPD . Meal kit recognize these shifts and are making an each quarter also reflects an increased score goes from 0 to 100, with higher options and prepared food selections in effort to respond . scores indicating greater readiness .

Our latest report shows a few bright innovation readiness: the ability to create QSRs are doubling down on improving Top performers did better — but not a spots, a disturbing trend and another and promote in-store offers and deals and their in-store experiences while those whole lot better — averaging 58 .1 . Bottom contradiction that could potentially spell update inventory in real time . consumers are using digital methods to performers averaged 17 out of 100, and trouble . minimize the time they spend there, if firms with fewer than 26 establishments THE BAD NEWS: QSRS ARE PUTTING they even venture inside at all . were among the worst performers . Those Let’s start with some good news . IN-STORE AHEAD OF DIGITAL with 26 to 50 performers were among the What our Index shows this quarter — and most improved but still sub-50, with an Now, the disturbing trend . THE GOOD NEWS: QSRS ARE FOCUSED last quarter too — is that many QSRs Index score of 44 . ON MAKING IN-STORE BETTER remain focused on how consumers When it comes to delivering the interact with them in the store and That disconnect puts most QSRs out The bright spot is that QSRs are doing experiences consumers now use to do organize their in-store processes to of step with how consumers define more to make their in-store experiences their own benchmarking of an acceptable support that in-store service model . convenience today and expect the QSR more expedient and cost-effective . QSR service experience, supporting order establishment to respond . ahead, dynamic inventory status, beacon That’s coming at the expense of doubling We’ve seen an uptick in the installation technologies and digital wallets are much down on the digital features that can Convenience now means meeting and use of kiosks to make the in-store more important than efforts to offer improve a QSR’s ability to remain consumers in the digital environments ordering process more efficient and, in-store promotions or displaying static attractive to a consumer with other they use to order their food . Maybe that’s frankly, in effort to contain labor costs . inventory . options to find good food conveniently: still walking into a favorite establishment EMV, QR codes and contactless payments including grocery and convenience to place an order and maybe even using all showed an uptick in adoption to keep QSRs are local businesses, even if they stores . a kiosk to do that . Maybe that’s also even lines moving, support digital payments are part of a national or global chain . As sitting down in that establishment to eat schemes and keep fraud in check . local establishments, QSRs have always THE QSR DIGITAL DISCONNECT that food . defined convenience as being a short The adoption of cloud-based point-of- walk or drive away for a consumer to get Our Index benchmark this quarter reflects But, increasingly, that’s ordering ahead sale systems — 61 percent of our sample good food, fast and cheap, and they do this disconnect: a low score of 38 .7 out to skip the wait — walking in or driving have them — provide establishments everything they can to improve that in- of 100 across our entire sample, which through to pick up food to eat back at with a greater range of payments and store experience . reflects a slight, but only very slight, home or at the office. commerce opportunities, even if they improvement over the 38 .0 score we saw don’t have all those options in place That’s a bit like Nero fiddling while Rome last quarter . And ordering ahead from their cars today, including two of the features burns . using connected devices they bring that are also important measures of with them or have available via their car

dashboard . Our Digital Drive study of Then there are the delivery aggregators The second is the complexity and Warehouses are being turned into 2,000 consumers, published in January, — Grubhub, Uber Eats, DoorDash, expense of managing delivery ghost or cloud kitchens that delivery reported that $212 billion of commerce is Postmates and others like them — that aggregators . Managing multiple iPads aggregators are using to reduce and/ done while consumers commute to and give these local QSRs a chance to be across multiple service providers is a or eliminate the dependencies on the from work, with $66 billion in food and discovered by consumers looking for the process and a management challenge, restaurant middleman . Participating food coffee orders alone . convenience of delivery . This quarter, we not to mention an expensive service for operators have the chance to operate observed a more than 5 percent increase the restaurant to support . delivery-only “restaurants” cheaper than it Or ordering from an aggregator that can in the number of establishments that costs to open a restaurant and see it as a bring food to where it’s convenient for the have opted into a third-party aggregator Many restaurants have reported that potential win-win . consumer to eat it . for that reason . aggregators have become the new “Groupon” — they lead to an increase in Time will tell . That creates a rather material dilemma That decision comes with a downside — the volume of unprofitable orders but for QSRs: how to go digital in a way that actually, two of them . don’t produce a loyal following . And, with Others are exploring options to leverage preserves the customer relationship, their it, a degradation in the service quality their expertise in logistics and delivery brand and their business . The first is the risk that loyalty and affinity directed to their regular customers . using a model that gives the restaurant move away from the establishment to brand more of a consumer presence by CAN MOBILE PAYMENTS HELP? the delivery aggregator, while the blame Of course, there are ways to use white-labeling their services . We observed for service quality remains with the aggregators to make the brand this quarter across our own sample that The default answer is often a mobile establishment . connection and lessen restaurants’ many cloud-based QSRs are exploring app, and, for larger players, that can dependency on them as the channel to options to integrate with those who make sense . But unless a QSR is one of Meals prepared by the establishment the consumer . Integrating sign-ups to provide such an alternative . the big brands with consumer scale, the are delivered by people wearing shirts a QSR’s website for email promotion or prospects of a consumer downloading an and carrying bags with the delivery loyalty programs are among the ways that All of this, for me at least, offers an app once, much less using it beyond that aggregators’ logos on them . But if the some in our sample attempt to mitigate observation and raises a bigger question . first interaction, is very likely slim and food is sloshed around, cold or missing that risk . none . something that the aggregator forgot to The future of QSRs will rest with their put in the bag, it’s the establishment that At the same time, aggregators, who ability to embrace digital and scale; even Most QSRs recognize this too — with only gets the blame . themselves are awash in red ink, are the largest players are too small to be in a little more than a third of our sample exploring new service models to improve all of the channels and ecosystems that having a branded mobile app . All that said, it’s the only option most their margins by competing against QSRs consumers will use increasingly to find QSRs have to deliver food at scale . and the broader restaurant segment . and order from them .

CONVENIENCE — AT SCALE THE AMAZON EFFECT ON QSRS some the largest QSRs and fast-casual QSRs now face the same dilemma as chains and order ahead from a selection other small retailers: work with Amazon Digital payments will be a key enabler to Amazon . of prepared foods at Whole Foods and or compete with Amazon . that experience but so will aggregators have it delivered to their front door or pick and ecosystems that can reach a critical Amazon Pay Places, through a it up from Whole Foods on the way home . Neither solution may go down very well . mass of consumers — and manage the partnership with Clover, allows select Even using Alexa . logistics associated with order, payment QSRs running the Clover POS system to and fulfillment. offer consumers order-ahead capabilities The question is whether Amazon can and from their online menus — using their will go local — really local — and create Many have tried, but few have managed Amazon Pay account to place and pay for with QSRs the same kind of third-party to achieve that scale . the order . marketplace for food services that it has Platforms that have tried to aggregate Amazon Restaurants, through a created for other products that it sells on local restaurants run into headwinds of partnership with Olo, gives consumers in its platform . getting enough consumers interested in a selected geographies the chance to order Amazon has the digital assets to do it and steady stream of QSRs — and vice versa from 200 or more restaurants and have the logistics expertise to bridge the digital — and solve the logistics conundrum . their food delivered using Amazon’s Prime order with the physical requirement for Now services — also ordered and paid delivery . Aggregators have a density of consumers for using the consumer’s Amazon Pay and can solve the logistics challenges but account . Food also checks the Jeff Bezos box of haven’t figured out how to make delivery something that everyone needs to buy, alone a profitable business. Their path to Amazon has also launched its own line giving Amazon the chance to expand profitability is to explore ways to disrupt of meal kits and, with the acquisition the share of consumer spend it now has the segment by disintermediating the of Whole Foods, has expanded the on food by blurring the lines between restaurant entirely through delivery-only consumer’s options for the convenient food eaten out and food eaten at home restaurant concepts . online ordering, delivery and pickup of a — options already aggregated within range of prepared foods — from meal kits the Amazon platform and enabled via There is one player, though, who to prepared foods . checks all three boxes and even offers Amazon Pay . consumers a complete portfolio of Today, consumers in the markets Amazon convenient food options . serves can order ahead for pickup from a local QSR, order ahead for delivery from

y plan on Friday evening information about how to become an was to write a hard- Amazon Prime member so that I could M hitting piece on a services take advantage of those deals . segment with incredible marketplace friction . Then I went to Whole Foods on the When I told him I was already a Prime North Shore of Boston Saturday morning member, he said, “awesome,” and handed to do some grocery shopping . me two pieces of paper .

There, right inside the front door, was a One had instructions for how to identify nice, young Whole Foods team member, savings in the store, which he said would who let me know that the store would vary from week to week, and then how to soon be offering special discounts to link my existing Amazon Prime account Amazon Prime members who shopped to get those savings applied at checkout there . He then asked if I would like (which is automatic and done via QR code à la Walmart Pay) .

Are Retailers Ready For Amazon’s Prime Time?

It’s about creating the flywheel for the PRIMING THE PUMP FOR physical store version of the Amazon CONVENIENCE marketplace . Since Saturday, the Whole Foods app has found a new place on my home screen, PRIME TIME AT THE GROCERY STORE even though to get the Prime discounts, I’ve been a Whole Foods shopper since I didn’t have to download it . The Amazon I moved to Boston 17 years ago for the Prime program at Whole Foods also same reasons that each of you may be works by linking a mobile number too: organic meat, seafood, produce and presented at checkout . foods, great bread and cheese and a fun vibe . Grocery shopping is a chore any As one of the 90 million U .S . consumers way you cut it, but there’s nothing like who is already an Amazon Prime member, contemplating which eggplants look the I know the value of a Prime membership, best with Motown tunes playing in the the convenience of the Amazon Pay Another had an offer with a promo code introduced Dash buttons in March of background as inspiration, not to mention checkout experience and the ability to get to get $10 off my first online order, which 2015 . free sample munchies all over the place . what I order on the same day, the next would be delivered free to my front door day or within two days when I order from in two hours or less once I linked my But there’s nothing like experiencing the But beautiful produce, nibbles and cool Amazon . Prime account to Whole Foods . onboarding experience live, firsthand — playlists aside, over the course of those and just like any other consumer filing 17 years I’ve shopped at Whole Foods, I As a long-time Whole Foods customer, PYMNTS has been tracking the impact into the store on a Saturday morning never downloaded their app . I know, like and trust the Whole Foods of the Amazon/Whole Foods acquisition to buy stuff for the weekend — to brand and the quality of the products they on the grocery store sector since the day understand the impact . The app offered little value and isn’t rated carry in-store . it happened, including this latest Whole very highly in the App Store . More than Foods plus Prime Member Deals program It’s why I am now convinced that Amazon anything, I didn’t need yet another useless Asking me to link my (known value) Prime strategy . and Whole Foods — and the launch of app taking up space on my home screen . membership account to a store that I also these Prime Member Deals at Whole already shop a lot (known value) didn’t I’ve been writing about the impact Foods — isn’t only about converting What a difference a day makes, as the seem much of a stretch . Particularly Amazon would have on the consumer’s Whole Foods shoppers into Amazon song goes . when that ask gives me new deals at a grocery shopping journey and disruption Prime customers . store I already shop and free two-hour to the grocery segment since Amazon

delivery when an order is placed online on establish my affinity and brand preference I am only half kidding . small percentage of existing Whole Foods top of what I already get . for a store that supports local producers . shoppers into Prime customers as it is Amazon Pro Services is a marketplace to shifting more grocery spend of the Along with the promise of much more . I’m sure I’ll be able to ask Alexa to add of local home services providers, so let’s Amazon Prime/Whole Foods customer to things to my list, including having her see how long it takes to find chef services their channels . I expect that once the program swings place an order to Whole Foods and have emerging to take the notion of meal kits into full gear, the products I buy regularly it delivered, free, two hours later — so I and prepared foods to a new level . Prime member-only deals and free two- in the store — and order online — will be don’t even have to go to Whole Foods to hour delivery, with $10 off the first order used to build my in-app shopping list, shop when it’s raining or snowing or when All tied to Prime membership and of $50 or more, is the opening salvo and with specials and deals noted as a way to I don’t have time to make a trip . I’ll be OK Amazon Pay . an important appeal to a Whole Foods drive preference or even introduce me to doing that too, since I know enough about customer who may allocate only a small new brands . the quality of the products to trust that Until then, there’s Whole Foods and the amount of grocery spend to that store . they will pick out good stuff and send it massive amount of floor space it’s now Those items may even be linked to new home . giving to prepared foods and meal kits — Before the Amazon acquisition, Whole recipes that I might like to try with the and free two-hour delivery — to tide me Foods as the “Whole Paycheck” grocery ingredients needed to make them added That is, items from the list minus the and the rest of Whole Foods plus Prime store option was a label it earned the old- to the list . Amazon has done deals ones that I buy often enough — olive oil, shoppers over . fashioned way — because they deserved with recipe aggregators Yummly and spices, condiments, paper towels — that it . Allrecipes, so that’s not that much of a Whole Foods will prompt me to set up PRIMING THE PUMP FOR WHOLE stretch . on auto-refill – a product-by-product FOODS SHOPPERS As all organic, all the time, Whole Foods subscription service with products sent was among the most expensive grocery I’m one of the 60 percent of Whole On top of Prime Deals, brands will be able to me at the appropriate frequency . There stores to shop, with SKUs that didn’t Foods shoppers who are also Prime to offer me deals to select their brands will be no need to add those items to the include many of the brands that many members, so that nice young man at the over others with special coupons and list for me to remember to pick up at the grocery shoppers liked to buy . That forced store entrance didn’t score a new Prime offers too, just like they do today online at store; Whole Foods and Amazon will do shoppers to divide their spend and their member for Amazon . Amazon Pantry . the remembering for me and make sure time among several stores, adding to that when I purchase them, I am buying the friction of an otherwise friction-filled His initial approach though — asking me Maybe I will even get to learn more about them from Whole Foods . and time-consuming grocery shopping to sign up for a Prime membership — is some the local, third-party suppliers that experience . proof that the Whole Foods plus Prime have their food in the store to further If Whole Foods could only send a cook program is as much about turning the home to prepare it all…

In response, grocery shoppers also began people into its stores and allocate a Studies report that Whole Foods’ private to include free two-hour delivery on shifting spend online to buy things easily chunk of their grocery store spend label 365 brand is now the No . 2 private groceries and deals on products sold at purchased that way too: bulky items like shopping there . label brand sold by Amazon, a business Whole Foods . paper towels and cleaning supplies and that analysts project to soon equal the other staples . And their spend to other It’s something the Amazon acquisition of entirety of Macy’s revenue, at $25 billion Those deals are part of something much stores that offered consumers all options Whole Foods has helped to deliver . in annual private label sales by the end of bigger and much broader than Whole — organic foods, name brands and their 2022 . Foods, including access to a library own private label brands — at cheaper Since the acquisition, Whole Foods has of streaming content that now rivals prices . adjusted its prices, while expanding its Whole Foods, Whole Paycheck, may take Netflix for the quality of its original selection of prepared foods to get more on an entirely new meaning now . programming, as well as free delivery on The PYMNTS Omnicommerce study of feet into its stores and more shoppers items purchased on Amazon . 4,000 consumers quarterly on grocery buying . Installing Amazon Lockers at PRIMING THE AMAZON PRIME PUMP shopping bore that out, reporting that Whole Foods, it’s said, has helped to steer Putting pen to paper, it’s like getting the I am also a shopper who didn’t take 55 percent of all grocery store shoppers more feet in its direction too . entire $119 Amazon Prime membership advantage of Whole Foods’ loyalty divide their grocery spend between for free, if someone orders more than one program when it had one, even though physical and digital channels, and that Analysts report that Whole Foods sales grocery delivery a month and wants it I shopped at Whole Foods and grocery product and price were the reasons have risen 34 percent month over month delivered in two hours or less . The Whole store loyalty programs are mainstay people selected the stores they shopped . since the acquisition, and the number of Foods sign-up inducement of $10 off a customer acquisition and retention new customers has increased 27 percent grocery purchase of $50 or more brings tools . It’s not clear how many other Of the 41 percent of consumers who we over that same period . the annual fee to $109, or $9 .00 a month . Whole Foods shoppers did either, and it reported still concentrate their grocery wasn’t always clear as a shopper how spend predominantly online, more than Sales per customer in the physical It’s why I think that Whole Foods plus meaningful the rewards were and whether a third of those physical shoppers (37 store are down 1 percent — the result of Prime is just the first in a series of online/ signing up was worth the effort . percent of the 41 percent) visit multiple discounting prices to get shoppers in the physical store mashups that will use stores in search of “deals” and products store . Prime as a lever to get consumers to This ask, this time, is different . not found at their main “go-to” store — download a store app and/or link their and two-thirds of millennials do . At the same time, sales of Whole Foods’ Prime membership to that store to get The guy at the front door wasn’t asking private label 365 brand are growing special deals and two-hour delivery of me to opt into a Whole Foods loyalty Whole Foods, therefore, needed more online . products . app but a bundle of benefits offered by than great-looking eggplants, free Amazon Prime — that also happened samples and inspiring playlists to bring

In a world where consumers now the apps to get them . As part of our account to the store app or store point include a local retail segment that gets download zero apps, local stores plus consumer Omnicommerce study, we of sale to get access to Prime member- the benefit of a digital customer base Prime could help those merchants get asked 4,000 consumers each quarter who only deals . Local merchants could ditch with money to spend and an incentive to more out of their branded apps and shopped merchants to tell us the value of spend on third-party apps and loyalty shop local more often too . rewards and loyalty programs than other merchant store loyalty and rewards points programs that require a huge spend third parties and certainly their own to them, and their choice of merchant . on customer acquisition to get a small Amazon and its potential to assemble efforts could deliver . number of consumers to convert with a marketplace of QSRs and local Both placed near the bottom of the list . whom they could now have a relationship . restaurants wrapped around Amazon Even the positioning — Prime and Prime At the same time, they benefit from the Pay is a topic I addressed last week and Member Deals — is a subtle signal that For the Bridge Millennials — those aged spending power of an Amazon Prime suggested was possible given Amazon’s Amazon would like, at least in this case, 30 to 40 years old who are the first member, who outspends non-Prime ability to assemble a critical mass of for the positioning of the program to be generation of connected consumer with members by nearly two to one ($1,300 local suppliers, coupled with the logistics wrapped around Prime, not Amazon . The spending power — they barely register . for Prime annually versus $700 for non- expertise to deliver the last mile to the only reference that the program logo has Prime) . consumer . Logistics is the hardest piece to Amazon is the Amazon arrow that, in Amazon, with Prime, could turn that of the puzzle for those merchants . Why this case, goes from the “P” in Prime to around, just like it did when it launched Amazon Prime can be an onramp to a not extend the concept of the local the e at the end . Amazon Sellers online . local community of sellers who need marketplace to include non-food retailers foot traffic to their stores to compete, too? It’s plausible that Amazon could use PRIMING THE LOCAL MARKETPLACE ironically, with Amazon . For Amazon, Whole Foods, along with the quick- it’s a way to add more value to Prime, PRIME FOR A PAYMENTS SWITCH I am also a shopper, like most, who service restaurants (QSRs) who already capture more consumer spend and align doesn’t opt into store loyalty programs . I am also one of the Prime members who opted into Pay Places and Restaurant to with, rather than compete with, smaller There are notable exceptions, of course, renewed my Prime membership even expand that program to the local retailers retailers who are the fabric of their local but the value of most merchant-branded though it was $20 more than last year . who’d like nothing more than to align communities . rewards programs are too small to be themselves, their brand and the spending The studies that suggested 59 percent of meaningful . consumers wouldn’t renew must have it power of the Prime customer with their Trust in Amazon Prime and the known wrong. Prime members are affluent and brand . value it adds, plus trust in the local Consumers know that too: Accruing spend a lot of money on Amazon . Twenty merchant the shopper knows and shops, points with a merchant yields little dollars isn’t material relative to the value The ask is the same: Ask customers starts to grease the local marketplace redeemable value, which is why most they get . walking into the store to become a Prime flywheel — and redefines the blurring don’t opt in and even fewer download member to get deals, or link their Prime of the online and offline worlds to now

If there were that much churn, Amazon I have paid for my groceries at Whole wouldn’t have raised the price and Foods for the last 17 years — and hello wouldn’t have kept doing it . Amazon/Chase Prime Rewards card, the card registered to my Amazon Pay But what both Amazon and Whole Foods account . probably do know is that they’ll win on the same three fronts my own behavior Without thinking about it at all — not even proved out on Saturday . for a nanosecond .

They will score new Whole Foods app Grocery stores may not be the only ones downloads for Prime members and hook feeling the impact of the Amazon Prime them into using Amazon Pay to checkout plus Whole Foods proposition . when they shop — at the expense of cards and other digital wallets .

They will probably manage to snag more of their grocery spend than they already have since it will just get easier and easier to shop with Whole Foods, which could increasingly mean not even stepping foot into the store .

And, in my case at least, they could even get some consumers to switch from the payment methods they use in the store to those linked to their Amazon Pay account .

When Amazon Pay becomes available at the Whole Foods I shop, it will be bye-bye Bank of America debit card — the way

s unbundling the future? So it would short years from now, pretty much all TV Has seem . networks will offer consumers the option of à la carte programming through a I Banking is being unbundled. streaming option — something that nearly Unbundling two-thirds of consumers surveyed in 2017 Open banking, set in motion globally said they wanted . by a regulatory fiat calledPSD2 , gives Lost Its Cool? licensed third parties access to banking Digital music has been unbundled since infrastructure so that they can make the iPod and iTunes got a head of steam their services available to existing bank in 2001. customers . The intent of the regulation is to level the playing field for innovators by Music is sold by the song — for those offering consumers an expanded number who still buy digital music — but more of point solutions that are different than likely those songs are streamed, one song what’s offered now by their existing bank . at a time, from services like Spotify and Apple Music . Today, producing and then Television programming is being selling a bundle of songs called an album unbundled. as a prerequisite to becoming a top- selling recording artist is as anachronistic Spurred on by a generation of cord as James Patterson and Bill Clinton using cutters who decided it was better to pencils, paper and a typewriter to write cut and run instead of paying for 85 their latest bestseller . channels of programming to get the 16 channels that an ex-FTC commissioner They didn’t . once remarked consumers cared most about, content providers are unbundling Album sales in all forms were down their services to compete with streaming another 17 percent in 2017 to $169 services like Netflix and Amazon Prime . million, compared to $939 million in YouTube, Amazon and Twitter already CD sales alone in 1999 . Album bundles offer unbundled access to NFL games, have given way to a whole new bundle: and analysts say that by 2022, four the album/concert bundle . Experts say

that but for Taylor Swift’s own bundle articles, including some free ones from Store-based installment plans have A study published earlier this year by of her new album plus a concert ticket, the New York Times . Or they just check existed for decades, but now point-of- USC Annenberg reports that consumers Swift would have struggled to sell the 1 .9 out articles at PYMNTS com. . sale credit innovators offer consumers now spend 24 hours a week online; 82 million copies of “Reputation” that made the chance to finance the purchase of percent of that time is online via a mobile it last year’s top-selling album . It was Shopping, which used to be bundled individual products in-store and online, device — playing games, stalking friends, concert ticket sales and endorsements at malls, has been unbundled by the via white label or branded solutions . sending texts and looking for things to that earned Swift $170 million last internet. Consumers are extended credit based do, places to go, things to buy . That’s 24 year, making her one of the industry’s on their ability to repay the cost of the hours of sheer, unadulterated capacity wealthiest performers . Weekends used to be defined by the ritual $349 handbag on Tradesy in six easy to use mobile devices to hunt, peck, tap known as shopping: packing the kids in installments over six consecutive months and swipe for anything they might want Newspapers have been unbundled for a the car and heading to the mall to make — not whether they are creditworthy to buy . In case you were wondering, only long time too. one stop to buy a variety of things from enough to get a $2,500 line of credit with three hours of that online use each week the variety of stores there . a traditional credit card issuer . is at home, and 10 hours is at the office When was the last time you handed a on non-office related tasks (so much for $10 bill to the newsstand guy to buy Not today . And so on . workplace productivity) . That leaves 11 The New York Times just because you hours a week online via the mobile — Call it by whatever term you wish, but needed your weekly fix of the Sunday Unbundling, experts say, is the future while mobile — where the lines between aside from those in affluent city centers, Style or Sports section? Once upon a time — the ultimate in giving consumers the on and offline really blur in the search for malls are either dead or dying . All of when newspapers were making money, choice to pick and choose products that that perfect anything . the physical newspaper business model the things that stores and malls used to are suited to their own needs, preferences was all about packaging and selling a aggregate are available at one of literally and comfort zones . Optionality is the All of this is the perfect recipe for a bunch of themed sections together — thousands of places online, where they new norm, and consumers will take their perfectly unbundled world . with lots of advertising in those many can be bought and shipped home, one business to those who can give them printed pages that people were willing to product at a time, when and wherever the choice on their terms . All except for one thing: Most consumers wait all week to read . The theory of the consumer’s impulse to purchase strikes . often don’t really like living in an newspaper bundle was that everyone Consumers, today, have the right unbundled world . And really successful who bought the paper got something that Credit is being unbundled from the tools, quite literally, at their fingertips businesses these days are figuring out was of interest to them while maximizing traditional line-of-credit, card-based to help them find those options: their how to give consumers better bundles — newspaper profits. Today, many people, if products. smartphones . not unbundles . they read the Grey Lady at all, open Apple News or Flipboard and get a selection of

THERE’S BEAUTY IN THOSE BUNDLES to create bundles of features that best • The “and/or” product strategy So is something else that’s perhaps even suit their needs and use cases for offers a combination of features more relevant today than it was 12 years Twelve years ago, I co-authored a piece Alexa . plus one or more features à la ago: the value of the consumer’s time . with David Evans on the architecture of carte . This is a common cable and/ product offerings . It was published a year • A “specialization” product strategy or software product development Consumers like bundles because too later in the MIT Technology Review . offers only one feature . To get other strategy in which bundles of features much choice among unbundled features features to expand the breadth of costs them time and creates uncertainty Time flies when you’re having fun. are wrapped into the base software the offering in that same category, package, but options such as over how things might turn out when The product offering architecture, or POA, consumers must buy other features enhanced security/malware upgrades choosing among them . framework was created after examining from other companies and expand or premium stations are also offered And time and uncertainty can cost how product bundles were constructed the bundle themselves . LinkedIn is for an extra fee . businesses sales, since people tend to across a number of industries and by a networking site for professional stick with what they know, rather than buy researching the impact of those bundles comings and goings, but to keep up Our thesis then, and now, is that all an unbundled something they don’t know . to the overall performance of those with any of the personal comings and products are bundles, incorporating products — measured by profits and not goings of LinkedIn network members features most consumers want in that by sales . who might also be personal friends, product that make it easy for them to buy FAMILIARITY BREEDS SALES consumers go to social networks such and profit-maximizing for the producer to Barry Schwartz introduced us, in his as Facebook, Instagram or Snapchat . sell . The POA framework breaks product classic book, “The Paradox of Choice,” to design into four key strategies for the downside of an unbundled world with • The “all-in-one” product strategy Savvy product developers, we pointed creating the optimal product bundle seemingly unlimited choice using his own offers only the features together . out, understand how the strategic use across a spectrum for how product experience when buying a new pair of Buying that product means of features to test consumer demand features could be packaged, priced and Levi’s . presented to the consumer: consumers get all the features can inform how innovative bundles can regardless of whether they use all of be constructed by incorporating certain In the book, he describes going into them . Buying a digital subscription to features into the products as a standard • An “à la carte” product strategy the store and giving a salesperson his The Economist means a consumer part of that product bundle once demand gives consumers the ability to create measurements . She then asks him the gets access to everything it publishes, matches supply chain efficiencies. their own bundles from features they following questions about the jeans he not just the quarterly “Technology make available to them . Alexa and wanted to purchase: stonewashed, acid- Review” section . Profits, not sales, are POA’s success Echo come bundled with access to washed or distressed? Faded? Zipper or metric . basic services . Adding skills from button fly? Straight leg or boot leg? Alexa’s skill library allows consumers

Just regular jeans, he wrote in the book, been patched or holes that aren’t quite alerts, to name but a few that don’t they know or decide not to decide and the kind that used to be the only kind . holes yet? Will a stepped hem still be in always come “standard” with a digital stick with the status quo . vogue next year, and should it be frayed? banking product but do with what most At least Schwartz had already narrowed Does distressed plus a frayed hem on a banks provide with a checking account . Or buy bundles wrapped around a value his option to Levi’s . boyfriend style just look too messy? proposition that gives them a more So, traditional banks, like Chase, are curated set of choices that eliminate Today’s consumer shopping for jeans Rather than experiment, I’ll buy the same launching their own mobile/digital uncertainty and optimize their time . doesn’t shop for jeans; she shops for pair I have now . “banks,” which include offerings that denim among dozens, maybe hundreds leverage the robust set of services they They just aren’t called bundles . of brands offering endless permutations This endless aisle of unbundled choices have now — just tailored to a mobile- of makers, styles and finishes across any may give consumers more options, but centric user, which today is nearly A BUNDLE BY ANY OTHER NAME number of online and in-store options . it may not optimize the one thing that everyone . The irony of video streaming services consumers value more than they ever did: is that they are big bundles of individual That’s a problem for consumers, denim their time . At the same time, these digital neo- programming options from which producers and the stores that sell them . banks have come to realize that bundling consumers can pick . The user interfaces Consider the unbundled digital-only bank . services is the only way they can optimize make selecting those options less Too many choices introduce risk by their own profits and are exploring friction-filled, and the pricing of those increasing the level of uncertainty The anecdote to the millennial’s so-called features that would make them look bundles reduces the risk and uncertainty consumers have with making a hatred of traditional banks hasn’t really more like a traditional bank . Even though that consumers have in worrying that purchasing decision . Too many taken off as investors envisioned . Even it’s true that most consumers have they’ll run out of things they might want choices also chews up too much of the the largest and oldest digital banks have multiple financial services relationships, to watch . It’s the newspaper bundle consumer’s time getting and absorbing only converted a few million customers . particularly if they have a mortgage or a theory on steroids, gone digital, with information, comparing and contrasting car or a personal loan, unless consumers something for everyone . all options before making one . Turns out that consumers, even have access to a dashboard that keeps millennials, want more from banking things organized, too many options Music streaming services, of course, Which shade of faded is really just right services then just a prepaid card that requires too much of the consumer’s time operate the same way . They, too, are when faded now comes in five different works just like a debit card product to monitor and track . shades? Is the fit with my usual size in offered by their bank . Why? Because there an enormous bundle, since a single subscription gets you access to most of this brand of jeans the same in the same are many other services wrapped around It’s why consumers, as Schwartz’s own the recorded music in the world . Instead size with another brand? Distressing debit products that consumer’s value — anecdote shows, often default to what that produces holes, holes that have peer-to-peer payments, bill payments, of buying Taylor Swift’s latest album, you

get access to all of Taylor Swift’s albums a reservation at that restaurant . Travel Speaking of a collection of features that services that help athletes reach peak and everyone else’s . Then, if you want and event sites bundle related services come in a box, meal kits and prepared performance give consumers access smaller bundles like CDs, you can get that to the event or the trip that a consumer foods take the risk and uncertainty out to things that a brand they trust has too . may want to take . Wedding and of organizing dinner . Why spend the time assembled for them to experience and parenting sites offer specialized, one- reading a recipe, building a shopping list buy . Streaming services don’t call those stop ecosystems where features like and then shopping for the ingredients and bundles . Instead, they call them playlists, content, travel experiences, registries and making dinner when a chef in the know Credit cards that come bundled with and consumers can create their own and relevant products can be assembled and has done all of the hard work by creating rewards programs show the power of share them . Music streaming services reassembled based on a couple’s or a a bundle of the right ingredients to that bundle too . Consumers eschew offer users suggested playlists based parent’s needs and preferences over time . prepare it? Meal kits and prepared foods merchant-specific loyalty programs on their music preferences and the vast are bundles wrapped around convenience for those that come with the cards library of songs available . Seventeen Online fashion sites, the good ones in a world where making dinner is often a they like and use the most . Even the percent of users on music streaming anyway, also recognize the perils of the friction-filled experience. Bridge Millennial, the first generation of platforms opt to listen to these curated endless pages of products begging to be connected consumer that we profiled, playlists, up from 15 percent the year bought. Outfit views on sites like Net-a- Walmart’s “Buy the Room” feature is a said merchant rewards don’t move before . Spotify not only lets consumers Porter show would-be buyers the item curated selection of home furnishings the needle — in fact, it ranked near the assemble their own playlists and they may be looking for on models, styled arranged by stylists that give consumers bottom of the list as features they valued suggests ones that might suit them, it with other items . Fashionistas can buy the benefit of a decorator’s touch without most in the stores they shopped . also lets users buy branded gear from the skirt they really wanted, with a top, having to hire one . Consumers can see the artists they are listening to without jacket, shoes and clutch — a collection how a collection of items looks in a room Amazon’s product recommendations leaving the site . That enriches the bundle of features that creates a bundle called and then select the items they want — people who bought this, also bought for everyone: consumer, artist and a new outfit, makes a sale for those without spending the time themselves that — give consumers the option to Spotify . designers and reduces the time and risk figuring out which lamps and accessories create their own bundle of related of creating a new outfit. would look great in their living room — or products, without the time or the risk in Embedding commerce into discovery wasting money on things that won’t work . hunting down what other products may platforms offers consumers the chance Stitch Fix and Amazon Fashion actually complement that purchase . The option to to assemble their own bundles in the create the outfit bundle for consumers Nike opened a pop-up store in LA last then add some of those purchases to an context of their visit . Google Maps now based on preferences and past purchases week that curates training experiences auto-replenishment system locks in the offers restaurant recommendations and returns . with education with the sale of gear that purchase of that bundle going forward . based on where consumers are when supports those athletic pursuits . These searching — and allows them to make bundles of Nike gear plus complementary

PayPal’s Checkout with Smart Payment In an era of unbundling, choice and Consumers can get the best of all worlds, Buttons was created to give consumers unlimited options, platforms are natural an option without the risk or friction that a payment choice when buying cross enablers to creating bundles that an unbundled world creates for them . border, while minimizing the integration consumers value . Businesses win by profit-maximizing requirements for merchants that want the features they take to market to the to offer that choice . In addition to the Platform ecosystems give buyers the consumers who really want to buy . PayPal button, consumers will see their chance to discover suppliers in the local payment method offered, instead of context of their own needs, create their The platforms that enable that experience a long string of logos from which to pick . bundles from a vetted selection of securely and without friction will win by suppliers and then make a purchase . making it possible to bundle the things I think you catch my drift . Suppliers get to see what consumers that innovators have spent the last five value and adjust their products and years pulling apart . PLATFORMS AS BUNDLERS strategies accordingly . They just won’t call it bundling . Instead, An unbundled world sounds great in Platforms will use technology to narrow they will call it success . principle, but it’s unwieldy by design . those options further and payments to That’s not what consumers value nor close the sale . Vertical ecosystems will Long live the bundle! what most businesses can support emerge — in fact, they already have — profitably. within existing platforms that leverage a critical mass of consumers with In a world where consumers place a high suppliers that offer use case expertise price on their time, they also value choice or products . Voice-enabled platforms — but only to a degree . Too much and will outsource the friction of endless it’s paralyzing; too little and it’s limiting . searching for features and bundles online Businesses that feel compelled to offer by making Alexa or Google do it for them . an endless supply of unbundled options Predictive analytics will suggest features may end up driving consumers away by and products that become bundles, and giving them more of a reason to stick options to replenish them will eliminate with what they know rather than to take the need to find and create new ones. the time to sort through options that they don’t know .

cientists say that humans have a Economists have long recognized this as How lot in common with mice . the sunk cost fallacy . What’s better, they say, is once you sink a cost, you should S Both species, a new study forget about it and just focus on future Uncertainty conducted by researchers at the costs and benefits. University of Minnesota Medical School has found, express profound regret over THE SINKING SHIP OF SUNK COSTS Kills how much time is spent waiting for The notion of sunk costs not only something to happen . bedevils humans — and mice, we now Commerce know — but businesses too . The study examined the behaviors of humans and mice before each were given Companies that invest time, money and an option to wait and receive reward corporate reputation in something can (food for mice, videos for humans) and become so invested in the end game then after making the commitment, while that they keep waiting for better results, waiting to receive it . even in the face of headwinds and data In both situations, the researchers found that suggests those better results won’t that mice and wo/men kept waiting and materialize . waiting — stalwart until the bitter end, These execs rationalize that since the even as the wait became longer . The big investments in money and time have concept these researchers were testing in already been made, they might as well economic parlance is that of sunk cost . stay the course — since waiting for better Sunk cost is the unwillingness to consider results doesn’t cost that much more . And, other options — including cutting their who knows: The market may catch up — losses and running — after making a one day, eventually — and make the wait commitment to a decision — that is, worth it . sinking time and money into making it . In the dynamic environment in which the world operates now — one in which time

is one of the most valuable currencies if it meant waiting, when waiting was an Even with the wait, for those that spend time waiting in checkout lines at there is — the sunk cost fallacy can crater acceptable option . participated in the research, there was stores . Consumers spend time waiting for businesses in one of three ways . enough certainty of the outcome to make websites to load . The fact that you’ve sunk a cost means waiting an acceptable option . It can sink the business entirely by the payoff from waiting a bit longer is Timex did a study that quantified how refusing to deviate from the “bet the farm” high . It’s the uncertainty of the outcome Yet certainty — and the ability to deliver much time U .S . consumers spent waiting . strategy that won’t materialize in the combined with the uncertainty of when it — isn’t how the commerce ecosystem timeframe needed to survive financially. that outcome could pay off and the talks to businesses and consumers As it turns out, a lot of time is wasted . decision to keep waiting that can sink the today when describing the value of their A full six months of consumers’ lives, It can marginalize future opportunities, business ship . innovations . in fact, are spent waiting for things to since waiting for that “next big thing” happen . That amounts to a little more becomes so much of a distraction that Uncertainty also creates enough friction Maybe it’s time we should . than 37 billion hours a year . there is a lack of resources available to for consumers and businesses to take explore other options . their business elsewhere and sink those THE DEMANDS OF ON-DEMAND Businesses spend a lot of time waiting ships too . too . We live in an on-demand world . Or the decision to cut and run comes too late to capitalize on what the market In the study, humans and mice knew Businesses wait to be paid by their buyers And, in an on-demand world, there’s really wants . going in that they would get a reward . — not knowing when the money will nothing worse than waiting . Knowing that, humans and mice moved actually be received, if it is good funds On a more pragmatic level, this study and forward after taking time to deliberate the and sometimes how much they’ll get . Today, consumers and businesses spend the notion of sunk cost speaks to one of costs/benefits of waiting to get it. They a lot of time waiting for things . the biggest frictions that consumers and were also given signals about how long Buyers spend time deciding when to pay businesses — and mice too, if they had to the wait might be to get the outcome they those suppliers based on how long they Waiting is the breeding ground for shop and pay for stuff — face across the wanted . have waited — or are waiting — to be paid uncertainty . commerce landscape . by the buyers of their services . This wait It could be that one of the reasons both is especially pronounced when trading Consumers wait for buses and trains Uncertainty . mice and humans waited and continued partners do business across borders . and in traffic for the roads to clear. to wait is because to get that reward they Both parties spend a lot of time waiting Consumers spend time waiting for a Let’s face it: Sunk cost wouldn’t be so knew they’d have to wait . Each accepted to see where in the world, literally, their customer service agent to answer their sunk if an outcome had certainty, even waiting as part of the bargain to get what money is . questions, to be seen by their doctors and was promised . in security lines at the airport . Consumers

The uncertainty of the wait costs concept of real-time payments a reality THE CERTAINTY OF CERTAINTY So do their corporate customers: businesses in many ways . for more than a decade . Today, more certainty that there are good funds and I conducted a keynote fireside chat at than two dozen (globally, this is a puny certainty about when they can access the an industry conference last week on the It makes it impossible to manage and number) faster payments schemes are in money . state of global B2B payments . As part of forecast cash . This uncertainty often various stages of design and rollout, all that session, I did some electronic polling forces businesses to find and access with the goal of making payments happen It makes perfect sense . of the corporate bankers and FinTechs in sources of working capital to fill the gaps, faster between banks and corporate the audience . which comes at a cost . customers . Without those two pieces of information, banks and corporates can’t plan, manage One of the questions I asked was This waiting game for consumers and Here in the U .S ., we have been talking and optimize their cash . about the most important feature of a businesses has only fanned the flames of about faster payments in earnest modernized B2B payments system . I our on-demand world . since the Federal Reserve organized a Speed of payment is also of little benefit gave the audience five choices: cost of 500-person task force to study it in 2015 . when most corporates don’t have real- payments, security of payments, speed Retailers and commerce players know That effort aims to create a standard time systems and can’t accommodate of payments/settlement, data that travels consumers will shop where they can get for making payments and settlement real-time settlement . with the payments or the transparency of what they want when they want it —and happen in real time across the entirety of the payments process . that consumers are loyal to whomever the U .S . banking system . The task force What they can accommodate is real-time can deliver convenience wrapped around information . published its recommendations in 2017, The answer — overwhelmingly — was a value proposition of speed . the same year NACHA went live with transparency of the payments process . The most important attribute of a Same Day ACH across all of the banks in Transparency defined by having certainty Our own studies of thousands of modernized, global payments system isn’t the country . about where payments are when moving consumers when shopping across in- real time . from bank to bank across borders . store and online channels makes this But why settle for same day when we point too: Consumers value convenience It’s certainty . can spend billions and wait who knows While we are asking banks to spend more than price in many cases . It’s not how many more years to make payments billions ripping apart and replacing their surprising that retailers have invested That’s not to say there aren’t use cases happen even faster than that? existing systems to make payments in making speed and convenience the for on-demand payments — we know happen in real time, banks count certainty there are — and delivering payments hallmark of a great consumer experience . Since faster and faster and faster is all about when those funds will arrive as faster to end users soon won’t be an that matters . priority No . 1 . On the commercial side of payments, the option . world has been fixated on making the But does it really?

But faster needs definition – and use Provided that the checkout experience is 2017 . The certainty of what it means to THE CERTAINTY OF CERTAINTY case-driven context . friction-free across all shoppable ads . be a Prime member is why consumers are The famous mathematician and MIT (and remain) members of a club that now professor Claude Shannon once said And incumbents and innovators Clicking the “Shop Now” button only costs them $119 a year to join . that information is the resolution of are making those faster, real-time, to be confronted with shipping and uncertainty . His name may not be well- contextually driven use cases possible billing and payment information to fill There’s a reason consumers start and end known, but his contributions to the field by enabling the certainty of payments and promo codes that require typing in their product search on Amazon . They’re of cryptography, artificial intelligence (AI) without asking corporates or banks to and then getting an email promo code certain Amazon has the depth and and information technology are . rip out their own payments infrastructure to get 10 percent off the first order is breadth of selection, and its one-click, today to deliver it . enough to plant the seed of uncertainty two-day/same-day/two-hour delivery and Shannon is regarded as the father of in the mind of the consumer who sees checkout experience is consistent and the Information Age and is credited other shoppable ads . The return on the service experience reliable every time THE WEIGHT OF THE WAIT with the first AI learning device — a the consumer’s contextual commerce they use it . On the retail side of payments, it’s magnetic mouse trained to move through experience is only as good as the certainty that increasingly drives a labyrinth of his own creation that got certainty of knowing that it’s easy, secure That sense of certainty is why consumers consumer choice . smarter with each trip . and consistent across the platform . now turn to Alexa as their virtual commerce assistant and gives Amazon Skipping the line using order ahead is fast Consumers and businesses make Knowing that Walmart will save the authority to expand its commerce and convenient — provided the experience tradeoffs every day about waiting or not consumers time and money is why wings into grocery, apparel, healthcare, is as advertised and is consistently waiting based on the options available consumers shop Walmart and why household services, household delivered . to them and the context in which those Walmart invests heavily in features that furnishings, quick-service restaurants, decisions must be made . economize on the consumer’s time and prescriptions, medical supplies and the Just ask Starbucks . The promise of speed pocketbook . The certainty of everyday many other commerce segments it now and convenience is only as good as the Information provides that context . low prices is what brings more than 100 touches . And have consumers follow certainty that it is fast and convenient million feet into Walmart stores in the along . and predictable . Certainty, though, is the cornerstone of U S. . — 270 million worldwide — every creating a trusted commerce relationship . week . Consumers are certain Amazon will Buying from Instagram’s feed is a deliver . convenient way for consumers to Information — relevant, accurate and Certainty of delivery is probably a major discover new, cool things to buy — fast . actionable — presented to consumers factor in why Amazon captured nearly And certainty breeds trust . and businesses when they’re making their half of all eCommerce sales in the U .S . in decisions is what will build trust . That

information will help them decide when waiting is okay, when it is not and when a wait is too long and other options look more viable .

When sunk cost is, indeed, sunk and it’s time to cut and run .

Innovators that power solutions that provide that information, create context and enable certainty will earn the trust of the business, the consumer and the many members of the commerce ecosystem they touch .

That’s my hypothesis .

Now let me round up some mice and men and test it out .

aul McCartney and The Beatles say, due largely to increases in base may have told us that money compensation resulting from a tightening P can’t buy us love, but new labor market . research claims that it can certainly buy us happiness . Consumers, these data points conclude, should be positively zen-like relative to And how much money consumers need to their household income situation . be happy . Yet, you might not think consumers are A recent Gallup World Poll tells us so happy if you look under the hood, as consumers whose households earn we have done . between $60,000 and $75,000, on average, have reached the highest level Are the more than a third of U .S . of emotional wellbeing, and more income consumers falling behind on their bills won’t make them happier . happy?

That means, based on the latest Or are the 27 percent of the population published research of 50,000 households — those high-income Bridge Millennials and 135,000 individuals by Sentier and Gen X-ers with college degrees who Research, many U .S . consumers should are steps away from financial catastrophe be dancing in the streets . — happy, even if they do report feeling more positive about the stability of their In May, the median household income financial situation than they did this time Why for Americans stood at $61,858 — the a year ago? highest since January 2000, after adjusting for inflation. Median household Those are just two of the findings from Household Finances income, which had dropped to $58,829 our quarterly report on the relationship in June 2011, has consistently increased between credit, credit access and the Under The Hood since the summer of 2014 . May 2018’s financial performance of U.S. consumers. household income numbers were up Don’t Look So Good nearly 2 percent from last year, they

Each quarter, with the support of being taken to improve it . We literally look THE ROSE-COLORED CONSUMER unemployment levels residing at their Unifund, we survey 2,000 consumers under the hood of household finances. CREDIT GLASSES lowest levels in 23 years . who statistically represent the adult To look at the results across the population in the U .S . and ask them We then organize these consumers into Perhaps then, not surprisingly, 83 percent population at large is to miss the nuances questions about their current financial personas that reflect their financial and of consumers report that their financial of the financial picture of important situation: their income, the bills they pay, credit performance . circumstances have improved or stayed swaths of it . how they pay them, their access to all the same since last year . We use statistical methods to analyze forms of credit, how they use those forms On balance, the U .S . appears to have their responses . What we found this time, Yet digging deeper exposes some of credit — questions designed to gauge a population that has its financial act we think, is as insightful and hopeful as it problems . their financial stability and the steps together in the aftermath of 2008’s Great is foreboding . Recession . Despite these seemingly sound, strong financial fundamentals, more than a And it seems it mostly does . third of consumers report falling behind on bills, up 6 percent from this time last The average credit score reported of the year, in an economy that is booming with U .S . consumer is 695, with a third of the inflation rates below 2 percent for more population stating that their own score than eight years . had improved over the last year . Our sample, whose average age is 45, is one And that’s not a “Geez, I forgot to pay in which 60 percent of the population the credit card bill since I was away for a No Worries Second Chances On the Edge Shut Outs is employed . These consumers earn an week” late paying the bills situation . average income of $70,000 . • No collections or • Have had one or • No collections or • Have had one or delinquencies in the more collection or delinquencies in the more collection or No, this is different and more concerning last several years delinquency event last several years delinquency event Individuals in the $50,000 to $75,000 — telltale in an era when auto bill pay • Pay all bills on time, • Have bank and credit • May not have credit or • Are unable to obtain range report the largest increases in but may have an card accounts, or are debit cards because bank or credit card makes paying bills automatic and being occasional late bill or not able to obtain they have elected not accounts wages over the last year . That sounds late can reflect a conscious decision to missed payment them to have them pretty good in a market in which wages delay or skip a payment entirely . • Have bank or credit • Struggle to pay many are stagnating — with base comp rising at card accounts, or may bills each month, and have chosen not to often live paycheck to 0 .5 percent and pay (including bonuses) open them paycheck Those delinquencies also seem to have decreasing by 0 .3 percent, despite little to do with income or educational

stereotypes: Those with some of the There are the “No Worries” personas credit markets, access to credit is Economy Index and the percent of U .S . highest incomes and educational — the high-earning, highly educated predominantly through loans from consumers who report doing only gig levels are among those with the most segment of the population that pays their friends, family members or pawnshops . work . precarious financial circumstances. bills on time; 70 percent report putting Not surprisingly, 86 percent of Shut Outs money away for a rainy day . They’re say they live paycheck to paycheck, and This group has access to credit but In fact, when you look closely, those about 50 years old and earn, on average, only 14 percent say they are able to save doesn’t use it because they don’t like or most at risk of a financial crisis appear $77,000 a year . money . want to . Their key to feeling chill about more like those who are totally shut out their financial circumstances is that they of the credit markets due to chronic They have access to credit, have Together, these two groups represent don’t report having debt payments larger delinquencies than a cursory review of mortgages, home equity and car loans . about two-thirds of the U .S . population — than their monthly income . their financial profile might otherwise They have and use PayPal accounts No Worries at 58 percent, Shut Outs at 7 suggest . to buy things and pay bills . They have percent . Fewer than 7 percent (6 .8 percent) say and use store cards and say they pay they like and use credit cards regularly . FROM “NO WORRIES” TO WHY WE ALL student loans (probably at that age for Then, we always knew we’d find those Despite being college-educated, only 5 .4 MIGHT WANT TO BE WORRIED their millennial kids) . Less than a third who fell somewhere in between . percent report having student loans . Only — 30 percent — report living paycheck to 43 percent of them say they live paycheck The most interesting part of any study paycheck . The “On The Edge” persona appears to paycheck, and more than half — 57 like this is finding the stories inside the to be a solid financial citizen: roughly percent — say they save money . They pile of data that comes back from the At the other end are the “Shut Outs” — 42 years of age, earning an average were given the mantra “On The Edge” field. those so chronically delinquent they can’t of $64,000 a year . More than half, 53 since they straddle the consumer credit get the credit they say they need and percent, own a home, and 41 percent market; they can get credit if they wanted It’s what led to the creation of the four would like to have . Only 4 percent of Shut are college-educated . Seventy-one (71) to but, for their own reasons, have chosen personas that we track consistently Outs report having a credit card . percent of the On The Edge personas say to opt out . to gain important insights about the they are better off financially this year financial performance of the American At 41 years of age, on average, they versus last, despite 36 percent reporting Then there are the “Second Chances” consumer . Simply looking at age bands or earn $50,000 a year, and less than half working full-time . If we had to guess, we’d — the persona group that has had a income levels doesn’t do it justice . — 47 percent — are employed full-time . say this group consists of gig or freelance shock to their financial situation typically Seventy-eight (78) percent of Shut Outs workers who don’t work full-time for any through a job loss or divorce . That shock We always knew we’d find the extremes — lack a college education and less than 40 one employer, but who do project-based caused them to lose credit, and then, and we did . percent of them own a home . Since they work for many and like it that way . In fact, after getting out from under that shock, find themselves shut out of the traditional this is consistent with data from our Gig they’ve been given a “second chance” at

reestablishing that credit on the basis cards . Seventy-seven (77) percent report WHICH PERSONAS ARE SAVING non-banks, online lenders or loans from AND WHICH ARE NOT of their profession, current income and they are better off or the same, financially, Financial situations, by persona family or friends to cover their expenses .

earnings potential . as they were last year . LIVE PAYCHECK TO PAYCHECK This group was far more likely to use 30% 79% pawnshop loans to cover short-term 43% The On the Edge and Second Chances Yet, 79 percent of them also report living 86% expenses and credit cards to cover the

represent more than a third of the paycheck to paycheck . ABLE TO SAVE SOME MONEY cost of day-to-day living expenses . 69% population — Second Chances at 27 21% 57% percent and On The Edge at 8 percent . Half (50 .6 percent) of Second Chances 14% The Second Chances group also reported say their monthly bills are larger than favoring MoneyGram as a way to pay their What we didn’t know, until this last study, their monthly income, with the other utility bills . Why? It’s the only way to pay No Worries Second Chances On the Edge Shut Outs was how similar financially the Second half reporting that most of the time bills bills the same day, using cash, and avoid Chances are to Shut Outs — for as outweigh their monthly income . It’s not having service shut off . save any money at all — despite an different as their demographic profiles surprising, and perhaps even predictable, income that is 20 percent more than suggest they are . that 50 percent also say they will either This group also has a heavy student loan Shut Outs, 14 percent of whom report fall into delinquency (22 percent) or debt burden — nearly 41 percent report an ability to save money, and one that is And the ticking time bomb that the struggle to pay (28 percent) their bills they owe money to their alma mater . more or less consistent with their On The Second Chances may be for the lenders, three months or less from now . merchants and the economy as a whole Edge counterparts, 43 percent of whom That college education, though, is one of if they and we don’t do something to That’s an even more pessimistic view say they are saving money . the reasons this group remains optimistic intervene . than their Shut Out counterparts — only 7 about their future financial prospects. What accounts for the difference in self- percent of whom expect to face a similar reported financial stability and the ability MEET THE SECOND CHANCES uptick in delinquencies over that same Eighty-five (85) percent of Second to save despite positive employment and timeframe . Chances believe they can earn enough to By all accounts, Second Chances look like income prospects? cover their financial expenses. the American Dream . It’s also not surprising that only 21 Their use of consumer credit products . percent of Second Chances report being Provided, of course, that they find a way They are 42 years old and earn $63,000 able to save any money at all . to survive while getting there . a year . Sixty (60) percent of them own While credit cards and store cards were their own home and are employed full- two of the top three financial services Perhaps the better way to state this And provided, of course, the economy time . Forty-one (41) percent have college products used by our sample (the third is that, on the face of the data, it’s keeps humming . degrees . Sixty-six (66) percent have credit was PayPal), Second Chances were far remarkable as many as 21 percent can more likely to use personal loans from

WHICH FINANCIAL PRODUCTS ARE FAVORED BY WHICH PERSONAS? Financial product usage, by persona No Worries Second Chances On the Edge Shut Outs

CREDIT CARD 66.9% 26.1% 6.5% 0.2%

PAYPAL 61.0% 25.7% 6.8% 5.8%

STORE CARD 67.1% 24.8% 5.9% 2.1%

AUTO LOAN 60.8% 30.4% 4.0% 3.9%

MORTGAGE 67.3% 25.7% 3.8% 2.8%

PREPAID CARD 43.7% 35.3% 10.8% 9.6%

STUDENT LOAN 49.2% 40.9% 5.4% 4.2%

HOME EQUITY LOAN 56.3% 32.6% 4.9% 4.9%

LOAN FROM FAMILY OR FRIEND 28.9% 46.5% 7.0% 16.9%

PERSONAL LOAN OR CREDIT LINE 31.2% 52.5% 4.3% 12.1%

ONLINE LENDERS 27.8% 64.8% 3.7% 3.7%

MONEYGRAM 32.1% 52.8% 1.9% 13.2%

PAWNSHOP LOAN 15.2% 60.9% 2.2% 21.7%

MEET THE FINANCIAL INVISIBLES At the same time, the Federal Reserve quarterly study of consumer debt says The economy sure is humming now . Source: http://time .com/money/5233033/average-debt-every-age/ consumers are racking it up . Today, U .S . The Commerce Department reported consumers owe roughly 26 percent of been on the rise . Balances on credit card Perhaps recognizing that, these Second that May retail sales in the U S. . rose their annual income to debt, up from 22 debt declined by 2 .3 percent last quarter, Chances say what they need most is 1 .3 percent — the largest increase in percent in 2010 . That amounts to $13 .2 as have delinquencies on that debt . more access to credit, since that’s the retail spending since the fall of 2017 . trillion, up 18 .5 percent since 2012 . only way to pay the bills . And once Economists predict that June retail sales What’s driving up debt and debt service, Ten (10) percent, the Fed says, of traditional options have been tapped out, will increase by .5 percent over May’s the Fed reports, are the balances on household income is allocated to debt they’ll turn to alternative players — maybe impressive retail spending performance . student debt, mortgage and auto loans payments for automobiles, credit cards, some good, maybe some not so good — That’s a big deal, since consumer which have increased by 2 .1 percent, 0 .6 personal and student loans . Debt service to make ends meet . spending drives more than two-thirds of percent and 0 .7 percent accordingly and on credit cards has declined, even as U .S . GDP . will likely rise more as interest rates rise But this group, more than any other, credit cards as a percent of debt has further . also has a strong interest in financial

education to improve their future financial used within seconds of it being sent, The Second Chances are a big driver of they aren’t now, they easily could become prospects, their credit scores and the including for employers who’d like to pay the economy and a bellwether of our very worried with the next downswing . ability to gain access to cheaper forms their workers on the weekend . future economic prospects . of the credit they feel they need to move Which, as we all know, is inevitable . beyond the stress of their paycheck-to- Card issuers are getting more creative Some may say they’re living beyond their paycheck existence . Tools and tips to too about the design of their credit means, and maybe some of them are . But And yes, the economy is definitely help them manage their way through their products by offering generous cash back most may be at the same point in their humming, but most people are still current situation are seen by this group on purchases to offset spend, allowing lives that their parents were at their age — living paycheck to paycheck and facing as highly valuable . reward points to be turned into money married, kids, house, car and dog . financial stress. to pay for things, and even offering the Like every other aspect of their lives, option to finance specific larger-ticket But without some of the things that their Money can’t buy love, but at least for now, they want tools that make it easy and purchases separately from payments on parents had: the certainty of a steady job, it helps to take the kids to Disneyland . convenient to create certainty in one part monthly balances . pensions, guaranteed raises and bonuses of their financial lives that may not be as year after year, savings, a house with certain as it might otherwise appear . It’s a start . equity that could be tapped into to pay for big expenses . There are a number of creative innovators Perhaps most interesting about these developing schemes trying to do that . Second Chances is that they don’t look Unless we sort this out as a payments Some offer kinder, friendlier versions like they’re in trouble . They have good financial services ecosystem, we’ll be of short-term, small-dollar credit and jobs . They wear nice clothes . Their kids talking about things a lot more serious consumer-friendly debt consolidation probably go to summer camp, and they than a bunch of consumers feeling programs . take family vacations . Walking by them stressed out about paying their bills but on the street or working in the cube next managing to pay them somehow, some Some are making it possible for to them would never foreshadow the way, even if they’re late in paying them . employers to offer earlier access to stress of their daily financial situation. wages earned and proactive suggestions Of course, maybe the Financial Invisibles on how to manage the money they have They are the Financial Invisibles in search are happy, as Gallup would have us earned with the bills they need to pay . of a solution, although they don’t appear, believe, because they’ve reached this on the surface, to need much of one at bliss point of income . Looking under the Technologies are making it possible for all . hood of their household finances, they money to be pushed to consumers and look like they should be worried, and if

rubhub made news a The real play now for Grubhub, with Could couple weeks ago when it LevelUp, is to emerge as the leading G simultaneously delivered a aggregator for food ordering across all of very strong Q2 2018 earnings report and the channels through which consumers Grubhub announced the acquisition of LevelUp . might like to interact with those eating establishments: online order and delivery, The focus then and the subsequent online ordering for pickup and maybe Become coverage since has been on the positive even, down the road, online ordering of impact of the LevelUp acquisition on a place in line at fast-casual, sit-down The Grubhub’s ability to diversify its platform restaurants . offerings . And to become the mobile payments Amazon Of With LevelUp, Grubhub can now offer platform that powers it across all those restaurants that are part of its network channels for those restaurants: supported order ahead/pickup in-store and new by a platform-based loyalty play that Restaurants? CRM/loyalty initiatives to their mobile keeps restaurants and consumers wallets using LevelUp’s white-label tech . interested and sticky .

As for Grubhub’s core business of online When asked, mobile payments as an order and delivery, LevelUp’s integrations aspect of the acquisition was downplayed to most of the cloud-based point-of-sale on the Grubhub earnings call . My bet (POS) systems that power quick-service is that it will become an incredibly restaurants (QSRs), including many of powerful pillar in Grubhub’s evolution as a the leading players — Toast, ShopKeep, preeminent restaurant ordering platform . NCR, Clover, Revel, Oracle/MICROS — will undoubtedly help Grubhub’s migration Remember, before Grubhub bought from tablets on counters to features LevelUp, Chase put a few tens of millions inside those cloud-based POS systems . into them as the technology partner that would ignite Chase Pay acceptance at All great synergies, but perhaps not the QSRs . biggest part of the story .

THE EVOLUTION OF GRUB and Evans felt restaurants would value enough to pay a subscription fee to be a To understand why I think this way part of . requires a reflection on the evolution of Grubhub over the years . They didn’t .

Grubhub founders Matt Maloney and Mike So, they didn’t . Evans wanted to solve a simple problem in 2004: make it easy for consumers to Grubhub’s value to those restaurants order food from local restaurants and changed when Grubhub’s business model have it delivered . changed . Instead of charging restaurants to be featured on a site that may or may At that time, ordering food for delivery not drive traffic to them, Grubhub began was hit or miss — mostly miss . Source: https://chasepay .thelevelup .com charging restaurants a percent of the orders they generated . That shifted the Not every restaurant had a website — burden to Grubhub to be an effective lead most didn’t back then; and those that did LevelUp is front and center on the Chase consumers with the LevelUp app . The gen platform for restaurants and to be were hard to navigate, and most didn’t site as its partner for online ordering uniqueness of the LevelUp app was rewarded when an order was converted to keep their menus up to date . Just like in using Chase Pay and Chase Commerce the loyalty component that tracked a sale . the days before OpenTable aggregated Solutions (aka Chase Paymentech) . It’s consumer spend across all restaurants available restaurant inventory and where I grabbed this image, in fact . and rewarded users with cash back when That model — aggregating menus from enabled online reservations, consumers spending thresholds were met . local restaurants in one place and dialed for delivery from the places in their Chase Commerce Solutions is the third- enabling easy online ordering from that ‘hood they knew delivered food and hoped largest merchant services company in the The silent player in all of this news online platform — remained Grubhub’s they didn’t get a busy signal . U .S . is Chase and the role it could have in mainstay over the next decade . powering what could become one of the Building a site to aggregate restaurant And before there was Chase, there was most interesting and disruptive plays the Over that time, Grubhub grew both menus that would give consumers one LevelUp, the branded mobile payments restaurant POS space has seen . organically — market by market — as place to find restaurants that could platform that used those same cube- well as through a series of acquisitions deliver food and then place an online shaped readers to enable QR code The Amazon of Restaurants . to gather more hyperlocal restaurant order for delivery seemed like a no- payments at the physical POS for inventory for their platform . Back then, brainer . It was also something Maloney

consumers ordered online from Grubhub, For Grubhub, taking on the logistics Some restaurant operators believe BIG, LITTLE ONLINE MARKET SHARE but their favorite restaurant showed up of delivery for local restaurants left Grubhub as an end-to-end online ordering Grubhub may be the big dog in the online with the order . Grubhub was the enabler restaurants to do what they do best and delivery platform has changed the ordering/delivery space, but it’s a space and got a commission on every order that — make great food — while leaving relationship dynamics between their with a lot of room to grow . originated from its platform . the mechanics of the order-to-delivery establishments and their customers — process to a platform that was and not always for the better . Grubhub’s CFO said during its last In 2015, Grubhub extended its model engineered to do what it does best: earnings call that the delivery business is and stepped into the delivery business, Consumers go to Grubhub to order from optimize the online customer journey and worth roughly $200 billion in the U .S ., with first through the acquisitions of local Joe’s Burgers . They pay for that order via the economics of delivery across all the online orders maybe reaching $20 billion, platforms that both enabled online Grubhub . They get their food delivered by restaurants served in those local markets . or 10 percent . That means 90 percent ordering and offered delivery services and a guy wearing a Grubhub shirt carrying of restaurant orders are still placed in a later through the expansion of its own Grubhub claims that restaurants that use the Joe’s Burgers order inside a Grubhub physical establishment, and nearly half, delivery capabilities — recruiting drivers Grubhub delivery services generally see bag . If that burger arrives cold or soggy 46 percent, of all orders for delivery are and building out tools to support the a monthly increase in takeout revenue because the driver got lost or was late to still phoned into the restaurant . delivery side of its business . of 30 percent as a result of having more pick it up, Joe’s takes the heat . exposure to consumers on its platform But like the shift from physical to online In February of 2018, Yum! Brands made Now, maybe Joe’s would have gotten and the ability to support more delivery retail, online ordering is a space that’s a $200 million investment in Grubhub, that heat anyway if it were up to them to volume . Grubhub also reported that in growing rapidly, driven by the consumer’s in part, to accelerate the build out of its handle the delivery . Or maybe Joe’s might Q2 of 2018, the average order size was desire for convenience — regardless of delivery platform and to create more not have ever gotten the order but for up 3 percent: People find it easier to add whether that online order is delivered or favorable delivery economics for its Grubhub’s ability to have Joe’s as part of to their order when they are looking at a picked up and taken out of the restaurant restaurant brands . its platform for millions of consumers to menu online, instead of standing in a line to eat somewhere else . or from memory . see and order from . It made perfect sense . Technomic reports that 86 percent of Regardless, some restaurants now view Not all restaurants have bought in, consumers order online for delivery or Making great food and delivering great Grubhub as very different from the helpful including, reportedly, some of the Yum! pickup at least once a month, with a third food requires two distinct skill sets online aggregator that drove volume Brands franchisees who are now being of those consumers saying that’s more with radically different cost structures their way, that also put them in control asked to get on board the Grubhub than they did a year ago . The delivery and customer service requirements, of managing those orders and then delivery platform . side of that equation is expected to grow particularly as online ordering volume delivering them to their customers . double digits over the coming five years, grows . they also say, fueled by those Bridge

Millennials who will soon start families partnerships with Grubhub for delivery THE AMAZON OF RESTAURANTS later in apparel and accessories . With the and turn to online order and delivery to in key cities . Those restaurants appear acquisition of Whole Foods with its own If any — or all of this — sounds somewhat minimize the friction associated with as options when consumers search for a 360 private label brand, private label sales familiar as a platform storyline, perhaps it cooking at home and to maximize the particular type of cuisine and may even on Amazon will only continue to grow . is because it is . opportunity to still eat at home . include an incentive on the first order Those private label sales happen right to try it . Consumers don’t know it isn’t a Amazon started out as an online And, as Grubhub’s data shows, all with alongside brands, including via branded restaurant they can eat in or even order bookseller that aggregated book the potential for an incremental lift in Dash buttons: Consumers search for and and pick up from, and if the food is great titles, later CDs, and made it easy for the value of those online orders and that with those Dash buttons, allowing them and delivery their MO, they probably won’t consumers to go to one place, browse, digital consumer . to subscribe to their favorite branded care . order and pay for those items online — products and be replenished regularly . and have them delivered . Grubhub today has an $11 billion market This new restaurant paradigm is catching cap with 15 .4 million active diners on its Prime membership is the fuel that now on as consumers’ penchant for delivery That strategy allowed Amazon to build platforms — 70 percent more than this feeds this Amazon engine and now and convenience is increasing as quickly a critical mass of consumers and more time last year and 125 chains from which offers consumers a variety of benefits as the costs of operating a restaurant are . inventory for books and music and then those diners can order . Those diners that extend well beyond free shipping, lots of other things too that got their own place 423,000 orders a day for delivery . Ninety percent of food orders may still be which remains the core of the Amazon flywheel going. Grubhub is also now integrated into Yelp’s placed in the physical store, but only 10 value proposition . Amazon Prime platform, which gives Yelp users the percent of them are eaten there . QSRs, in Those lots of other things were courtesy member spend is twice that of non-Prime chance to order from Grubhub’s network particular, pay a premium for space and of third-party sellers, which ignited members, and there’s little evidence without leaving the Yelp platform . To that, staff that the vast majority of consumers Amazon as a true marketplace and so far to support significant Prime LevelUp adds 100,000 daily orders for don’t use for storefronts in prime now accounts for more than 50 percent defections since its $20 price increase . pickup and 200 live establishments . locations that carry higher rents . of the items sold on the Amazon Partly, Amazon Prime members now have platform . Those sellers have a love/hate Grubhub is also the online ordering and Green Summit operates several such a lot more things that come bundled with relationship with Amazon: They love the delivery engine for restaurants that aren’t virtual restaurants in New York and that Prime membership . Prime members sales but don’t always like playing second really restaurants as we think of them Chicago, and Grubhub competitor get discounts at Whole Foods and free fiddle to the Amazon brand. today . DoorDash is opening its own virtual two-hour delivery, discounts on car kitchens to give restaurant operators a Amazon’s private label brands have also rentals through Avis, a free subscription Ghost kitchens that prepare food for more economical onramp to opening a captured huge share, first in important to The Washington Post, free Kindle delivery only have struck exclusive restaurant in big cities . categories like batteries and diapers and books, free access to the Amazon-

branded suite of baby products and POS systems . Grubhub, LevelUp and All perhaps sweetened along the way with What I’ve laid out here is the product of access to Alexa and her growing set of its Chase connection could power the a Grubhub network-wide loyalty program my own independent thinking based on skills and streaming video and music . Amazon of Restaurants . to keep restaurants and consumers my own brainstorming with me, myself sticky, powered by a mobile payments and I on how this incredibly dynamic All, of course, tied to its online mobile This trifecta — with the two-sided network platform in very much the same way restaurant ordering space could evolve . payments platform, Amazon Pay, and Grubhub has become — has the ability to that Amazon Prime member benefits are made even sweeter for those with an get restaurants on board and give them a linked to Amazon Pay . Chase Pay anyone? Because if I had any insight from any Amazon Prime Chase Rewards card fully integrated POS experience, complete of the players mentioned or knew for linked to it, which offers 5 percent cash with a fully integrated suite of online It’s maybe not as crazy as it sounds, sure, you’d have just finished reading a back on Amazon purchases, including ordering solutions . particularly given Chase Pay’s interest takedown of the Starbucks/bitcoin deal . now at Whole Foods . and investments in the restaurant dining There is the opportunity, leveraging space . For that, there’s always next week . Which brings me full circle to Grubhub, LevelUp’s white-label tech, to make the LevelUp, Chase and the Amazon of branded mobile wallets of individual And particularly the group of players who Restaurants . restaurants more robust and complete all seem aligned around the Grubhub with those capabilities, including the brand to drive innovation in the space THE AMAZON OF RESTAURANTS ability to tailor localized offers and — traditional players like Yum! Brands, promotions to users . online aggregators like Yelp, emerging The one place Amazon hasn’t made much disruptors like Green Summit and real traction, yet, is online ordering and Of course, this mobile wallet tech is also financial services players like Chase delivery for restaurants . certain to introduce new features into the with 93 million cardholders and the Grubhub mobile app, including tracking incentive on the part of the Chase team Yes, there is Amazon Pay Places and of individual orders and preferences for to ignite Chase Pay as a mobile payments Amazon Restaurant, but both lack much recommendations across the Grubhub platform . local density outside a few deals with a network, as well as for those that users few larger chains in a few big cities . like and visit frequently — opening up Whether it’s Grubhub that will emerge as new revenue opportunities for Grubhub the Amazon of Restaurant Ordering or That’s because a restaurant is a and marketing partnerships for brands Amazon or another player, it’s a space hyperlocal business, and there are to influence consumer spend on those worth claiming — and a space that will be thousands of small local establishments orders . interesting to watch over the next several to get on board with which to integrate years .

he payments world could very FACEBOOK WANTS ACCESS TO USER well be living in the Upside BANK ACCOUNTS Down . T Talk about the upside down . The Upside Down is the fictional parallel Facebook has reportedly had universe controlled by a hive mind and conversations with banks about humanoid predators called Demogorgons, giving Messenger access to user bank made popular by the 2016 Netflix smash accounts . The premise of the ask, hit “Stranger Things .” according to a Facebook spokesperson, is to give Messenger users a convenient The Upside Down looked sort of like the way to check alerts and “not have to wait real world, but much spookier and a lot on hold with the bank” to get transaction scarier . Some who entered the Upside information . Down never made it out alive — and those who did were never the same . At first blush, the reports of this development almost seemed like fake The first two seasons of “Stranger news in my News Feed . Things” were all about the efforts of Eleven — a paranormal psychic — and the Never mind that Facebook — a company townspeople living in the fictional town more than half of U .S . consumer now of Hawkins, Indiana, to keep the hive distrust with their personal data and mind from turning the real world into their still dealing with the ongoing fallout upside down . from Cambridge Analytica — would think nothing of asking banks for a feed to one Over the last couple of weeks, there have of the only pieces of private information been a few developments that suggest Facebook doesn’t have: user bank there could be some stranger things account details . lurking in our own upside down, payments parallel universe . Payments’ A recent Ipsos/Reuters poll found that Stranger Things 59 percent of U .S . consumers don’t

trust Facebook to keep their personal Facebook’s ask seems driven less by the monetization strategy, she explained, was OVERSTOCK AS BITCOIN/BLOCKCHAIN information private . need for consumer convenience and more about testing ads inside the app to drive UNICORN by the need to deliver on the promise that traffic to a business chatbot page in the Last week, Overstock’s blockchain And never mind that consumers aren’t Messenger could use chatbots to drive a hopes of getting them to take off . subsidiary, tZERO raised $270 million sitting on hold for hours these days new revenue stream . from a Chinese private equity firm, with the bank waiting to get updated Financial services is now seen valuing the company at $1 .5 billion . As information on transactions and account Messenger’s vision, under the auspices by Messenger as the big chatbot part of that capital raise, there was also balances . of Messenger Chief David Marcus, was to monetization honeypot . a commitment to buy an additional $30 become the yellow pages of messaging million in tZERO tokens to be used inside Banks have invested time and money apps by enabling more consumer- Banks, for their part, seem uninterested . the blockchain/crypto-enabled ecosystem into creating their own virtual assistants to-business interactions inside the that Overstock, with its tZERO subsidiary, to give consumers access to their bank messaging platform . Over time, those As they should be . is creating. That firm, GSR, previously account information via their mobile interactions would be monetized . invested $160 million in tZERO tokens phones . Mobile banking apps are one of For Messenger’s chatbots to take off, during its ICO in June . the top three apps that consumers use Today, four years after Marcus left they need to solve a problem that other regularly and tens of millions of people PayPal to ignite the Messenger platform, apps and ecosystems haven’t or don’t On the heels of that news, Overstock’s use them to check balances, pay bills and Messenger has roughly 1 .3 billion and be a trusted player in filling that gap. shares spiked 20 percent . send money to each other . monthly active users worldwide, roughly That’s unlikely to be transactional banking 100,000 chatbots and literally zero services — not just here in the U .S ., but The token has been in existence since And they get alerts on their mobile revenue from any of them . in large developing markets where other December 2017, when it launched a phones . established competitors have a healthy presale and reported taking orders for During Facebook’s Q2 quarterly results head start . more than $100 million in tokens in its The Fed reported that in 2017 about last month, Facebook COO Sheryl first 12 hours. Overstock’sshares jumped half of all people with bank accounts Sandburg said monetization beyond Banks are the trusted stewards of to $75 .80 a share that day; three months used their bank’s mobile app to conduct advertising across all of the platforms consumer financial information, and earlier, it was trading at $23 .65 . A year transactions . That trend is only increasing that Facebook operates, including it’s not clear that even before the data before that, the stock was trading at — and those who may not use mobile Messenger, was still “early days ”. privacy scandal the ask of Messenger $15 .81 . bank apps use online channels and even would have been viable . self-service options at ATMs to do those Sandberg mentioned that Messenger was Today, at $41 and change, the stock same things . the closest to monetization — but not But today, and under the circumstances, is down from that December high but because chatbots were taking off . The it’s clearly a very strange thing . nearly 3x what it was this time last year .

But not because the fundamentals of More than that is the narrative that Ten years after bitcoin and blockchain, valued at $2 billion . Uber invested in Lime its eCommerce business are strong and somehow blockchain, with bitcoin as its there’s not much to show for it other than in July as part of a $335 million capital getting stronger . In fact, Overstock CEO processing platform, will become the a spike in cybercrime financed by bitcoin . raise that valued the company at $1 .1 Patrick Byrne has said publicly he’d like to world’s financial operating system — more billion . sell the eCommerce business . or less the internet of money . This ignores Blockchain-based systems have little the fact that the processing rails for value outside a reliable, secure, regulated Investors say that motorized scooters, Why wouldn’t he? this system — bitcoin — is concentrated infrastructure to process transactions . and Bird in particular, will fundamentally in a handful of miners in China and the change how people navigate that hard- It’s tough slogging it out these days as exchanges used to turn bitcoin into the To think that it is or could be bitcoin is to-travel last mile . Comparisons to Uber an online retailer with a value proposition real money that people can spend are pretty upside down . and Lyft abound: a disruptive way to based purely on selling stuff cheap . It’s routinely hacked . reimagine transportation . far easier to talk about how bitcoin and SCOOTERS AS BILLION-DOLLAR blockchain are more revolutionary then It can also take days to get that crypto BABIES “Genius” is how one Bird investor the internet and watch your stock price converted into spendable, fiat currency — described the company and its business Speaking of unicorns, who’d have ever — and market cap — double and triple all while the value of bitcoin swings in the model . thought that motorized scooters would in value . All in the space of just a few wind . become our next multibillion-dollar months’ time . “Nuisance” is how most cities now business sector? This narrative also glosses over describe these motorized scooters . All of this talk, of course, masks the myth how the internet really works — Well, they are, according to venture that blockchain and its bitcoin-powered something I detailed a few years back Scooter graveyards litter cityscapes as capitalists in Silicon Valley who’ve rails have the capacity to “humanize” and — but nevertheless people use it as a riders paying the princely sum of $1 .50 collectively poured tens and tens of “democratize” money . comparison to hype the impact they say a to ride a few blocks think nothing of millions into companies like Lime and bitcoin-powered blockchain can have on tossing scooters wherever they feel like it, Bird . And these young businesses — Bitcoin today has two primary use moving money around the world . whenever they feel like it . In some cities, young as in less than a year old — have cases: as a speculative investment and helmetless riders take to riding them now raised capital based on multibillion- for financing criminal activities. Even Ten years after the world wide web and in bike lanes in the streets — serious dollar valuations . Overstock — among the first, if not the http was introduced, we had a powerful accidents waiting to happen . first, to accept bitcoin as a payments internet economy driving trillions of Bird, a motorized scooter company based currency on its site — reports that a dollars in positive economic activity . Scooter companies came into cities in Santa Monica, California, raised $400 measly 0 .25 percent of its sales were without permission with thousands million in just four months and is now attributed to that payment method . of scooters to spread around . Cities,

unprepared for the urban blight, absent PUTTING CAPS ON INNOVATIVE And that’s because, until they entered the And, of course, using the app gave users any regulatory framework to guide COMPANIES scene, getting a taxi in New York — or that magical experience of getting out of their conduct, have shut things down anywhere — was a big ball of uncertainty . the car without the friction of payment at While city planners are properly or restricted the number of scooters the end of the trip . examining how to best navigate the pros dramatically that these companies can Would you get a cab between 3:30 PM and cons of motorized scooters, New bring into a city . and 4:30 PM to make it to the airport, or The taxi union didn’t like Uber cutting in York City has decided to put a cap on would dozens whiz by with their “out of on their turf . Some independent drivers transportation’s real innovation — and in Some cities are even rethinking how or if service” light on? didn’t like the competition from other one of the world’s busiest cities . they belong at all . drivers . Would you get a cab on a rainy day Last week, under pressure from taxi Even China, the birthplace of shared bikes without walking blocks or waiting half an The stranger thing here is thinking unions and under the guise of wanting with a serious urban mobility problem to hour on the street waving your arm? that caps on ride hailing services and to study road congestion and driver solve, is now grappling with mountains of studying the situation will make taxis pay, New York announced it would halt abandoned bikes that are no longer used When you finally got one, would you get more innovative or consumers want the number of new ridesharing licenses but a very and new flavor of urban landfill. into a cab that smelled like last night’s them more . Or reduce the demand by granted for the next year . A “disruptive” innovation that birthed a garlic-infused dinner? those consumers for more on demand few billion-dollar babies, but whose future ride-hailing services . The appeal of on The stories of the big dent that Uber and is also uncertain . Would that cab have a “broken” card demand is, being able to reliably get a car Lyft have put into the taxi universe are reader and make you pay cash? on demand . well known . As for that last mile and those motorized scooters, outside an alternative way of Or would the driver get huffy and If the competition from Uber and Lyft A medallion that once sold for $1 million scooting around college or corporate argumentative when you refused and didn’t inspire innovation over the almost in New York in 2014 now fetches a little campuses in good weather, what problem called their bluff? 10 years they’ve been in existence, a cap more than a tenth of its value . A recent do these scooters solve at scale for is unlikely to be the taxi’s magic elixir in batch of medallions at auction there consumers? With Uber, then Lyft, not only did people the next 12 months . averaged $175,000 each . know they’d get a car, they knew when it It seems that now the stranger thing is could come, they knew it would be a nice As for the upside down? There’s a very good reason for that: Uber walking, driving or taking an Uber or Lyft car and they knew that they could call the and Lyft provide a better service, and or the commuter rail that last mile . driver if they wanted a more precise ETA . That could be New York commuters’ daily people like using them . life for the next year unless something else happens .

Like taxi drivers accepting bitcoin payments and launching an ICO to fund the tCoin . They expand into the Yellow Scooter business and decide to brand Lemon . They build a bot on Messenger and connect to user bank accounts to enable payment and get alerts .

Overnight, the value of taxi medallions could supersize and the taxi business could turn into a multibillion-dollar unicorn .

Everything, then, would be fine, and they could leave Uber alone .

Only then would we know for sure we were living in the Upside Down .

few weeks from now will chain innovations to lower prices to mark the 72nd anniversary consumers . of a federal court decision A Yep . Lower prices . that found grocery store chain The Great Atlantic and Pacific Tea Company and its founders, George and John Hartford, guilty The plaintiffs in the case weren’t the of engaging in anti-competitive behavior . families living on Main Street, U .S .A ., who That story is the subject of a terrific book benefited from those lower prices — in written by economist Marc Levinson, “The fact, they loved shopping at A&P and Great A&P And The Struggle For Small weren’t the ones complaining . Business In America” . It’s a great read and the source of several of the data points Those who did and brought the case were quoted in my piece . the independent grocery stores who said they could no longer compete when A&P Online Platforms: That decision caught many by surprise, came into their town . including the Hartford brothers . These independent grocers further Why Consumers Rule The case against them, and the decision alleged that their inability to compete it rendered, deviated sharply from the led to the destruction of the mom-and- And Regulators Don’t traditional Sherman Act cases that pop stores that were the economic accused companies of using their market underpinning of those towns and power to raise prices to the detriment of those cities . Shutting those stores, the consumer . they claimed, risked compromising an important driver of the local economy . In 1946, the year the verdict was reached, A&P was the country’s largest retailer The verdict didn’t do much to stop the and, obviously, its largest grocery chain . A&P train — at least for a while . The company thrived and grew for another But here’s the rub: The guilty verdict was three decades after the courts handed made on the basis of A&P’s use of supply down its decision .

However, today, A&P no longer exists . And those small grocery stores seeking Shopkeepers behind counters measured Having credit extended by those protection? things with those lovely antique scales merchants was a huge convenience for The firm that a White House lawyer once that some of you may have adorning two very good reasons . referred to as a “giant bloodsucker,” Most of them failed too . your kitchens today as decorative that hit a (staggering at the time) billion accessories . Measurements were One: No one had to schlep piles of cash dollars in sales in 1929, that was valued There’s a lot that can be learned from the imprecise (by accident and sometimes up and down those Main Streets to settle at a billion dollars in 1959 and that A&P story . even on purpose), and consumers could their grocery tabs . reinvented the grocery store experience only buy what the shopkeeper had in his for consumers sold a 42 percent stake A TRIP DOWN GROCERY SHOPPING’S store. A consumer out of flour or short And, two: Buying groceries was very to a German investor in 1979 at a $190 FRICTION-FILLED AISLES on milk never knew for sure whether the expensive . million valuation . shopkeeper had either until they walked If you think grocery shopping today is a inside . Back then, consumers spent more on big pain, think about going to the grocery By 2009, A&P had shrunk in size and groceries than they did on their house store in the late 1890s and early 1900s . became a modestly sized regional chain . Speaking of selection, it was limited to payments — about a third of their income . whatever the shopkeeper could display, What might sound like a fun, quaint By 2015, it had closed its doors . which further influenced what and That’s because the grocery store supply shopping experience — bopping up and how much of what consumers bought . chain was incredibly inefficient, and those down Main Street between the cheese Regulators didn’t destroy A&P in the end . Refrigerated displays were nonexistent, costs were borne by the consumer . shop, the butcher, the fishmonger and the limiting the supply of goods even further . A&P destroyed A&P . dry goods purveyor, picking up food to By the early 1920s, there was roughly stock the pantry — was friction wrapped And since there wasn’t home delivery, one grocery store for every 51 families Its failure to keep innovating in the face of around a very pricey experience . shopping was also limited to what the — literally a grocery store on every new players that did was A&P’s downfall . lady of the house could carry or push corner . Supporting those stores was a Not only did the consumer have to visit in a small cart home . Most of the time massive cottage industry of wholesalers A&P’s grocery playbook — the one the separate shops to buy different things, shopping for food was a daily ritual and and distributors that supported a huge company wrote in the early 1900s and which was time-consuming, but once consumed a big chunk of her time . network of fragmented food plants and inside, it took forever to get what they that changed how consumers shopped suppliers . There was one wholesaler for for groceries — was now in someone came in for . About the only thing that was valuable every 43 mom-and-pop operations . else’s hands . about the whole experience was the There was no picking up stuff and putting ability for the consumer to put things on Each hop from supplier to wholesaler to it in a basket to check out . account to pay later . distributor added costs . The shopkeeper

layered on his margin, including the cost there, would fill their baskets with more on selling their own branded products was reported to have sold one-tenth of of extending credit to his customers . things to buy . instead of other brands . The brands that all the sugar in the U .S ., one-eighth of all wanted access to the A&P shopper and coffee and more butter and cigarettes Those costs all added up . A&P created cost efficiencies by were willing to play ball were rewarded . than any other retailer . Of the 32 million displacing wholesalers and dealing In 1926, A&P stopped making chocolate households in the U .S . at that time, it The Great Atlantic and Pacific Tea directly with the manufacturers, offering in favor of stocking and promoting the was reported that 5 million of those Company would change all of that . them the certainty of an order and Hershey’s brand . consumers walked into one of its stores guaranteed payment terms . It eliminated every day . An establishment that started in 1859 credit for consumers — taking cash and That strategy kept A&P’s growth engine as a wholesaler of tea and coffee soon check only for payment . It vertically humming and customer base growing . A&P’s urban locations and low prices became a wholesale and consumer- integrated its supply chain, building The logic that seems obvious by today’s were of particular importance to lower- facing business that revolutionized the plants so that it could make and sell its standards was revolutionary at the time: income consumers and the ethnic grocery store supply chain and, with it, own branded products at lower costs . Bigger stores with more products for minorities living there who once only the grocery store experience. For the first Despite being the lowest-priced grocer, it consumers to buy at cheaper prices had more expensive local markets to time, shoppers could walk into a store paid its employees a competitive salary . that were open longer hours would be a shop . Economists estimated that A&P’s with hundreds, then thousands, of items more valuable retailer across all financial low prices raised the standard of living to buy, inspect what they wanted to buy In its day, A&P was the largest coffee measures because it was more valuable between 2 percent and 5 percent for before buying it and then take those buyer in the world, and its Eight O’Clock to the consumer . consumers . They also estimated that items to a cashier to checkout . coffee was a household staple . A&P’s 35 consumers also ate more — 10 percent bakeries produced 600 million loaves of Under the stewardship of the Hartford more — since their grocery dollar went A&P’s stated mission was to create and bread each year along with other bakery brothers, A&P expanded its store footprint farther . then use its supply chain efficiencies confections, more than all but one bakery to become the world’s largest grocery to be the cheapest grocery store in company in the U S. . at that time . chain during the 60-year period between Despite all of that, A&P never dominated every local market in which it operated . 1915 and 1975 and the nation’s largest consumer spend on grocery . The Hartford brothers who owned and The Hartford brothers lived and died by retailer across all categories until 1965 . operated it decided it was more important data, analyzing sales by store and by At the time the antitrust claims were to sell large volumes of goods at a lower product and eyeing the competition to A&P operated 16,000 locations in all but being made, A&P’s sales drove 9 .3 profit than to sell fewer things at a higher make decisions on everything related nine states in the U .S . and reached $1 percent of grocery sales and a little more margin . They saw low prices as a way to to store operations . They used data to billion in sales in 1929 . It operated 70 than 7 percent (7 .3 percent) of consumer bring customers in the door who, when negotiate better deals with suppliers and factories and 100 warehouses . Its sales spend on grocery . where and when to push the pedal down were twice that of any other retailer . A&P

A&P’s profits were also lower than But, what ultimately destroyed A&P a better economic proposition for the Then look at who is going to the other retailers at that time: 1 .3 percent was A&P’s inability and unwillingness consumer . legislature and regulators looking for help compared to 2 .1 percent to 2 .7 percent to innovate in the face of growing in blunting the online platforms . for most retailers . competition . Consumers willingly get on board because the status quo no longer fits It’s almost always a downtrodden And yet, the court made its decision, and After the Hartford brothers died, new their needs . competitor who can’t keep up . with it signaled that tradition and status management pivoted and decided to quo was worth preserving at the expense invest in bulking up its margins at the Regulators and policymakers are revving FAANG — a reference to Facebook, Apple/ of the innovation that made things more expense of being the low-cost player . their engines and are today taking — or Amazon, Netflix and Google — is the efficient and better for the consumer. threatening to take — action against pejorative term some use to refer to the At the same time, new entrants innovators that, like the Hartford brothers new “A&Ps ”. Sometimes they are referred And all because the status quo couldn’t emerged with a new vision: suburban and A&P in their day, are using technology to as the frightful five (Amazon, Apple, keep up . “supercenters” that would sell food plus and new business models to give Facebook, Google and Microsoft) . lots of other household items at low consumers a better experience, and often Somehow, the courts, spurred on by the prices . Kmart and Target emerged and at a lower price . Either way, they are the new merchant’s claims, surmised that if the began taking share . A&P faltered and “bloodsuckers” some eight decades later . mom and pops wouldn’t compete, then could never regain its footing — out- Because consumers are complaining? at some point, the consumer would get innovated by the innovators who learned Aside from not liking online platforms, harmed — even though consumers had at the feet of the A&P master . Nope . the critics can’t seem to get their stories more money in their pockets because of straight . A&P’s low prices and could shop other Eighty-two years later, as a famous Because lots of competitors are feeling retailers with that extra money and buy American philosopher would say, it’s déjà the pressure from innovation and Why is Netflix on the list? other things . A lot of economic value was vu all over again . complaining that the innovators are unleashed when suddenly consumers “unfair ”. I thought this was still a cuddly company weren’t spending a third of what they Innovators are emerging and disrupting that was taking down the cable guys — made to feed their families . traditional industry segments from If you don’t believe me, read almost you know the ones with the big bill and retail to media to advertising to content . any article now about how the online lousy service? It’s easy to understand the Hartford’s Their platform business models remove platforms need to be investigated, brothers’ confusion over why the case friction between consumers and those castigated, broken up, etc . The consumer And Microsoft — aren’t these the folks was brought up in the first place, never new innovative endpoints and come with will be missing-in-action in the story . that managed to lose the next big thing in mind the court’s decision . better service, a better selection and

personal computing — the smartphone — someone else might just come up with to Apple and Google? something you’ve never thought of .

Google has been double-whacked, A&P ultimately lost its edge and was most recently for requiring smartphone overtaken by innovative companies . manufacturers to install Google’s highly That’s what happened to Microsoft in desired apps in return for getting a free smartphones and could happen to anyone license for Android, and before that for else too . innovations in displaying product ads that consumers really like . Of course, A&P and Amazon have a lot more in common than beginning with the All the other successful online platforms letter A . are in line for a shellacking just like A&P .

They can take two lessons from the history of A&P .

Consumers ultimately decide who wins and who loses .

A&P kept drawing in customers for years after it got whacked by the antitrust courts . People didn’t want to go back to the high-priced inefficient old ways. So online platforms can take their public flogging and keep moving on just like Google and Microsoft have done after their public shaming by Brussels .

It’s easy to lose those customers if you don’t keep innovating . And, even if you do,

hrow out everything you’ve ever In fact, these loyal consumers pay, on learned about what makes a average, 3 to 4 percent more for the T consumer loyal to a brand . products they love and are consolidating even more of their product purchasing Consumers, over the last 10 years, have power on those brands than before . turned loyalty on its head . And those brands? Loyalty’s New And they’ve done it in ways so subtle that it was almost imperceptible as this loyalty They aren’t the uber-mega-superstar evolution was taking shape . brands with national acclaim, the ones One Percenters that come with big TV ad budgets and It wasn’t the coveted Gen Z’ers, category leadership that typically defined millennials or even the Bridge Millennials how loyalty was measured — in market who drove this shift . and audience share .

Rather, this loyalty redux is age- and Instead, consumers are pledging their generation-independent, income- loyalty to those long tail brands that independent and geography- independent . enough shoppers like enough to make and keep as their “go-to ”. In other words, it’s the result of how all consumers are buying and sticking with Today, consumers like finding and just about every retail purchase they buying new products, even if they’re make . more expensive than the product they’re replacing . This shift also wasn’t influenced by the de facto coupon, promo code, discount Now that’s loyalty . loyalty program triumvirate long revered as retail gospel and enshrined on the That is, until these consumers discover pages of loyalty playbooks . the next new product that suits them more .

THE RICHES IN THE NICHES 107 product categories they examined in any given year, but those baskets today To meet the needs of loyalty’s new one over that 10-year period . are curated from a selection that is nearly percenters . These are some of the findings of anew five times larger than those same stores piece of research, published in May of That would be just about all of them, carried on their store shelves just 20 this year by Professors Brent Neiman and ROLLING WITH LOYALTY’S NEW including many categories once regarded years ago . Joseph Vavra at the University of Chicago PUNCHES as fungible “commodities ”. In price- Booth School . What appeals to loyalty’s one percenters sensitive categories like soda, butter In a world in which this level of consumer is the opportunity to find innovative and laundry supplies, Neiman and Vavra and product diversity reigns, mega brand Neiman and Vavra studied Nielsen receipt new brands that add value or remove reported that household spending on status at a national level isn’t required for data from 160,000 households and a friction, regardless of whose name is those product categories, specifically, success — and certainly isn’t a precursor 700 million transactions for the decade on the package, whether that consumer increased by 6 percent . for tapping the consumer’s loyalty vein . between 2004 and 2015 . has ever heard of that brand before or Consumers, they found, don’t appear to The riches for consumers, brands and whether it costs a little more to buy than Their analysis revealed that consumers be as price-sensitive as once thought and the retailers who’ve introduced them to what’s occupying that space currently are loyal all right, but not to the usual don’t mind paying more to get what they those brands are in the brand niches . in that consumer’s pantry, closet, living suspects . The long tail of retail products believe best meets their needs . Provided those niches have enough loyal room, bathroom or kitchen . is what increasingly drives brand consumers who keep buying . preference and loyalty — without regard Neiman’s and Vavra’s research also Retailers are where these consumers go to price . suggests that all consumers are as It’s probably one of the reasons why to find these new products. That makes diverse in their brand loyalty as they are grocery shoppers at Walmart can choose product discovery coupled with product As in, consumers — all of them — will pay in just about every other aspect of their to pay $22 .99 for a pound of Kerrygold innovation retail’s new playbook . more and do to buy those products: 3 to 4 lives . Sure, it’s always been that way Irish butter from grass-fed cows ($4 .99 percent more, on average . It’s why savvy online retailers have an — what’s in one person’s shopping cart plus $18 .00 in shipping) from Walmart . edge — those with marketplaces that Neiman and Vavra also found that differs widely from what’s in someone com or pay $5 .64 for a pound of Land give long tail sellers an opportunity to consumer loyalty can’t be bribed . else’s . O’Lakes at a Walmart store . Recognizing be discovered and find those loyalty those different strokes for (enough) one percenters . It’s where technology, Contrary to popular belief and pervasive What’s different is the diversity of those different folks is why Kerrygold butter machine learning and artificial best practices, Neiman and Vavra items across all of those shoppers . remains an option on Walmart’s virtual intelligence (AI) are used to find buying discovered that this new flavor of brand shelves . Consumers may still only buy more or patterns and inform purchasing and loyalty isn’t influenced by sales or less the same 150 to 250 grocery items pricing decisions — almost in real time . coupons to incent trial across 91 of the

Discovery and product innovation is why 17 straight quarters of declining introduced limited edition designer that reduce the importance of the more many vertical marketplaces are becoming carbonated beverage sales, beat analyst’s brands in their stores — cranked up a traditional retail discovery channels? lifestyle ecosystems that help consumers expectations last quarter . few decibels . Barney’s introduced The discover things to buy in context . Houzz Drop earlier this year and Nordstrom What Neiman and Vavra’s research isn’t only a place to find inspiring ideas for Coca-Cola may be a smaller company introduced The Space — both efforts to concludes is that once consumers find a the home but to discover new products than rival Pepsi, which also produces entice a brand-loyal, not discount-driven, brand they love, they’ll stick with it . and related services in a context that salty snacks in addition to beverages, but consumer into their storefronts . makes it easy to buy — and all from one it’s one with higher operating margins (27 Of course, the flip side of this is that gigantic marketplace in which inventory is percent to Pepsi’s 16 percent) and roughly All of this should be good news for when consumers find a new go-to brand, replenished daily . the same projected annual growth rate retailers who dream of brand-loyal it means they dumped another . So that (7 23. percent to Pepsi’s 7 54. percent) on customers who are price-insensitive . means the competition to come is with Farfetch, which will soon go public with the basis, analysts say, of price increases another niche product that can steal their a reported $6 billion market cap, is a and operational efficiencies. And for all of the innovators who want love . marketplace of products from designer to be that next new product with which boutiques all over the world . The site Enough of loyalty’s one percenters are consumers will fall in love . And that’s what’s driving competition aggregates that product inventory and buying enough of those 350 brands to among manufacturers . makes it searchable . Sales are no longer drive their top- and bottom-line growth . The question that remains unanswered limited to the tourists in that city or the is what happens once these loyalty one And finding those niche products that residents who live in that town but to It’s why some traditional brick-and-mortar percenters find their new go-to brands. enough consumers love is what’s making loyalty’s many one percenters who will retailers are quickly rewriting their own the difference between retail success stumble upon a new brand to buy and buy consumer loyalty playbooks to reflect Will they remain loyal to the retailer who and failure — regardless of where those more from later . this shift and becoming platforms for helped make the match? retailers play . new designers and capsule collections of Diversity, discovery and product limited inventory to create urgency and Or will savvy brands use technology, new Viva la difference! innovation is where savvy brands are exclusivity . business models and payments flows to focused too . cut out the retailer middleman and deal At full price, but not necessarily at haute direct? Coca-Cola isn’t just about Coke and couture price points . Diet Coke anymore . Coca-Cola today Or will new middlemen emerge, like Alexa is a company of 350 brands and 5,000 It’s the concept that Target and H&M and Google Assistant, to help consumers products . It’s one that, after nearly popularized years ago when they discover the brands in entirely new ways

ong before innovators began disease, so humans could live longer, talking about the power of healthier lives . ecosystems to transform L Ecologists wanted to better understand commerce, scientists spent centuries studying them under microscopes in their the relationship between living things and labs . their environment to improve the health of Mother Earth . Biologists wanted to better understand how to keep the human body’s Marine scientists wanted to better ecosystems from being devastated by understand the health of Mother Earth

What Innovators Can Learn From

Uber Cash Source: https://io9 .gizmodo .com/incredible-historic-pictures-of-early-science-labs-485796493

Ecosystems need an energy source that and consumers on board — and deflect gives producers the fuel to create the or embrace the actions of emerging things that consumers want and need . innovators . Absent an energy source, the ecosystem dies . Decomposers are the ecosystem It’s why the fuel source is the ecosystem’s wild card . These ever-present wild cards unsung hero and secret weapon . can tip the balance of an ecosystem one way or the other — sometimes by working THE ECOSYSTEM’S UNSUNG HERO quietly under the surface for long periods The story of Uber and the massive of time to fortify its health and keep disruption to the century-old regulated the balance intact . Sometimes working taxi industry it created when it launched quietly under the surface to mount a is well-documented . The nuances of that surprise attack that is too large for the disruption, however, may not be . ecosystem and its existing energy source Source: https://io9 gizmodo. .com/incredible-historic-pictures-of-early-science-labs-485796493 to fight back and survive. Yes, of course, Uber upset the balance of power in the taxi ecosystem by giving and its impact on the ecosystems living in AN ECOSYSTEM BY ANY OTHER NAME It’s why the word ecosystem, when used consumers a better “taxi” experience the oceans miles beneath it . to describe the payments and commerce As different as the ecosystem pursuits using, at first, idle black car drivers and segment, is much more than just a that scientists and innovators may have, then later, just about anyone with a Today, payments innovators want to buzzword . success means addressing the complex, newish-car and a driver’s license . better understand how their innovation and often intractable, challenge that cuts could make existing ecosystems stronger Substitute producer for buyer or supplier . across all of them: finding the balance Uber rode the tailwinds of smartphone and healthier, destroy them on the way that keeps ecosystems healthy . adoption, app stores, well-developed to creating something different (and they Consumer for the end user . technologies like GPS and (at launch) think better) or blunt their ambitions Creating and then keeping that balance well-established mapping software entirely . Decomposer for innovator large or small, today is no different than what scientists provided by Google to blend the online established or emerging . in their labs learned long ago: managing and offline worlds around a consumer It’s a useful metaphor for examining one the delicate interdependencies of the four experience that before lacked certainty of the latest payments and commerce Fuel source for that singular feature characteristics that all ecosystems share and reliability . ecosystem moves: Uber, with Uber Cash . or function that ecosystems use to — and doing that in near perfect harmony . create the value that keeps producers

But the fuel source that ignited the of payment at all . It was an invisible Uber drivers used their own vehicles to few gigs, those drivers now powered a Uber platform wasn’t the smartphone payments experience made possible “share” rides with passengers willing to local fleet that could leverage its logistics (although that surely helped) but payment because consumers already had cards in pay them more than a basic taxi ride expertise to expand the Uber ecosystem cards and the card networks . It was how their wallets they could register with the for getting them from point A to point and power new services . Uber used them both that really helped app . B because of the better experience that ignite its platform . Uber provided . Uber’s platform paid those One of those is Uber Eats, which launched Without the ability for users to register drivers — all independent contractors — in 2014 . A consumer could pop open the Uber a credit or debit card to their Uber app for those services . Uber drivers had the app, request a ride, be messaged via and experience that now infamous “Uber flexibility to clock on and off when they Uber Eats is an online delivery aggregator the app that the driver would arrive in Experience,” Uber would be little more wanted to work, be paid for the rides that links an existing Uber consumer’s three minutes at her doorstep, watch than a more predictable taxi service in a completed on those shifts and build account credentials with a service that the driver’s progress, contact the driver nicer car that smelled better . their own businesses on top of the Uber delivers food to consumers from local if needed — all things that were a platform . restaurants . monumental improvement over standing The “Uber Experience” helped ignited the in the street hoping for a taxi . Uber platform, city by city, and built the Over the years, Uber’s ecosystem grew Uber Eats took off, despite launching a habituation that its ease of use created . and thrived: a base of consumers with the decade after Grubhub, three years after But it was the experience of hopping Uber reported in July of 2018 that it had Uber app and a base of drivers with the Postmates and a year after DoorDash . out of the car upon reaching that final completed 10 billion trips, with Uber users Uber app too who could be matched with Uber entered the food delivery arena destination without having to pay that spending, on average, $50 a week with consumers wanting a ride . Over the last with a decided advantage: an ecosystem defined what would be forever known as Uber . Some spend much more in cities nine years, Uber has built a thick supply powered by a density of users with “The Uber Experience”: The experience of like Boston, New York and San Francisco . of drivers and equally thick demand from registered card credentials and a fleet having the card registered to that rider’s consumers for their services in the 814 of drivers with an incentive to earn more Uber app automatically charged for the But that’s just one side of the Uber cities in which it now operates . money and the capacity and logistics cost of that ride, including a tip for the ecosystem . expertise to deliver restaurant orders and driver, without the consumer having to do Over those nine years, Uber developed keep restaurants front and center in the anything at all other than leave the car . FLEETS AS THE FUEL another valuable fuel source: its fleet of food delivery game . drivers . Uber created an entirely new vocabulary The magic of Uber was the payment Uber used both to get restaurants on word and category of transportation experience — an experience that Just like the original notion of giving idle board and keep its users and drivers on service called ridesharing and a new way consumers valued because, well, black car drivers an opportunity to fill in board too . of describing their drivers — gig workers . they never had to experience the act the gaps between appointments with a

Today, many call Uber Eats the company’s used to pay for Uber rides and orders as easily as they can using any other some cities who are working overtime to secret weapon . placed via Uber Eats . payments method . make it difficult for Uber — and, in some cases, Lyft now too — to operate within Since its launch, Uber Eats has built The no-fee Visa Barclay’s card provides 4 In addition to offering users a one-stop them . a network of restaurants in some 280 percent cash back rewards when the card shop for Uber credits and rewards, Uber cities and, according to CEO Dara is used for dining, including at Uber Eats, says that it’s getting a nice economic Scooter and bike-sharing apps are Khosrowshahi, a business with a $6 and 3 percent when used for travel . bump from having access to the float that multiplying like rabbits in the spring in billion run rate in 2018 that has grown these balances generate — more material hipster cities with their (incredulous) 200 percent over the last year . That The Uber Cash card launched last week now as interest rates inch up . multi-billion valuations and cheap-as-dirt compares with a roughly $3 .7 billion run is now the repository for those rewards, fares . Uber’s CEO said buying JUMP bikes rate for Grubhub . credits and gift cards, a stored value All fueled by payments and payments is a way to blunt that impact, even if it account with balances that can be spent cards . means taking a hit on margins across its It’s been reported that Uber Eats’ users on services inside the Uber ecosystem . ridesharing platform . Rumor has it that spend, on average, $220 .37 a year — Using Uber Cash also earns more rewards FUELING THE ECOSYSTEM PUMP Uber is close to offering scooter services far more than is spent on competitors for users . Uber is kicking in cash to get as well . The Uber app now makes it easy The fuel that powers ecosystems is such as Grubhub — and are loyal to its users to establish an Uber Cash account for users to switch and pay using their usually obvious — hiding in broad daylight platform . Uber Eats users concentrate and attach a funding source to keep it Uber credentials between ridesharing — but essential to igniting an ecosystem 53 .6 percent of their food delivery spend topped up: $5 on a $95 load to get the options . and keeping it healthy . It gives life to using it . Uber Cash account balance to a nice ecosystems and helps them grow . It round $100, for example . Meanwhile, Grubhub, DoorDash and can also become the basis to build new CLOSING THE LOOP Postmates aren’t twiddling their thumbs, value inside existing ecosystems — or Uber says that Uber Cash simply watching Uber eat their food delivery In 2016, Uber launched Local Offers with leveraged by others to destroy its value . organizes, in one place, the various lunch either: All three are pursing very Visa, and in 2017, it launched the Uber co- credits and rewards that Uber users different strategies to strengthen branded Visa card issued by Barclays . Uber is hoping that Uber Cash is the already have available to them today . their own ecosystems in an effort to fuel that will keep its own ecosystem in Giving users that visibility is also an destabilize Uber’s . With Local Offers, users that register a balance . incentive, Uber hopes, to use it more — Visa credit and some debit cards to the creating the strong network effects set in Uber, with Uber Cash, appears to be Uber app and use it to pay for goods and Lyft is out to eat its lunch and is making motion when consumers accrue rewards doubling down on the fuel source that services at participating stores accrue inroads in the ridesharing part of its and can use rewards to pay for services ignited it — using payments to create a rewards points . Those points could be business . So, too, are the regulators in new Uber Experience that it hopes will

keep the Uber ecosystem healthy and decades ago to create and grow powerful fend off ecosystem threats . That new commerce ecosystems . payment experience offers more value to users each time it’s used to pay for the But payments, by itself, isn’t enough . services its users already consume on a regular, even daily, basis . Hiding in plain sight is the experience wrapped around the payment that builds With and without them . healthy ecosystems and keeps producers and consumers sticky — and makes it Today that includes the many flavors of much harder for ecosystem destroyers to ridesharing it offers and food delivery take root . via Uber Eats . Soon, that ecosystem will include alternative transportation options, The lesson of Uber, PayPal and Amazon is including bike and scooter rentals that are that payments is but a means to that very now part of the Uber ecosystem . powerful end .

And tomorrow, although Uber minimized this in my conversation with them last week, a wallet that could be used to pay for goods and services that are a contextual part of that Uber experience: order ahead for pick up at the same restaurants that may be part of the Uber Eats delivery network today or may want to be down the road .

Uber isn’t the first to use payments as the fuel to ignite a powerful, sticky ecosystem . PayPal and Amazon used the power of an easy way to pay two

needed a few outdoor cushions to give him cash . So, I called and asked earlier this season and hired a local whether he would accept payment via my I upholstery shop to make them . This bank app and his mobile phone number . small business is a really small business: a guy working out of a teeny tiny storefront He seemed confused at first — obviously in a little town north of Boston . The no one had ever tried to pay him this shop came highly recommended for the way — but I explained how it would work . quality of his work and high service levels . I also told him it was easy — once he got The sole proprietor is a hard-working the message via text, all he needed to Why immigrant who’s been in business in this do was click on the link and he would be town for 20 years . given instructions for how to accept the deposit . Certainty He delivered my cushions, as promised, about a month ago . The product was I had a sense there might be a problem exceptional . The handwritten invoice when I was notified via text a day later Rules Payments he left with my cushions included his that he had not picked up the money . name, his mobile phone number and the I texted to remind him to click on the payment methods he accepted: cash message and follow the instructions . or check . Like many small businesses He said he needed to go to his bank to (SMBs), he doesn’t accept cards . The get help since when he clicked, he didn’t invoice amount was less than $500 . know what to do .

He’s still waiting for his money: not In the meantime, I gave him a few more because I haven’t tried to pay him over items to upholster, which were delivered the last month, but because how I have this past weekend, along with a new tried to pay has failed him, and me . invoice for that work — plus the balance from the first invoice. When I got the invoice, I panicked a little . I haven’t had paper checks in the house He said when he went to his bank — a in more than a year, and no one would small one — to ask for help, he was be back at the house for another week told the bank didn’t support this type

of payment and to return the next day That would ignore the fact that there’s a upholstery shop on the North Shore of the U .S . have a bank account — some 93 when the manager was back . This was huge swath of SMBs who operate just like Boston (out $500 now for a month) . percent of the adult population . not a payment going to a business bank him and bank at one of the 13,198 banks account but to his personal account, that have not yet connected to the Zelle THE DISLIKE OF THE UNKNOWN The outcome, however, using PayPal, is which probably does double duty as his network — lots of them very small . more certain for both the sender and the It’s easy to assume from my example that business bank account for all I know . receiver . People with a PayPal account ubiquity and certainty are two sides of the I tell you this story not to criticize the know how to accept money and then same coin, but that’s not my point . Neither he nor his bank could figure out Zelle network — I use it, and it’s great transfer it to their bank account if that is how to connect his account in order when it works — nor the efforts on the what they choose to do . Like most adults in the U .S ., my to accept my payment . Zelle hadn’t company’s part to create efficient ways upholstery guy has a bank account and, yet reached this small bank, and the to pay, nor to minimize the slog that it People with a bank account that’s not in theory, sending him money via a peer- instructions for how to enable that is to connect to every single small bank attached to the Zelle network may not to-peer (P2P) network that can enable deposit weren’t clear enough for he or in the country to create those easy and have that certainty, even if they have receipt across any bank in the U .S . his bank to navigate . At least that’s what seamless experiences . Or to buff up a way to enable their bank account to seemed like a no-brainer . I understood from the conversations he PayPal . accept a transfer of funds . had at the bank and relayed back to me . But it’s not that simple, at least not yet . But to remind all of us that payment So, when someone I want to pay has And the outcome is far from certain . Since he had other options for how to innovations are only as good as the PayPal, we both know it will work . When receive payment from me, he dropped it certainty those innovations deliver to their someone I want to pay has a bank Knowing that one out of every two people with his bank . intended users . account, neither one of us knows, just with bank accounts will likely encounter from that fact, that it will work . enough friction if their bank isn’t part He has a PayPal account, so that’s how I’ll Uncertainty, particularly when it comes to of the P2P network to abandon the pay him today . people’s money, creates confusion, and That lack of certainty will guide my transaction creates uncertainty for me — confusion creates distress . decision about what to use when sending and probably other senders like me too All of you reading this probably bank at money to people going forward . It means who may have had a similar experience . one of the 18 big banks that are part of Distress creates friction . the question I might ask (instead of this network and are thinking, “What’s whether I can use their mobile number Lots of people worldwide may have the big deal?” and “You must be dealing And when that happens, humans default to send money to their bank account) is PayPal accounts — 250 million at last with someone pretty unsophisticated who to what they know is certain — whether whether they have a PayPal account I can count — but many more have bank banks at a podunk little bank ”. they are running treasury ops for the send money to instead . accounts: About 230 million adults in biggest company in the world or a little

When there isn’t ubiquity, which creates buttons are accepted, the payments Ubiquity can also be redefined by discussing options to expand their certainty, uncertainty rules . experience is certain and secure . certainty . settlement windows . Innovators are using existing rails, new technologies and new CERTAINTY AS A CATALYST FOR Processers enable push payments via a Innovations that provide that fraud and risk models to push funds into CHANGE debit card as an alias, giving companies transparency, predictability and security merchant accounts the instant sales are new options and the certainty of getting today are valued just as much, if not more made . Others are taking on the heavy lift Ubiquity, of course, is payments nirvana . money instantly into the bank accounts of than, the speed at which those funds of integrating with messaging standards It’s why Visa and Mastercard are such their customers . move . and financial institutions so neither they powerful global brands . Consumers know nor the corporates they serve have to do that payment methods bearing their We see similar dynamics at play in the Banks, knowing this, are working through so . brand are accepted at tens of millions of B2B payments space around the notion of the cost/benefit analysis of making merchants globally and that when they real-time payments . investments in real-time systems when MAKING THE UNKNOWN CERTAIN use those products, they work reliably . the corporates they are serving have Every business has a bank account, and prioritized other things as more pressing . Certainty can also build the trust that can That creates certainty . big businesses have many more than This is happening at the same time that become the catalyst for change . one . The bank account is the ubiquitous other payments options are emerging — Retail payments innovators have tapped It’s been proven scientifically that most funding source used by trading partners or have emerged — that enable a more into that ubiquity-driven certainty to people dislike the unknown — sometimes to pay each other . certain, faster payments outcome in a enable new use cases that extend their so much so that it becomes debilitating . more cost-effective manner . reach . The notion of moving those funds faster Some people thrive on the unknown; they between the bank accounts of those Just like we’re seeing on the retail side of like the risk, love the thrill . But most of us PayPal and Amazon enable users to trading partners is driving a slew of payments, innovators are leveraging the don’t . Aside from the occasional trip to attach Visa- and Mastercard-branded innovation and investment across bank ubiquity of the business bank account to Vegas, we like certainty in our daily lives . payment methods to their accounts and and non-bank network rails today . build solutions that deliver the certainty to use them as the funding source when Often people rely on people they know that corporates say they want and need transacting on sites where their buttons and trust to get them over the hump . But all else equal, that’s not what when making and receiving payments are accepted, eliminating the need to Their own experiences, of course (good treasurers and cash managers say they from other businesses and making those enter card credentials on sites they may and bad), are the final judge and jury. value the most today . Certainty of good funds move faster as well . not know . Seeing those “buy buttons” on funds is what they need to plan their cash websites is a cue that on websites and I’ve been writing and speaking about the position, as is the certainty that the funds Same Day ACH leverages existing rails within the marketplaces where those significance of certainty and payments moving across the networks are secure . to enable same-day funds availability,

innovation for the last five years. It’s a It’s why consumers default to paying with concept that’s often marginalized by plastic in a store even if they’re holding a many innovators, even downplayed by mobile wallet in their other hand . the incumbent players who’ve been the source of that certainty for many years . It’s why more than half of all B2B payments in the U S. . are still made using Innovators often think that most people a paper check . will see past their fear of the unknown because their new way of doing business It’s why, regardless of whether you’re is modern and high-tech and delivers a a sole proprietor who makes cushion better outcome . covers or the treasurer managing the cash position of a Fortune 500 company, Only if that better outcome is also one your appetite for payments innovation is that delivers certainty . the same: Show me the certainty, and I’ll show you the money . There will always be those who embrace uncertainty as the motivation to try something new .

But the more innovative the experience, the less likely people — business people and consumers — are willing to try it unless it’s connected to a brand they know and trust for enabling a reliable, safe and secure similar experience .

It’s why people are willing to use a voice- activated speaker powered by Alexa for commerce: They know and trust the Amazon brand for delivering a reliable commerce experience .

efore there was Alexa, Bixby, Siri At first, that intermediary was a bunch of and Google Assistant, there was boys tasked with intercepting calls made B Emma Nutt . to a central switchboard . When a call came in, they would ask who the person wanted to be connected to, then they would physically scramble up and down the floor-to-ceiling boards of telephone lines to plug and unplug phone lines to connect those callers . That turned out to be less than ideal . The boys’ physical dexterity was overshadowed by their pranks and less than customer-friendly behavior . Emma Nutt, born in 1860 in a small town in Maine, was hired by Alexander Graham That was when Bell decided women Bell in 1878 to be the world’s first female would be better suited to serve in that telephone switchboard operator . When role . Bell’s invention — the telephone — was first introduced, phones were sold in The job description Bell reportedly posted pairs, and calls could be made between was interesting: qualified candidates those two parties only . must have long arms — switchboards Who’s Going were tall — and be unmarried, since it To ignite adoption and use of telephones, was a 24/7 job . To accommodate that Bell knew he needed to create a network schedule, Bell would install switchboards In The Connected Car that could connect all telephone users into the homes of his female employees . with each other . Getting that going would require someone to make those His first hire was Emma Nutt in 1878. Driver’s Seat? connections, since there weren’t automatic switches back then . It turned out to be a stroke of genius and a turning point for Bell and the telephone .

I’ll spare you the infamous Margaret At the end of her three-decade-plus Thatcher quote about the need to hire career, about 25 percent of the U .S . a woman if one really wants to get population had a phone in their homes . something done… VOICE AS INTERMEDIARY 139 YEARS THE POWER OF (A WOMAN’S) VOICE LATER

Customers of Bell’s network lauded Nutt’s One hundred years later — 139 years soothing, friendly voice and technical after the introduction of the telephone expertise . Based on that success, Bell — another pleasant female voice has hired Nutt’s sister and more women after emerged to ignite the next generation of that . Bell discovered that women could voice-activated networks: Alexa . handle the physical aspect of the job and brought a more pleasant demeanor and It’s only taken Alexa, her voice and the reliable service level to the role . voice ecosystem that she and others have since spawned four years for 25 Over the years, of course, long-armed percent of the U .S . population to own a women were replaced by the automated voice-activated device, many of which switching systems that evolved to are powered by Alexa . That rate of by Alexa, SDKs (software developer kits) Alexa wants to ride shotgun in the U .S . become the backbone of the telephone penetration is astounding . for third parties to use to incorporate consumer’s automobile . switching systems that are in place today . Alexa into their own devices and a suite Amazon with Alexa wasn’t the first to of Amazon’s own hardware devices Every one of them . But it was Nutt, with her voice, that leverage the consumer’s interest in using that consumers can purchase to bring became the intermediary that helped voice instead of typing and swiping as Alexa and her skills into their homes and Google’s recent announcement makes it ignite the telephone network we know and a way to access content and services . offices. clear that it isn’t about to let Alexa hog use today . She stayed with Bell and the But Amazon has used a pleasant-voiced the road . Boston Telephone Dispatch Company for intermediary to create, and ignite, a voice- And cars . Google reported last week that it has more than 30 years until her retirement . activated ecosystem . The launch of Echo Auto last week, on reached a deal with the Renault-Nissan- That ecosystem today includes the heels of the August release of the Mitsubishi alliance to use its Android developers who create skills powered Amazon Auto SDK, makes it clear that operating system as the in-dash operating system for the OEMs (original equipment

Cars have become a connected device Car OEMs want in on all of that action . not necessarily because of what OEMs The question is: Can they, and will have done to make them that way but consumers let them? because of the devices consumers have brought into their cars to create those in- Fearful of giving up ground to a tech car connected experiences . intermediary — Apple, Google, Amazon — many OEMs are working with third parties Consumers use Bluetooth to connect the to develop their own branded apps and now nearly ubiquitous smartphone to connected in-dash experiences . their car’s in-dash system to make calls and listen to their Spotify playlists . The Ford has created its own system even not-so-very attractive (but oh-so-very though Alexa can be found in some Ford functional) suction windshield/dashboard models . Mercedes-Benz announced it phone mounts have made it safer for will use a third party to create its own . drivers to access navigation and other Xevo today powers 25 million vehicles apps while behind the wheel, including with an in-dash platform that gives OEMs the apps that drive (pun intended) the opportunity to create a custom- branded experience that starts the manufacturers) that collectively sell more THE VOICE-ACTIVATED ROAD RACE commerce . moment a consumer buys a new car . cars than any other auto OEM in the world Cars have recently become a consumer- We did a study last year in collaboration Xevo says dealers use the new car buyer — last year, some 10 .6 million vehicles . connected device even though they’ve with Visa that identified some $212 billion “onboarding” process to get car owners to been a powerful connected device in the That deal starts in 2021 . It’s a long way in of commerce initiated by drivers in the download its branded app that connects fleet and transportation world for a long the future, but it positions Google for the U .S . during their commutes to and from the user to maintenance and other car- time . new 5G world in which connected cars work each year . Consumers now order centric alerts . An impending use case will become more important . everything from coffee in the morning includes linking car telematics to driver Telematics have been used by fleets to groceries or dinner for pick-up on the profiles to enable commerce and new use for nearly 20 years to improve vehicle Still, it’s three years off . way home. They use apps to find, and cases, such as usage-based insurance . performance and driver safety and to sometimes even pay for, gas at the pump track freight and driver performance Consumers, of course, want it now . And — as well as to find and pay for parking. Consumers will have to buy a new car or behind the wheel . have figured out ways to get it now. a used car new enough to have this in- dash experience and join the ecosystem .

That might take some time . a car more aesthetically acceptable, too . of the iPhone experience since 2012 — they have in their homes to control lights And people just aren’t driving as much . that put voice on the map as a powerful and security systems and locks and Did I mention consumers want connected consumer access channel . curtains and appliances using only their cars now? That’s not a problem for phone-based voices . apps, which have been connected to That’s because Amazon put her — and Consumers are keeping their cars longer many cars for a long time via Bluetooth . the devices that powered her — into the Even from their cars . than ever before . center of the consumer’s universe — in But it makes getting a critical mass of homes at first and later in smartphones But Amazon didn’t build Alexa to serve In the U .S . today, there are roughly 272 OEM-branded, in-dash app users a very that are carried everywhere . Today, Alexa only as a voice-activated on/off switch . million cars on the road . The average age long-term prospect — and the prospects has captured roughly 62 percent of the of those cars is 12 .1 years . Two years of engaging an ecosystem around those voice-activated market and has more than Amazon was built for commerce . Its have been added to that lifespan over the apps a long-term prospect too . That 30,000 skills for consumers to tap . marketplace is the digital intermediary decade spanning 2007 to 2017 . assumes, of course, that consumers want and payments network that connects to pop open a separate app that is only Alexa started out as a voice on the other a shopper with a product to buy . The Roughly 17 .1 million vehicles were sold about their car and what they do in that end of a cylinder that sat on the kitchen ecosystem it has created over the last in the U .S . in 2017 . Roughly 6 .7 million of car using that app . counter that told jokes, played music and two decades is about optimizing those those were cars; the rest, light trucks and got the weather forecast on demand . All commerce opportunities for its users and SUVs . But that’s not the connected car those things got consumers comfortable the sellers that wish to reach them — now experience consumers have and use with talking to an inanimate object and on and off its branded marketplace . Consumers are keeping their cars longer today . getting reasonably coherent responses in for many reasons . New cars are more return on a series of low-risk commands . Alexa was built as a layer on top of expensive than many people can afford, For OEMs to capture that experience, they Amazon’s commerce platform — first so they are opt to buy used cars instead . might just have to share the road with the It also gave Alexa the chance to learn connecting consumers with information, Used car sales in the U .S . are more than tech giants — two in particular . from consumers, better understand what then tasks, then access to information double that of new cars . they were saying and give her context . and services that led to commerce: ON THE ROAD TO THE CONNECTED LIFE ordering flowers, calling an Uber, ordering Cars are built better than they ever were, Over time, consumers got more pizza for delivery . I’ve been writing about the impact of so they last longer . Many models also comfortable making Alexa their home voice and commerce ever since Amazon change very little in terms of look and feel command center, and Alexa got smarter Alexa also wasn’t built to be device- hit the scene with Alexa in 2014 . It was from year to year, which makes keeping in her responses . Today, consumers use centric, channel-centric or use-case Alexa, not Siri — despite being a part Alexa on their phones and via the devices centric . Alexa was built to go where her

users take her — including while driving in Big tech is in their space because the the money to fight its way back into the their cars . consumer has put them there . game .

This isn’t to say that Alexa and Amazon The voice-activated, connected device But this is going to be a race between have car commerce sewn up, nor even experience those consumers are taking tech giants who can power rich voice-activated commerce in the bag . into those cars is just one stop on the ecosystems inside of the car and out — connected journey consumers take every not the car OEMs who don’t want today to Google and Google Assistant has its day . Consumers don’t want an experience share the road . roots in search and commerce too, and that connects them to a device, but one consumers are used to “asking Google” that can connect them to their lives . And at least one of those tech giants is a lot, including where to buy things . using a pleasant, female voice as the Google has also introduced a line of And they want it now . intermediary that connects those many hardware devices that have captured endpoints for the consumer . more than 25 percent of the voice- At $29 .99 (soon to be $49 99),. the Echo activated market and is assembling a Auto can put Alexa behind the wheel of cohort of merchants, including Walmart, every car on the road now . It will likely be that would like to give Alexa a run for under many Christmas trees this holiday her money . In the car, Google’s Waze and season . For Alexa, connecting the car to Maps are the driver’s go-to’s that are also commerce is first about connecting the integrated with connected commerce consumer to commerce, then giving her experiences, including a growing number the ability to take that experience on the of order-ahead options at quick-service road, wherever it may lead . restaurants . Still, I wouldn’t count Google out . It has But this is to suggest, and suggest significant strengths and a powerful strongly, that the race isn’t about OEMs Android-based ecosystem . Or, for that wanting a spiffy in-dash, voice-activated, matter, Apple, which is pretty much OEM-branded experience and being nowhere today when it comes to a voice- fearful of big tech getting into their space . activated ecosystem — a 4 1. percent share — but has all the incentives and

he end of this month, Oct . Ten years after Apple launched the first Bitcoin: 31, 2018, will mark the 10th iPhone, it had sold 1 .2 billion of them, T anniversary of the day that and had firmly and fully ignited the mobile a link to a paper, authored by Satoshi commerce revolution with the notion of 10 Years Of Nakamoto, describing the digital currency apps and a robust developer ecosystem . called bitcoin was first publicly circulated. Ten years after bitcoin launched, it Smoke And Mirrors Jan . 3, 2019 will mark the 10th remains the go-to currency of criminals anniversary of the first bitcoin block that and a way for cybercrooks to wash their was mined by Satoshi, giving birth to money . Well, that’s when it’s not being the notion that a digitized, anonymized bought by speculators as a digital lottery currency sent over a permission-less, ticket. Seventy-five percent of bitcoin distributed ledger could democratize how transactions are the result of miners money would move between people and moving money between themselves and parties around the world . speculators trading it — the transactions that it powers are nefarious in nature, at Ten years after PayPal launched, it was best . operating in 190 countries and had 60 million users . Bitcoin’s processing operation is highly concentrated within a handful of miners Ten years after Amazon launched, it was in China — which is getting more nearing 70 million users and had just concentrated now, since the price of launched Amazon Prime . bitcoin has crashed and fewer players can afford to keep the lights on (literally, since Ten years after Visa and Mastercard bitcoin processing requires a massive launched, they had each licensed amount of electricity) . their tech to thousands of banks that had cards in the hands of millions of Bitcoin exchanges are routinely hacked, consumers, who were using them to buy and those funds are usually lost forever . things at millions of merchants .

Bitcoin is anything but free and, in fact, to anyone for free — or free from of successful platforms and tubed many now, a decade later, is that innovating it can be pretty pricey for senders and the centralized regimes that bitcoin thousands more . financial services and payments is receivers . Miners, despite eschewing enthusiasts said only made money impossible without them . capitalist regimes, as it turns out, like more expensive and out of reach for the The design principles of these complex the capitalist way of being paid for their underserved in developing economies . networks are the subject of many It’s becoming a more problematic box, services . articles that my colleagues and I have too, that has raised only more doubts Only recently has the media started written about for a decade or more about their viability . Sending money over the bitcoin rails is waking up and piling on . — and captured in two books that also anything but fast . Despite very low were published by Harvard Business Especially now that we see how little transaction volumes, it can take as long But only because it has to now . School Press in 2007 (Catalyst Code: payments innovation they have ignited as an hour or more to take a round trip on The Strategies Behind The World’s and how much progress has been made its rails . OF FADS AND FRAMEWORKS Most Dynamic Companies) and 2016 without them . (Matchmakers: The New Economics of I’ve been writing about bitcoin, blockchain Yet, what’s amazing to me is that we are Multisided Platforms) . INNOVATION BY ANY OTHER NAME and the smoke and mirrors of their still, as an industry, talking about it — promise to change our financial system Satoshi’s innovation was a distributed bitcoin, now crypto, blockchain — as if Those frameworks start with finding since 2014 . ledger network powered by bitcoin . its potential to revolutionize our global a problem that needs to be solved by Bitcoin’s use cases — enabling criminal financial system, and the way money eliminating friction or adding value to In those pieces, I acknowledged bitcoin activities and fueling speculation moves between parties around the world, platform stakeholders . The platform as an interesting, even fascinating, — helped it build critical mass as a is just around the corner . becomes the source of that value . That innovation . But as the salvation of our processing platform for distributed value is used to build those networks global financial system, not even close. ledger tech (DLT) . It’s why bitcoin and It isn’t because it won’t . using sound business models, with blockchain are inextricably used — and strong, principled governance that builds At least once a year, I reprise the theme, often conflated. You can have distributed The innovation touted 10 years ago, that the trust that delivers scale . mostly to remind everyone that the has garnered billions of dollars of venture ledger tech without using bitcoin rails, but innovation that truly has the power to you can’t have bitcoin without blockchain capital (VC) funding, hasn’t turned out to All of that turns out to be really important, change the world is built on a framework technology . be the “internet of money” as advertised . and has proven to be time and time again, that respects — and reflects — how when it comes to moving money . networks work and how they scale . Those Nor is it now (nor will it ever be) the single Bitcoin’s unsavory nature gave rise to frameworks have launched thousands alternative distributed ledger schemes, digital currency that will democratize The corner that bitcoin/crypto and the movement of money from anyone blockchain have boxed themselves into

powered by new cryptocurrencies such as crypto volatility and create the stability China has, in effect, digitized money THE TALK OF THE BLOCKCHAIN TECH Ethereum, XRP or Lumens . needed to make everything, from lattes to with Alipay and has cracked down hard Today, blockchain tech has pushed Louboutin’s, buyable using crypto . on crypto exchanges . It, like every other bitcoin off its perch at the top of the All of these cryptocurrencies are now government in the world, doesn’t want to innovation hype cycle . We’re about to trying to build their own networks on top That means we are now funding and aid and abet money launderers inside its release a new study that documents the of uses cases that move money between creating cryptocurrency innovations to proverbial “four walls ”. degree to which the hype machine has parties via a distributed ledger protocol make other cryptocurrency innovations been pinned on blockchain tech’s claims — using the need to innovate financial that haven’t worked more viable . India is using QR codes, existing rails of reinventing everything, from moving services and payments as the hook and and its own fiat currency to enable money to making sure that our food driver of the need . Only in America . digital payments between people in the supply is safe . aftermath of its demonetization, on the It’s a curious position to take . road to establishing digital payments . WHEN FACTS GET IN THE WAY Over the last 18 months or so, we found Here’s the really big news flash: Money more than 140 announcements about The only reason for using those Western Union moves money all over the has been digital and moving around blockchain tech pilots, many of which cryptocurrencies, and the more than world — and into developing economies — the world that way long before most relate to use cases in payments and 1,000 that have followed in their and has for more than 160 years without people started talking bitcoin, crypto and financial services. footsteps, is to avoid using the financial needing cryptocurrencies . Western Union distributed ledger tech . services networks that exist today — and CEO Hikmet Ersek has gone on record, Only four of those announcements have the fiat currencies that underpin them. stating that Ripple’s XRP, which the Take developing markets . ever been followed by stories describing company piloted, saved Western Union further development or success — or that It assumes that innovation of financial absolutely no time and no money . M-Pesa’s original use case was to digitize money has been raised to double down services globally is only possible the paper currency that was once sent and do even more . outside of the existing financial MoneyGram, Xoom and PayPal move back home to villages via paper bags and services infrastructure, using a new money all over the world, too, without busses . A decade later, it has more than At the same time, investments in cryptocurrency as its exchange of value — crypto . So, do banks and innovators that 26 million users who’ve sent and received blockchain tech are positively puny . essentially, the processing rails to move leverage those rails to create payments more than 184 billion ($1 .8 billion USD) money between parties . innovations that remove big frictions for Kenyan shillings over the last 10 years, It’s been reported that investments in buyers and sellers . using nothing more than a feature phone . blockchain and blockchain tech by the And now, in the face of the Great Crypto Money is exchanged instantly when enterprise, worldwide, are expected to crash and burn, using stablecoins tied people want and need it to be . reach a whole $2 .1 billion in 2018 — twice to the stable USD to hedge against as much as last year . Investments in

cybersecurity measures, by comparison, No one will argue that things could be And they are doing it within the existing, ecosystem that now powers trillions of are expected to reach nearly $97 billion more efficient, that networks could be secure and regulated environments, using dollars of global commerce every year . this year . more interoperable or that standards the fiat currencies of the endpoints in should be more consistent globally . between those transactions . Those rails and that ecosystem have A study done by Juniper suggested also given rise to vibrant ecosystems companies that have spent $100,000 to And in the B2B payments arena, money If it sounds a lot like how global card of innovators who’ve built on top of pilot blockchain experiments reported that moves more transparently and networks and bank rails operate today, it those networks to enable better end- they would likely match that investment quickly than it does now . should . user experiences, including operating in the year to come . A whole $100,000 — their rails in reverse to now move money most likely in response to the board that Initiatives that address those issues are As global networks, Visa and Mastercard between parties instantly and on a global pressured the CEO to “do something” with under way by innovators and incumbents both coordinate the operation of basis . blockchain, for fear of missing out . alike . And, the ability to digitize, secure decentralized, permissioned and and make that process smarter is a distributed networks of issuers, When Steve Jobs launched the first the Call me underwhelmed . concept worth exploring, and has a great cardholders, merchants, acquirers and iPhone in 2007, he didn’t feel compelled potential upside . processors to enable the settlement of to rebuild mobile broadband to do it . He Hardly anyone — okay, maybe there’s transactions between anyone on a global leveraged existing ecosystems and that someone — is exactly betting the farm on But we don’t need bitcoin — or one of scale in real time . infrastructure, and built on top of it . As blockchain tech to power their futures . the thousand cryptocurrencies issued by the iPhone gained momentum, those unregulated entities that all need entirely Neither Visa nor Mastercard felt the ecosystems and that infrastructure did, That also happens to reflect the reality of new rails and enabling ecosystems — to need to rebuild the bedrock of the too — from 3G to 4G, and now soon 5G business . do that . financial systems around the world to do to remain relevant and to monetize their that — even though both networks are, own place in that ecosystem . The conversations the media wants us to While bitcoin and crypto garner the today, making big investments to make have now about bitcoin, cryptocurrencies headlines, innovators are taking the best that process and their rails even more Jeff Bezos didn’t feel compelled to and blockchain tech have lost sight of of distributed, permissioned, secure and efficient. reinvent the internet to launch Amazon, the problem that needs solving, as we private ledger tech, and digitizing assets but leveraged the application layer that examine the evolution of global financial issued by regulated financial services They used technology and computing runs on top of it to create the app that services and the networks that power companies and governments to clear power to connect and secure — and now accounts for more than half of all them . And what’s needed by all the and settle transactions in near real time, digitize — those transactions, and eCommerce sales — and has since ignited parties that rely on them today to move globally, at scale . created the framework for the payments the sales for millions of small sellers who money safely between them . leverage it to get distribution .

Over the 10 years that bitcoin has been could have been, well, what could have alive, the billions that have been invested been . in ventures, promising to create an ecosystem that would ignite a new global So today, while bitcoin and blockchain payments revolution, have failed to deliver tech get much of the press (and as much even a modicum of its promise . of the media still waxes on about how revolutionary it all is), the hard work to Bitcoin has failed because it doesn’t solve solve real frictions in payments — the vast a problem that enough people have — majority of that innovation — is happening except for criminals and country dictators much more quietly using the rails and who want an unregulated, anonymous institutions people and businesses trust . currency with which to do business out of the public eye . Those who can, do . Those who can’t, issue a lot of press releases . The cryptos that have emerged, to become the processing rails to build alt In the meantime, the bitcoin bubble really payments networks, don’t solve a problem hasn’t burst, and the hype goes on . At this that anyone has either . rate, I might get to recycle this article in another 5 years, or maybe even 10 . The distributed-ledger promise in innovating how payments move between people and businesses is nascent, and the jury is still out as to whether it will ever emerge as the powerful global payments elixir that its hype portrays it to be .

Some say, be patient and give it time . But time can be an innovator’s curse . Too much time means that others with a better solution gain traction, making what

2B payments innovators and country . He began investing in them long Warren Buffet have something before he bought one . in common: They are both B Rails and railroads, Buffet wrote in obsessed with rails . Berkshire’s 2016 Annual Letter, are four Warren Buffet made rails sexy again when times as fuel efficient as trucks, requiring he bought a railroad in 2009 . only a single gallon of diesel fuel to move a ton of freight 500 miles. That efficiency That was the year Buffett took a 77 reduces the cost of transport and truck percent stake in Burlington Northern — in congestion on the road, which reduces what he described as a “bet on America” highway gridlock and carbon emissions and its resilience in the aftermath of the produced by those trucks . Great Recession . Largely immune to external threats Omaha, Nebraska — Buffet’s like weather, driver fatigue and driver birthplace — was the home of the First shortages, railroads can also mitigate Transcontinental Railroad, which made delivery delays and uncertainty . railroads an important part of the Omaha economy . Buffet’s expertise in In 2014, the last time data was publicly the economics of railroads grew out of reported, U .S . railroads were responsible his childhood fascination-turned lifelong for $274 billion in economic activity and interest in them . employed 1 .5 million workers . More than 42 percent of the freight that traveled Travel by train was a mode of across the 140,000 miles of track in transportation perceived by many as the U .S . were related in some way to The Roil Over outdated as the horse-drawn carriages international trade . that first pulled rail cars on them, but B2B Payments Rails Buffet observed the role that railroads The economic impact of railroads isn’t played in driving economic growth felt only in the U .S . and isn’t favored only because of the efficient, low-cost and by one of the world’s richest men who reliable way they moved goods across the happens to buy and invest in them .

A recently released MIT study reports Others want to make the trains that ride Last Thursday in New York, we had It’s a bit hard to argue that point given the that the 40,000 miles of railroad tracks the existing rails slicker . They like the that debate, live, as part of the closed- volume of B2B payments made between built in India between 1870 and 1930 existing tracks because they connect door B2B Payments Summit hosted by trading partners annually — some $120 increased the incomes of farmers there all the relevant endpoints, are tried and PYMNTS . to $127 trillion depending on the source by 16 percent . Railroads that could move tested and can be enhanced to do new you believe most . Those payments are goods 400 miles a day opened trade things, including run in reverse . Rather Over the course of an hour, six panelists made largely over rails that have been opportunities that were once a 20-mile- than rip and replace, they’d like to use debated several topics that are at in place for decades: the bank, ACH and a-day trek using animals and improved software to modernize the payments the core of this B2B payments rails/ wire rails and via a payment method that those trade opportunities there and in experience over those rails . innovation debate . has existed for centuries — the good, old- other countries that — according to the fashioned paper check . report’s author, David Donaldson (the This payments debate — old rails/new It was a lively discussion, and it, like the winner of the prestigious John Bates rails — is not new . conversations over the course of that day, All that is to say that B2B payments today Clark Medal in economics) — other was held under Chatham House Rules . work well in the same sense that landline technological advances since then have It may have started in 2007 when the U .K . You had to be there to experience the phones worked well in the 1970s — not . launched its Faster Payments scheme, rather spirted exchange of insights . everyone is connected by a process and after the regulator said the banks had to via networks that have been built up over comply, but has amped up ever since, as But the energy around the debate inspired MAKING B2B PAYMENTS RAILS HOT time . Those networks are used to make regulators in a few other countries have me to add my own two cents to those a payment to a supplier anywhere that Today, a host of innovators are making followed in the U .K ’s. footsteps . topics, presented below as they were by supplier happens to be . The network is B2B payments rails sexy again too . the debate moderator to the panelists . valuable because it connects all the end Here in the U .S ., the debate has gained points to which those payments must be Many believe reducing the friction in B2B its own head of steam over the last The responses are my own thoughts, made and complies with the regulations payments isn’t about riding existing rails five years — ever since the Fed formed and all center around whether you think that assure the secure movement of à la Buffett, but by building new ones . its Faster Payments Task Force and B2B payments’ biggest pain point is the those funds . Why ride the existing rails when the B2B convened 300 companies and 500 payment itself . payments equivalent of the Hyperloop people to devise a framework to make Could that process be more efficient? can make the trip more modern, faster payments faster in the U .S . And that was Topic One: B2B Payments — yeah, it’s Yes, it could . and cooler, even if it costs more and only after several years of talk and studies not perfect, but, all-in-all, it works connects a few places? and consultants and published working pretty well — even across borders. Does it work? Yes, it does . papers .

Could it be better when moving money Banks have earned the trust of people and access to them secure, yet friction- innovation’s tip of the spear, banks are across borders? For sure . and businesses because they keep the free . an important enabler and distributor of money stored within them safe and keep innovations that FinTechs have developed But today, that process of moving the integrity of our financial system That’s also where we’ve seen banks to address the pain points for the the actual money is a very small, but intact . They do that very well . We like innovate . corporates with which they do business . obviously very important piece of the our banks conservative, and we sleep B2B payments process — but a pain well knowing that they are bound by Banks use deposits kept there as a key What will make banks the dumb pipes point that is less acute than others . It’s regulations that keep that balance in platform asset upon which other value of B2B payments is their inability to everything that happens before and after check . We have all seen the horrors of is created to keep customers sticky monetize the role they play in allowing the payment is made that causes the B2B what happens when banks deviate from and those deposits in their vaults . On access to those relationships and to payments pain . that playbook and people are scammed the retail payments side, online and enabling that innovation . into setting up accounts without their mobile banking have transformed how And where corporates really want our knowledge, are denied access to their accountholders access and action Or being too late to recognize the help . funds or, worse yet, lose them . their money while keeping that access opportunity and take action before their and those actions secure — and that inaction becomes a huge threat . Topic Two: Banks — sure, they’re boring So, it’s hard to complain about banks accountholder relationship sticky . P2P as all get out, but they are innovating. not being innovative when we don’t want has made it possible for accountholders Topic Three: Existing rails aren’t so bad, No, maybe they can be part of the dumb them — and therefore shouldn’t expect to transfer money using only their mobile and it costs a fortune to replace them: pipes that us real innovators can rely them — to be on the bleeding-edge of phone number to do so — and do it safely . best strategy is to work with the rails on; no, they are useless, and we can just delivering the next new thing . If our and build better trains — that is, apps forget about them in time. banks started talking about the creating So, to say that banks don’t have a role to and other solutions that can use what’s the SpaceX of payments, most of us play in enabling B2B payments is saying there already. This debate rests largely on the would immediately move our money to that businesses — and people — don’t expectations we have for banks as someplace boring . want to keep their money there, and that Just like the railroads that haul freight “innovators” — the role we want them seems highly unlikely for many, many across the country, the economics of to play in enabling the safe and secure That said, we do expect banks to leverage years to come . the existing payments rails make using movement of money within the B2B their assets and their reputation for trust them attractive . They are low-cost, payments ecosystem and the payments and security to innovate in ways that That, then (by default), makes banks efficient, tested and regulated. From a problems we expect them to solve . speak to the value proposition we value a central player in the B2B payments B2B payments perspective, they connect the most: keeping the funds there secure, innovation ecosystem — but playing everyone who needs to be connected . a different role . Rather than being

The economics of the freight railway can push payments from corporates to suppliers to accept a new way of being It’s tough to convince anyone to system allows railroad operators to divert consumers instantly and are being used paid . invest in new rails when corporates money into modernizing rail cars and to push loan proceeds from alternative aren’t screaming for the biggest value partnering with innovators who can add lenders and sales from acquirers to SMBs Without the ability to manage the proposition that they offer – speed . And, features and functionality to the cars in real time too . Limits have also been currency risk of international payments, in the case of cross border payments, that ride their rails . Freight railways also raised for those payments . it’s hard to avoid the margin-eroding hits haven’t convinced them that we have leverage their size and scale to add new caused by that volatility . addressed fully the global messaging routes that extend the journey to new The payments piece of B2B payments is failures that compromise the secure endpoints where there is demand and getting done, but it isn’t the real source of These uncertainties that surround the movement of those funds . operate hubs that make it easier for those corporate pain . movement of payments have driven connections to be efficiently routed. innovators to leverage the existing rails Topic Four: Existing rails are like Instead, it’s a lack of certainty that and the connections they make between taking the stagecoach on dirt roads That’s what’s happening today inside good funds are on the way — and when trading partners to devise solutions that when you fly — blockchain and crypto the B2B payments arena . The regulated they’re expected to arrive . Without that address the real B2B payments problems are the future; no, speaking of flying, and compliant rails that have been in certainty and visibility, it’s impossible for between them . crypto rails will never fly with corporate existence for decades move money corporates to manage and optimize their treasurers, FIs or regulators; and globally between trading partners . cash flow. They’ve done that by offloading many blockchain is mostly talk, little action. Corporates even have options for the rails of these B2B payments frictions from they might want to use depending on how Without a single view of those payments corporates onto themselves, developing The innovators who are convinced that fast they need the money to move and flows, it’s impossible to identify and the software and middleware that makes crypto is the future haven’t talked to where it needs to travel . correct payment inefficiencies. the first and last mile of that payments enough corporates and FIs and regulators journey less onerous . to know that it’s really, really not . The rules of the existing rails have been Without moving the right data with the modernized too . payment, it’s impossible to reconcile Therein, of course, lies the dilemma . And, thinking that the banks — those payments with outstanding invoices trusted custodians of money — will ACH rails now settle same-day, three efficiently. Better isn’t free, and the rails that exist embrace crypto and open crypto rails as times a day . NACHA is examining today globally enable the cost-efficient the catalyst for innovating B2B payments additional windows for weekends and Without a simple way and a compelling innovation that adds value to corporates is like thinking they’d be okay with putting has increased the limits for how much value proposition to onboard suppliers for payments that ride securely on top of Jesse James in charge of payments money can be sent over those same-day and get, vet and keep their payments those rails . worldwide . ACH rails . Card rails that run in reverse details secure, it’s hard to convince those

Not hardly . Banks and corporates are investing small Topic Five: Real-time — businesses don’t data at their fingertips about the inflows sums of money into pilots to learn, but care much. It’s about certainty, security and outflows of funds — and, in particular, Crypto exists to sidestep most — if not based on our research, no one is betting and taking out more of the frictions in the real-time authorization of good funds, all — that is regulated about how money the farm or their future payments success payments. Well, no, real-time is the along with the transparency associated moves and to whom it moves, and that on it — at least not now . foundation for a great new world of with knowing when those funds will simply won’t fly. Yes, I know the VC- payments, and, like many innovations, arrive . funded cryptos will say, “What? That’s not Blockchain is a protocol, like any people can’t envision how great it’s us ”. other middleware, that its fans say going to be. When funds settle isn’t much of a friction, gives companies more visibility into since, with that information in hand, But c’mon, there’s so much funny transactions . Maybe it’s the only way; Let’s first define what we mean when we decisions about cash and working capital business going on with these rails that it maybe it’s the best way; maybe it’s one of say real-time . In this context, real-time is can be made . Neither are issues related is, well, not funny . End of that story . the better ways by which B2B payments’ the real-time clearing and settlement of to liquidity, which becomes a problem frictions can be solved . payments transactions . only when corporates are left guessing That said, digitizing assets issued by about whether what’s on the way is good central banks and governments and Then again, maybe something else has It’s hard to convince most corporates that funds . clearing and settling those digital assets or will emerge to do the job that the hype they need it . across private networks is what the card says blockchain does today . But who’s to All of that makes real-time a real hard sell networks and other regulated private really know? That’s, in part, because their ERP systems to corporates, and therefore a real hard networks like Western Union have been are batch . Having thousands of bank sell to every single one of the FIs in the doing for decades — safely, securely and It’s essentially impossible to wade accounts with thousands of transactions U .S . who today already have access to in compliance with regulations worldwide . through the smoke and mirrors, with all authorize, clear and settle in real time an ubiquitous faster payments scheme Leveraging those networks to enable the hype playing in the background, to requires much more than a new set of FI called same-day ACH . bank account to bank account payments figure out what’s hype and what’s not. rails to power it — it requires big process clearing and settlement is being piloted and tech changes on the corporate side Same-day ACH is being used by today to support cross-border payments What we do know is that, like anything to support it . corporates and mostly as a utility when efficiencies. But even that is a slow- else in payments, for it to work, it must emergency payments must be made . moving train today and will take time to operate at scale . And that seems a long It’s also, in part, because it doesn’t solve Same-day ACH use cases haven’t scale . way away . their real, real-time problem . (yet) replaced volumes of paper check transactions but have replaced regular As for blockchain, I think you know how I What corporates want more than real- ACH — a nod to its value when a payment feel about that topic . time settlement is real-time access to needs to be faster .

Same-day ACH also has a business But it’s hard to fathom why it’s better capacity to move a critical mass of In the meantime, people have places model underneath it, which was critical to that regulators and not innovators call people between those two endpoints to go and viable options for how to get getting the scheme up and running and the shots, especially since it’s hard for leaving every 45 seconds . These capsules there . approved by every single bank in the U S. . anyone to identify the game-changing have to be built, and the tunnel itself has payments innovations that have emerged to be dug and tested . Stations have to It’s a bit like the vision for modernizing That makes any other faster/real-time as a result of regulated faster payments be built for passengers to embark and the movement of money between payments scheme only as good as its schemes . depart . businesses . We’d never build our ability to be ubiquitous across all the payments and banking infrastructure banks in the country too, along with Perhaps the greatest irony of the real Regulators have to be convinced that it’s today the way it was built decades a business model to support their time debate is that real time payments safe . ago . But lots and lots of internal FI and investment . does nothing to accelerate the payments corporate systems are connected to it, terms that ultimately determine when Passengers have to be comfortable so we need to make what we have today That’s why the Fed stepped in last week businesses get paid anyway, which is with the idea that they are going to be work as we design something that works to request comments from across the where corporates feel the pain . And the smushed into a pneumatic tube that better and transition to it . payments ecosystem about their role in ability for buyers to pay suppliers sooner barrels its way inside of a tunnel under accelerating the development of real-time is independent of having new rails to do the earth for 36 minutes . Someone last week said that the reason clearing and settlement rails — perhaps it . that checks persist isn’t because people even laying the groundwork for regulation And be satisfied that it only goes from LA necessarily like them, but because they’re that must happen, just like it has Ironically, as I was writing this, I came to San Francisco and paying whatever it simple to use . Without knowing anything happened everywhere else in the world across a news story about the Hyperloop costs to take that ride . but a person’s name and their mailing where real-time payments have launched — one that showed a picture of the new address, money can be transferred to or are in motion . Hyperloop passenger car that is capable None of this diminishes the innovation them . of traveling at a speed of 750 mph and and the creativity that is the Hyperloop . Some inside the big banks that have making the trip between L .A . and San And one day, it may be the way that we It’s an insight that puts important already invested in the Faster Payments Francisco in 36 minutes . all will get from point A to point B . But perspective on the debate that rages over scheme promulgated by the Fed may that day is a long way off, and a lot has payment rails today . think regulation is the only way real-time It’s pretty cool . to happen in order for the Hyperloop gets done in the U .S . — perhaps because to scale and connect to all the many Innovators are using software and they think it’s one way to be sure their But these capsules carry only 30 to 40 combinations of end points travelers find technology to solve for the frictions investments in that scheme can pay off . passengers; it would require more than valuable . that today get in the way of creating the 100 of them to operate with enough funds certainty that corporates crave .

They are also developing solutions that simplify the management of payables and receivables that improve how they do business with their buyers and suppliers . Conversations about the plumbing that can settle funds in real time are just interesting conversations about a problem that corporates say over and over again they really don’t have today .

Until the nirvana of B2B payments gets decided and built out, businesses have people to pay and places they need to pay them — and want solutions at scale, today, that they can use to do that .

n 2009, consumers first coined the In 2018, the term can now be more term “Whole Paycheck” as a tongue- legitimately used to define the portion I in-cheek way to describe the sticker of consumer spend and overall retail shock many felt when looking at their sales Amazon now captures given the receipts after a shopping trip to Whole expansion of its ecosystem . Foods . Whole Foods is, of course, the organic grocery chain that Amazon bought The big difference, of course, is that for $13 .7 billion in June 2017 Whole Foods got the moniker because How Much Of The Consumer’s Paycheck Goes To Amazon?

of its high prices . Amazon is capturing We estimated Amazon has, today, THE SPENDING NITTY GRITTY and the trust consumers placed in it as a more of a consumer’s paycheck because captured 6 4. percent of the $19,556 a trusted commerce go-to . I’ve been curious about the “Amazon of its good prices, fast delivery and great typical household spends on those things Effect” on more than its impact on service . — or some $1,243 annually . That trust kept the flywheel spinning traditional retailers for some time . as Amazon expanded its inventory In other words, consumers like doing That share of overall retail spend has of things to buy and chipped away at Most of the time when people talk about business with the company . tripled over the last four years — growing essential product categories, including the “Amazon Effect,” they talk in terms of from a 2 2. percent share in 2014 to the many household staples like diapers and the impact on traditional retail economics Based on detailed analysis by the 6 .4 percent we estimated today — a 30 .7 batteries with its private-label brands and driven by the shift from offline to online PYMNTS research group, we estimated percent CAGR over that four-year period . handmade, artisanal goods with Amazon sales and the impact of making free that Amazon now accounts for 2 .1 Handmade . shipping table stakes . percent of all consumer spend — some Some of you reading this piece may say, $1,320 of the total paycheck for a “So what? Who cares? Big deal ”. Amazon’s Amazon’s expansion over the last four However, the real Amazon Effect goes household that earns roughly $63,000 2 .1 percent of overall spend and 6 4. years has touched things bought or well beyond that . a year ($62,941, to be precise) . We percent of retail spend is pretty puny . paid for online but consumed in the estimated average annual consumer I’ve always been fascinated with Jeff physical world — household and business The 2 .1 percent is small as a percentage spending for 2018 based on U .S . Bureau Bezos’ approach to methodically building services, food delivery with Amazon of overall spend, but the number has of Labor Statistics data from 2014 to a marketplace — now ecosystem — that Restaurants, subscription fashion with grown fast — remarkably fast over the 2017 . tapped not only into what consumers Amazon Fashion, products for the home last four years — accounting for an might buy online, but also why they were with Amazon Home and, more recently, What’s driving that share of spend is the enormous chunk of eCommerce, which buying those things in the first place. even mattresses . growing proportion Amazon has captured is humongous in certain categories as in the biggest chunk of it: retail . Retail consumers shift their spend and as Amazon started with books because it Given the shift that tracked with the types spend captures about 31 percent of a Amazon stays right there with them when was a product everyone bought . Music of things all consumers buy, I was curious household’s paycheck for things like food, they do . followed for that same reason . Over the to understand the “Amazon Effect” on clothing, electronics, healthcare products years, its product mix expanded as data how much of the consumer’s paycheck is That means Amazon has a lot of room to and furniture . about consumer spending behaviors now being spent with the company . grow . on and off Amazon was examined — That’s what this analysis does . and actioned by the Amazon team — And lots more of the consumer’s leveraging the assets Amazon had built paycheck to capture .

The Amazon Paycheck Index is the result AMAZON’S WHOLE PAYCHECK of many months of work by the PYMNTS The 2 .1 percent of all consumer spend research group using a variety of sources that is now Amazon’s shouldn’t be all that that track and report retail sales and hard to believe . consumer spending . Over the last four years, retail sales have We used data from the U .S . Bureau shifted to Amazon in key categories that of Labor Statistics for information on were once the domain of the physical consumer household spending and store . Census data for information on sales across all categories of consumer Amazon now accounts for 20 percent spending, including retail sales . We used of all electronics, 9 7. percent of home eMarketer data to estimate total retail furnishings, 9 3. percent of auto parts, sales by product category . We used 7 .8 percent of apparel and 5 .4 percent of Amazon’s 10-K for specific information sporting goods (which includes books, related to Amazon sales and growth by music and hobbies) sales . category, taking care to represent sales of items sold by third-party sellers as the Looking at eCommerce share only, the commissions Amazon receives, instead picture is even more staggering, with of the GMV of those products sold . Amazon taking a 54 2. percent share of electronics, 39 4. percent of home We then built a data model and used furnishings, 81 percent of auto parts and statistical techniques to refine the 38 1. percent of apparel accordingly, and model and project 2018 numbers using 14 8. percent of sporting goods/books/ conservative assumptions . We’ve tested music and hobbies sales . and refined the model and believe it presents a very solid picture of how much By the end of 2018, Amazon, we consumers are spending with Amazon — estimated, will account for roughly 49 .5 because they want to . percent of all eCommerce sales .

AMAZON SHARE OF RETAIL SALES percent annually, furniture and home (PERCENT OF TOTAL SALES) BY RETAIL furnishings sales at nearly 42 percent . SEGMENT At a 32 .7 annual growth rate over the last Those numbers and that growth isn’t four years, Amazon is now the largest because consumers don’t have other online seller of auto parts in the U .S . places to shop or feel they’re trapped somehow into shopping at or with Over the last four years, Amazon has Amazon . expanded the inventory of products it carries via third-party sellers, added more Or because Amazon is necessarily the perks for Prime Members and expanded cheapest place for them to buy things . the number of places off Amazon where consumers can use Amazon Pay to check It’s because consumers say Amazon out . is the most convenient place for them to shop and buy things . Amazon has The Amazon Prime perk that started become the default for how consumers with free shipping has now expanded to start their search for what to buy or include lots of other goodies that make where to buy the things they might see on being a Prime Member valuable and the web . sticky: streaming services, discounts on other services and even a co-branded CONVENIENCE THAT DRIVES SPEND Chase/Visa card that gives consumers a AND AMAZON SHARE 5 percent cash back incentive . When I looked at this analysis, what left my jaw dropping was the sheer growth in Clearly, what’s driving that spend and Amazon’s sales across just about every growth in share is the convenience retail category — and in just the last four consumers find when buying from years: Amazon online .

Clothing and apparel and health and But it’s not just online anymore . personal care sales both grew at 43

Over the last four years, Amazon has Over those four years, Amazon has also seen its sales of food and beverage done something else: It has ignited voice products grow 106 percent — with most commerce via Alexa. Alexa was first of that growth happening in the aftermath introduced via the Echo in November of the Whole Foods acquisition in 2017 . 2014 . Since then, Alexa has made her Spending on groceries is the largest way into a slew of voice-activated devices single driver of consumer spend in the — both Amazon- and third-party-branded retail segment, and Amazon doubled its devices . food and beverage sales from 2017 to 2018 after quadrupling them the year Alexa and her pervasiveness as a virtual prior . Food is a category we believe has assistant inside the consumer’s home, the potential to capture more of the inside the car and, increasingly, wherever consumer’s spend over the next several the consumer wants to take her has years . contributed to that shift in share of spend and only underscored the importance of Amazon has opened Amazon Go stores voice as an enabler for commerce . in several cities to capture the food sales now going to convenience stores . Reports And Amazon’s importance as the say that 3,000 more will open over the consumer’s go-to ecosystem for next several years . commerce .

Amazon also opened a store in SoHo And Amazon Pay’s importance as the that carries trending products sold online payment intermediary through which all as well as those that receive the best these payments flow. ratings . THE ROAD TO WHOLE PAYCHECK These physical storefronts offer special The share of consumer spend that is now perks and goodies for consumers who Amazon’s is even more remarkable when are also Prime Members — and are used one considers that roughly 45 percent of to acquiring and converting non-Prime a household’s paycheck today — some consumers .

$29,000 — goes toward things Amazon (18 .5 percent) and healthcare (17 0),. with Yet, however, is the operative word . essential consumer spend: healthcare doesn’t touch (yet) . another 12 6. percent on insurance (2 .9 Amazon has made investments in or through a joint venture with JPMorgan percent), financial services (5.1 percent), created partnerships with key players to Chase and Berkshire Hathaway; housing Roughly 36 percent of a consumer’s telecom (2 .7 percent) and transportation expand the scope of its services — and through an investment in a pre-fab home paycheck in the U S. . is spent on housing (1 9. percent) . in areas that consume big chunks of builder and insurance via opening a digital insurance storefront with Travelers Companies just last week .

The trust and convenience of buying from Amazon, coupled with giving consumers an easy and convenient way to pay, the perks of being part of the Amazon club and having access to a personal assistant that can now help sort out insurance coverage or (at some point) healthcare options or pay claims or book appointments could give Amazon a decided advantage in capturing more of what consumers spend on the things all consumers have to buy .

And in those segments where there are many options, and where consumers want a trusted intermediary to make it easy for them to decide and then buy: Amazon, Amazon Pay and Alexa .

That also might mean that we don’t really need Amazon to tell us what it plans to do next .

Instead, all we might need to do is to follow the money — money in the form of how the consumer is spending her paycheck — to get a sense of where Amazon — and the consumer’s paycheck — is headed next .

onnected devices — How smartphones, tablets, C voice-activated speakers, smartwatches, in-car dashboard systems Connected Devices — are changing how consumers in the U .S . buy and pay .

Are Revolutionizing Not just some consumers, but almost all How And Who of them . We have brand-new data that reveals how We Pay much change is happening . Using smartphones and apps to autopay at gas stations, or to find and pay for parking, or asking a voice-activated assistant on the other end of a speaker to order a pizza aren’t just what early adopters of cool, connected tech are largely purchased — in a physical store: doing . things like groceries, prescriptions and clothes . People of all stripes — from millennials to baby boomers, from Generation X to the Saving time is what’s driving this shift Greatest Generation — are increasingly — a shift that is now certainly nearing swapping the friction of shopping in a its tipping point — as consumers are store for the convenience of using one leaning into the buying and payments of the many connected devices they now experiences that accommodate their own to shop and buy from instead . busy lives . Omnichannel — the buzzword many use to describe the consumer’s That includes many of the things that digital shopping journey and use to plan were once only possible — and therefore their product roadmaps around — is now

a woefully outdated concept to describe We published our key findings today in the laptop/computer or tablet . That’s up from We observed in our study that more than what’s really going on . How We Will Pay 2018 Edition: A Week In 75 percent last year . half of consumers used them to make a The Life Of The Connected Consumer . purchase in seven of the 13 categories The consumer’s shopping journey isn’t Those who own six or more such devices we queried: 28 percent said they bought just moving from physical to digital . This is the second year of our work with — we call them the Super Connected — clothing and accessories, and 20 percent The consumer’s journey is increasingly Visa, so we were eager to see the change now total 36 percent of that group, up said they bought groceries . That’s up decided by the connected devices they in consumer behavior from last year to from 23 percent in 2017: a 53 percent sharply from 2017 . own and where they are when they want 2018 . And, boy, have things changed . I’ll increase . More than half of the Super or need to make a purchase . leave it to you to dig into the full report Connected are women (57 percent) . The And by “them,” we mean any number for those nitty-gritty details . average age of the Super Connected of connected devices: smartphones, For consumers, commerce is about consumer is 42 — younger than the computers, tablets and voice-activated convenience . Increasingly, that comes They give rise to five key eye-popping median adult population in the U .S ., which speakers . Connected payments by way of a connected device and the insights that will — or should — reveal the is 47, yet nearly two decades older than experiences are no longer the domain of payments experiences it powers . Voice strategies of everyone in the connected the young millennials, who were once any single device . We observed the same is changing those options and that payments ecosystem that powers a thought to have cornered the market on consumers making purchases using experience dramatically . growing portion of consumer spend . connected device ownership . many of them .

In collaboration with Visa, we studied The connected consumer is just about It was also interesting to see how many Connected devices are accelerating the 2,800 U .S . consumers who statistically every consumer. Gen X’ers and baby boomers also own shift away from physical stores . represent the composition of the adult six or more devices — 40 percent and 24 population in the country today . We asked George Bernard Shaw was quoted percent, respectively . We observed some interesting behaviors those consumers a number of questions famously as saying that youth is wasted for the seven days we asked consumers about the connected devices they own on the young . That may be, but the use of The ownership of these devices and to tell us what they bought and how they and how they use them to buy and pay devices connected to the internet and the their ease of use is driving connected paid for those purchases . for products and services . As part of apps that enable payments surely isn’t . payments use cases across all age that exercise, we also asked them to tell groups and generations for things that With one exception (groceries), us what they bought over a seven-day Not only is it the case that virtually might have once been considered a consumers were more likely to buy period, where they were when they paid no one from our study owns just a clunky digital experience . online than they were to buy from a for those things and what devices they smartphone (3 .1 percent), the vast physical store. Specifically, 63 percent of used to make those purchases . majority of consumers (80 percent) own Soon, that might be the other way around . consumers visited a store to purchase something other than a smartphone, food to eat at home, but for all other

types of purchases, fewer than 50 percent One-third of the consumers we studied The number of consumers in our study goods, 15 percent to order takeout and 28 of the consumers we studied went to a also expressed an interest in using these who reported owning a voice-activated percent to buy clothing and accessories . physical store to make a purchase . devices to pay bills; that’s up from 10 device nearly doubled from last year to percent last year . this year — with 27 percent owning one, Trust is the connected consumer’s The Census data that reports that 90 which is almost double from 14 percent “North Star.” percent of purchases still happen in Saving time and eliminating payments in 2017 . the physical store misses the impact of friction in-store is also driving consumer Making the leap to connected devices connected payments experiences and interest in using contactless cards . Perhaps even more striking is the number and connected payments experiences is why consumers use them to buy things . Twenty-six (26 percent) of consumers of consumers who said they used them something the consumers in our study said they were “very” or “extremely” to make a purchase: 29 percent of the 27 certainly have made with both thumbs The catalyst for the shift away from interested in using contactless cards to percent of voice-activated device owners (plus the sound of their voice) . All that the physical store is to save time: the pay at checkout, with 84 percent of those reported using them to make a purchase . said, the more abstract these connected convenience of not having to visit a consumers expressing interest in paying payments experiences become, the physical store to make a purchase or that way at grocery stores, 79 percent at To say that voice — the most intuitive and greater the concern over the security and using a connected device to make the quick-service restaurants (QSRs) and 72 easy-to-use payments enabler there is — privacy of their data . payments experience in the physical percent with mass transit . is a payments gamechanger is perhaps world better and faster . Seventy-eight stating the obvious . For the consumers we studied, data (78) percent of the consumers we studied Voice is the payments gamechanger. security and privacy are two sides of said saving time was the key reason why To say that it’s a fast-moving train that the same coin — a coin they say could they used a connected device to buy The ownership of and use of voice- will power payments should now be tarnish, if their experience when using something . activated devices is changing how obvious too . a connected device is compromised in consumers pay in ways that even a some way . Using connected devices to “autopay” year ago seemed unimaginable . Voice- Consumers are using their voice-activated was most prevalent in the areas where activated devices have been in the market assistants to turn tedious, routine This year, 79 percent of all consumers checkout is friction-filled and time- for only four years, but the skills and the shopping experiences into connected said concerns over data security and 78 consuming: paying for gas (49 percent), skills ecosystem that powers commerce payments timesavers . Twenty (20) percent said concerns over data privacy paying for clothing (41 percent), paying via those devices is younger still . percent of consumers who own voice- could inhibit their use of connected for parking (40 percent) and paying the activated, connected devices use them devices to make purchases . That’s up 11 check at a restaurant (39 percent) . Those who think that voice isn’t catching to buy groceries, 22 percent to buy digital percent and 3 percent, respectively, from on for commerce should probably think last year . again .

The operative word here is “could ”. Our hunch then was that there was the entire Super Connected group . They bellwether for the connected generations a marked distinction between how a also own more voice-activated devices that follow . Today, consumers are still using the 25-year-old used connected devices to than any other group of consumers in devices that power these payments shop and to pay and how a 35-year-old our study . They use these devices more How we will pay … will be more of how experiences . And it can be argued that might do the same . frequently to make purchases: Forty-two we pay today. they will only use them more tomorrow . (42) percent of Bridge Millennials own That paradox appears to influence who What we discovered is that there is — and voice-activated devices versus 27 percent Payments innovators like to talk about the consumers in our study say they here’s why . of all consumers in our study . Thirty-two innovations that help consumers bridge trust to enable those experiences . Not (32) percent of those who own those the physical and digital worlds . surprisingly, it’s the same list of providers Bridge Millennials are settled into a stable devices use them to make purchases, consumers turn to and use today . career, have made a dent in paying off compared to 28 percent of all consumers That’s not how consumers think about their student loans and are settling down in our study . their shopping journeys, and neither Nearly 60 percent (59 1. percent) say with a partner and perhaps even starting should we . they trust their bank/card networks, with families . Their increased earnings power Bridge Millennials are also more card networks (55 .3 percent), Visa (41 .9 gives them spending power that younger comfortable using a connected payments Consumers don’t think of themselves as percent), Amazon (37 .1 percent) and millennials lack — a spending power experience to make purchases once moving between the physical and digital PayPal (35 6. percent) rounding out the nearly equal that of their Gen X elders . largely done in the physical store, from worlds as much as they now expect to top four . groceries and personal care items to use the connected devices they own as But this is also the generation that came jewelry and automobile parts . In fact, tools to make their buying and payments To track how we will pay, watch how of age with connected devices in their 59 percent of Bridge Millennials use a experiences more efficient. Bridge Millennials pay today. hands, using them to do everything from variety of connected devices to make That’s particularly true for the things they checking social networks and sending purchases, and 17 percent did so with buy today that require so much of their Bridge Millennials are the 20 .7 million money to their friends, to buying things voice-activated devices . consumers that, as their name suggests, using mobile devices . Using devices time: groceries, clothing, beauty products bridge the gap between the younger with apps that have payments features This compares to 53 percent and 11 and prescriptions — even paying bills . millennials and Generation X. We first embedded in them is, therefore, second percent of the consumers we studied . discovered this group earlier in the nature . The devices that have become an year when examining the results from That makes the Bridge Millennials the indispensable part of the consumer’s a consumer study about the purchase Half of all Bridge Millennials are Super first generation of connected consumer daily life are becoming an indispensable behaviors surrounding clothing and Connected, and, in total, these Bridge with real spending power and the part of how they will pay . accessories . Millennials account for 29 percent of

Of all the potential use cases we studied, those that include “autopay” experiences were the most preferred by the U .S . representative sample of consumers . That is a sign of how comfortable consumers are with those payments experiences and the value they place on their time when they use them .

There’s no turning back .

How we will pay is via the devices consumers own and the connected payments experiences they will continue to power .

Who we pay will be determined by those best able to create and deliver those efficient and secure, connected payments experiences .

alloween, the annual celebration FACEBOOK … AND THE FACEBOOK of the spooky and supernatural, COMMUNITY is just a couple of days away . H The scariest thing for Facebook is the people who use it . For many in payments and the vast ecosystem that it powers, the scariest Unfortunately, Facebook has given hate thing about Oct . 31 might not be the sight speech a platform and hate speakers an of a kid in a full-on Frankenstein costume audience, which will, over time, turn off its at the door on Halloween night asking for core users and advertisers . candy . Facebook leadership underestimated the The day after Halloween marks the 60- role that platform governance plays in day sprint to the end of the year – a keeping platforms alive and thriving – and year in which the pace of innovation it may be too little, much too late to turn has accelerated materially . The shifts things around . Although the vilest voices associated with that innovation are on its platform are a small minority today, beginning to take root, and those impacts they may be loud and horrible enough to are beginning to be felt . drive its future in a very different direction than it has long intended . The 2019 planning sessions that will mark the next 60 days will no doubt Seven I’ve often written about this topic over the include topics of conversation about the last several years, well before the 2016 scariest things in payments that could election dominated the headlines about knock key players off their game – or turn Big Threats Facebook’s future as a content platform . their plans upside down . Or turn into new Before “fake news,” there were the public opportunities as others take stock and Facing Seven Big Tech beheadings, live shootings, live suicides adjust those plans . and bullying – many of which were very viral . And Payments Players Here are a few of those scary topics of conversation and the players they could All of those posts made it through haunt . This Halloween Facebook’s screens and filters, and

circulated on its platform for hours, upon . Only 38 percent of hate speech to our recent study, they come in dead a decline in the prices it charged even days, before being taken down . content was identified by their technology last . advertisers, coupled with the increase in This happened despite sophisticated in Q1 2018, they reported, resulting in the the cost of paying partners to distribute technology capabilities that successfully removal of 2 5. million such pieces . It’s tough to trust a platform that has its search engine – some $9 billion to flagged many other types of inappropriate failed to be a responsible steward of Apple alone, it’s been reported . postings, like pornography, and kept them Some of you will scoff, as Facebook has a consumers’ personal data . That calls into off the platform for years . massive audience – currently 2 .23 billion question whatever potential Facebook Bloomberg’s examination of Google’s monthly active users – that keeps on might have had to drive commerce via ad business showed an increase of It took the public scandal of the growing . And some may rationalize that payments on its platform . more than 60 percent in the number of 2016 election, the “fake news” that it what has been identified and removed clicks on Google’s ads, but a 28 percent propagated and the Cambridge Analytica reflects a very small percentage of the And its future is very much in the hands decline in prices charged advertisers debacle to force Facebook to face these offensive content across the platform . of a community that thinks differently – something that Bloomberg claims is issues publicly – and then they had no about Facebook today, with many now the biggest drop in three years, and a choice . Since then, Facebook has hired But that would miss a few key points . thinking twice about how and how often slowdown that has analysts worried . thousands to police the content posted they use it . on its platform, and to remove fake According to eMarketer, Facebook can And as more inventory shifts to the profiles and the posts that perpetuate it. count fewer than half of 12- to 17-year- GOOGLE … AND AD-SUPPORTED mobile devices that don’t drive the same olds as monthly users on any device, and SEARCH conversion numbers for Google as Facebook reported on their website that predicts that it will lose two million users desktop does, analysts worry that the The category that Google innovated 20 their teams have made progress: They under the age of 24 in 2018 in the U .S . slowdown – and the revenue losses that years ago – ad-supported search – now removed 837 million pieces of spam in Q1 come with it – could continue . appears to be one of its scariest things . 2018 before anyone reported it, disabled That’s small for now, but it’s a bellwether 583 million fake accounts “within of Facebook’s future growth prospects This is happening at the same time that Alphabet reported earnings last week, minutes” of going online and removed 24 and its ability to retain advertisers that Amazon’s earnings report showed triple- showing – for perhaps the first time – the million inappropriate pictures related to want to reach that demographic . digit increases, quarter over quarter, impact that consumers’ changing product violence and nudity . in the category that includes its ad- search behavior is having on its core Facebook’s behavior as a platform has supported revenue . It’s been reported business of ad-supported search . But they also acknowledged that their also eroded the trust that consumers that advertisers are shifting more of their technology “still doesn’t work that well” have in it as an enabler of innovative search budget to Amazon due to higher Alphabet’s stock took a drubbing, and when it comes to hate speech, requiring payment experiences . In fact, according conversions, made easier by its one- remains down after they reported manual intervention to review and act click checkout experience . According to

eMarketer estimates, Amazon’s share percent of retail sales still happen in the stretch to 33 months –just three months – something that is particularly important of digital ad revenue will grow from just physical store . shy of three years . to Chinese consumers, whose phones over 2 percent today to 3 .5 percent a little have become as much of a status symbol more than a year from now . But the wildcard for Google might be Part of that expansion is because phones as they are a digital essential – and is how voice commerce will change how – iPhones, in particular – have become also cheaper to buy . This also comes as vertical marketplaces consumers search for things they want very expensive . The top-of-the-line iPhone and aggregators have become go-to to buy – whether those searches start in X is a smidge shy of $1,500 when all is Analysts expect that the XR will a big destinations for consumers looking to an ecosystem where consumers do buy said and done, and the iPhone 8 is about seller, and Apple is investing heavily into make specific purchases. Consumers products today, or whether they start in $900 . advertising to boost demand, particularly don’t Google for takeout anymore – they one that consumers use to search for around the all-important holiday gift- go straight to Grubhub . They don’t search where they could buy those things . But consumers are mostly hanging onto giving season . But those expectations on Google for where to buy a coffee table: their iPhones because they look very are being dashed over concerns of lower- They go first to Wayfair or Houzz if they For Google, it’s a scary distinction much the same from model to model . than-predicted unit sales, since many want new, or Chairish if they something with an important difference – and a Meanwhile, operating system upgrades consumers may have just purchased a vintage . They don’t Google when they question that they are now asking Google give consumers the benefits of new pricey iPhone 8 or iPhone X a year ago – want to buy a new flat-screen TV; they go Assistant to help them answer . features on older handsets – for free . and over lower sales volumes, given the first to Amazon, or maybe Best Buy. lower price point . APPLE … AND THE IPHONE CUSTOMER Not everyone feels compelled to buy a Of course, Google knows this, and is more expensive new iPhone just because According to last week’s report in The The consumers who have propelled Apple working across a number of fronts to the camera is better: For many, the Wall Street Journal, Verizon reported into becoming the first trillion-dollar counter the threat to its core business . differences in quality are not appreciable record-low iPhone upgrade rates and company, and made the iPhone an icon of enough to justify the extra spend . Neither projected further declines in December . mobile innovation, aren’t buying iPhones For instance, it’s turning tokenized are the benefits of Face ID, since its at the frequency they once did . browser-based credentials into a more widespread use as an authentication Expanding upgrade cycles don’t just streamlined way of transacting digitally method isn’t pervasive enough to drive an affect Apple, of course – they are Upgrade cycles that were once every when landing on a merchant site . There’s upgrade . troubling to all smartphone OEMs . 21 months have now stretched to 31 a big available market with a lot of room Overall shipments of smartphones are off months, adding nearly a year from to grow that pie – after all, Amazon Apple is banking that the new iPhone XR slightly: 2 percent quarter over quarter . purchase to purchase . Some analysts “only” has about 50 percent of the online will break that upgrade impasse . The XR estimate that upgrade cycles will soon commerce market, and the U .S . Census incentivizes consumers by presenting But for Apple, the expanding upgrade Bureau still wants us to believe that 90 them with an iPhone that looks different cycle is causing its share in key markets

to slip: It has lost share in China, and and now order and have delivered an For PayPal – any digital wallet, really – What could potentially make Alexa has slipped to third place worldwide . expanded array of consumer products . that’s scary . Alexa-enabled purchases are less scary is the role that PayPal could Apple, for all of its attempts to diversify done via Amazon Pay with the credentials play in making Google Assistant a away from the iPhone, remains highly She’s four years old, but her youth registered to that method of payment . strong competitor in the burgeoning dependent on the revenue it generates . defies her place in the voice commerce That’s not PayPal today . And although voice commerce ecosystem – giving ecosystem . A few years ago, I wrote a “never” is a strong word, it seems highly consumers a trusted way to pay with That’s why, for Apple, the scariest thing story about payments’ new intermediary unlikely that Amazon would ever insert a new payments experience, and is also its great paradox: The consumers – one that would be game-changing, another intermediary into that payments a payments option for a merchant who love the iPhones they buy so much because consumers would put it there flow. ecosystem in search of a voice also want to hang onto them for as long and use it . That intermediary was Alexa, commerce counterweight to Amazon and as they can . and she has proven to become a strong Why should they? Consumers and Alexa . and growing presence in the digital, merchants aren’t asking . PAYPAL … AND ALEXA commerce-enabled world . EBAY … AND EBAY That’s also relevant given the competition Amazon has been purported by many to The How We Will Pay study, just today between Amazon Pay and PayPal “eBay has ruined eBay,” wrote be the scariest thing to show up on their published in collaboration with Visa, for share of payments acceptance and reallyhardtofind on June 6, 2018 – one doorstep, at just about any time of the shows that a staggering 27 percent of the volume as more transactions move online in the string of 132 comments triggered year . But for PayPal, Alexa is a particularly U S. . population owns a voice-activated – and outside of Amazon . by a post from a seller questioning why scary sight, all wrapped up in the Echo device, and 28 percent of those have used his sales are off a full 100 percent since ecosystem, now 50,000 skills strong and the devices to make a purchase during Amazon today has about half of that April 1, 2018 . This seller, who has been on embedded in thousands of devices – the seven days in which we asked them volume – and a growing acceptance of the platform since the 1990s, is reporting some that are Amazon-branded, but many to tell us about their digital buying and payments acceptance off Amazon . zero sales . that are not . payments experiences . PayPal, of course, has had a 20-year head And this seller is apparently not alone . And it’s now driving commerce . Alexa and Amazon have the majority start, dominating in payments acceptance Long-time sellers in this six-page thread, share of that market and the wind at its online with nearly 70 percent of the top Alexa, of course, is the very non- one of several I came across, complained back, as it strives to make Alexa that 1,000 merchants . It is also relevant in threatening, pleasant-sounding digital of volumes being appreciably down — helpful, indispensable assistant across enabling payments inside of contextual personal assistant connected to the many say down anywhere from 30 to 60 many financial, retail and payments environments like ticketing . Amazon ecosystem, who can play percent from what they once had . experiences . your favorite song, tell you corny jokes

The threads from sellers complaining The sellers who offer new stuff have Analysts have expressed concerns that parents’ or grandparents’ distrust of “The about the lack of sales, and other places to go, too, including Amazon PayPal’s reported GMV on the eBay Establishment” in the 1960s . corresponding increase in fees, has led – the company that eBay CEO Devin platform – half of what was estimated them to seek alternatives to eBay, with Wenig says he wants eBay to be nothing – signaled future softness in eBay’s It turned out to not be the case, for most many citing Amazon as a viable digital like, and which is suing Amazon for marketplace volume, and impacting its of the adults living in the U .S . port of call . poaching its sellers . future as a viable place for buyers and sellers to transact . People want to keep their money in a I’ve felt for a while that eBay has lost its This all comes, of course, as eBay has place that consumers trust . And that is way . made the decision to mediate payments The scariest thing for a marketplace like a bank – one with FDIC insurance and and made the move to Adyen as its sole eBay is feeling the force of gravity that safeguards that keep their money safe . eBay used to be a reliable place to buy payments processor . The motivation sends it spiraling down, forcing it to fight good-quality collectibles . It didn’t sell new for that move was to create more of a to climb up to its point of ignition . According to our latest Financial stuff – collectibles were its niche . direct relationship with the sellers in Invisibles Report, out of 10,000 adult consumers in the U .S ., 93 percent had a order to provide them with more services, FINTECHS … AND THE BANKS THEY Today, checking out eBay’s home page is bank account . That’s where consumers including working capital and lower WANTED TO DISRUPT just like looking at every other site that processing fees – fees, they say, that can want to park their money until they need Instead of banks being afraid of the sells new products, along with the oddball be as much as 25 percent lower in some to use it . FinTech bogeyman, it’s now more like the mix of junky stuff that gets passed off cases . as collectibles . As a buyer, it’s hard to other way around . Not only do consumers want to keep their understand what eBay is and why they But lower fees are only relevant if sellers money in the bank, but they also want Over the last many years, there’s been should start their product search there . are selling things, which many say they innovative mobile and digital banking a lot of words, and even some entire aren’t . And whether eBay can make a solutions from them that make it easier to websites, dedicated to the threat to banks Sellers with good-quality collectibles have margin on payments is also irrelevant if access and manage their money . Online by the FinTechs that were out to “eat their other online options that bring better sellers aren’t selling . and digital banking is an innovation traffic and higher conversions. If the lunch ”. enjoyed by many consumers, as is forums are any indication, those sellers Some seller complaints reflect concerns P2P payments . So, increasingly, is the In most of those cases, the narrative have left or plan to cut their losses by over additional fees charged for things promise of real-time disbursements via was about the rise of the neo-bank using other marketplaces as their primary that used to be free – so maybe making a businesses that use bank and bankcard targeted to millennials, whose distrust storefronts . margin on payments is harder than once rails to quickly push those funds into of traditional banks rivaled that of their anticipated . bank accounts .

FinTechs are helping to enable many of AMAZON, THE REST OF THE FAANGS … These companies are being demonized, for free in return for ad revenue) and those innovations for those banks . AND THE ANTI-BIG TECH MOBS mostly because they have created now charges handset makers $40 for the products or services that consumers bundle . Google is now being creamed in Waylon Jennings once sang, “Mammas, Over the years, and in the last year in like and use – things for which lots and the media for doing that . The assumption, don’t let your babies grow up to be particular, FinTechs have understood lots of them are willing to pay . And they I suppose, was that Google should have cowboys ”. that payments is a scale business, a have gotten big as a result of innovating just given handset makers their valuable risk business and a trust business . Their Today, big tech might want to tweak on top of the efficient platforms that apps for free . tech helps accelerate the delivery of those lyrics just a bit: Founders, don’t let they created and adding more value to innovation to FI customers who have the After all, they are big and have piles of your companies grow up to be big tech . consumers . consumers’ trust and are pretty good at money, so why not? managing risk . FIs are also getting better Amazon isn’t the only big tech company But they’re mostly being demonized But this sentiment has crossed the pond . at partnering, acquiring or investing that should find regulators terrifying. because they have disrupted the status in FinTechs to up their own services quo. Take Netflix, which has helped to Voices — from politicians to op-ed writers and product game . APIs and other There’s a whole group of players in the dislodge the high-priced/low-service — are calling for stricter enforcement technologies make those integrations same bucket . cable companies . more manageable and those ecosystems of antitrust laws, and suggesting the more robust . They are even known by a scary acronym: A lot of the narrative for the FAANG breaking up of tech companies . The FAANG . pile-on has come out of the EU, where breakup of big tech has become the In developing countries outside the regulators have targeted (and continue to topic of TED Talks and book tours and U .S ., things are different – particularly Everyone better watch out: Those target) successful U .S .-based companies talking heads who find no shortage of an in China, where closed ecosystems like FAANG guys are mostly up to no good . doing business in their markets . Google audience to egg them on . Alipay/Ant Financial and Tencent/WeChat Op-ed pages in major news dailies has been slammed – and fined billions Pay are the trusted financial services and tech columns also refer to them – for making a better search product Perhaps Google can be divided into two ecosystems that dominate today’s as the “Frightful Five,” which includes than Microsoft’s Bing . Why? Because companies, one of which gets keywords landscape . But even there, innovators are Apple, Amazon, Facebook, Google and consumers don’t want to use Bing . In fact, beginning with A-M, and the other with using their tech and platform as service Microsoft . I suspect most regulators don’t want to N-Z . offerings to give banks access to new use it, and probably don’t . products and services, since each one But since FAANG is so much catchier Or something . needs the other for different reasons . than FAAMG, why not include Netflix and Meanwhile, Google has also been told Think about what this would mean for let Microsoft off the hook? to unbundle apps from their Android license agreement (which they provided Amazon .

Perhaps these individuals would have Unfortunately, it will take more than “boo” Amazon broken up into different, separate to scare them away . 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 .

pple’s taken a beating since of stuff, they want to tell people about it . The Apple iPhone Sales announcing its Q4 earnings last If they aren’t, then they don’t . week . A Which, of course, is the iPhone story . Rope-A-Dope The stock price is off nearly 7 percent, even though its trillion-dollar market cap Last week, I talked about seven scary remains intact . things for the platform giants . For Apple, it was consumers not buying iPhones at Analysts and the media smelled blood in the frequency they once did . the water after CEO Tim Cook said Apple would stop reporting unit sales of its In that piece, I explained the reasons why products, including its crown jewel, the consumers now take longer to upgrade iPhone, next quarter . This came on the their iPhones . Instead of shelling out a heels of reported iPhone sales that didn’t thousand or fifteen hundred bucks for a meet analyst expectations . new iPhone that looks just like the one in their hand today, the iPhone’s 1 .3 billion That means Apple won’t tell the world installed user base is increasingly just how many — or how few — iPhones upgrading the iOS to get new features were sold over the all-important holiday and functions . Proving that point, a season, and in the all-important months month after iOS V .12 was released, Apple following the release of three brand-new reported that 50 percent of all active iOS iPhone models . users had upgraded .

Or at any other time — unless it wants to . The combination of pricier phones and longer upgrade cycles, which experts say The Wall Street Journal threw some will stretch to just shy of three years in serious shade on that move, citing Steve 2020, hits Apple particularly hard . Jobs’ reaction to Amazon’s decision in 2009 to do the same for the Kindle — that So, how’s Apple going to make that up? it must not be selling many . Jobs’ point then was that if a company is selling a lot

Well, they aren’t being shy about the In June of 2016, Apple gave developers a guidelines for how developers could do That also means Netflix and Spotify answer . bigger incentive to capture more revenue that, including some 200 permutations can — and do — enroll and activate from their apps in the App Store — and for of subscription price points that were all consumers off the App Store and give They say, quite loudly and clearly, Apple to collect more of it too . inbounds . those consumers access to those that they plan to make it up from their services on Apple devices too . It’s been Services businesses . And that largely That was the year Apple gave developers Apple also provided very clear reported that Netflix is doubling down means the app ecosystem . a big pay raise on apps with a instructions for how those purchases on this front in 33 countries as part subscription business model . Instead of must be made — which is via Apple’s of a reactivation and new customer So, all the apps in the App Store better the 30 percent Apple used to collect in iTunes payments platform — 100 percent acquisition initiative. Netflix reports that buckle up, and be prepared to pay up, to perpetuity for those in-app subscriptions, of the time . roughly 35 percent of its customers come remain a part of Apple’s ecosystem . it reduced its cut to 15 percent for those by way of App Store platforms — both that were downloaded and kept active for Although developers can acquire Apple and Google Play combined . After all, it costs money to support a more than a single year . customers off the App Store, register trillion-dollar company . them off the App Store and enable their But that also means Netflix and Spotify It did so because apps like Netflix were use on Apple’s platform, trying to sidestep must pay their 15/30 percent cut to THE SERVICES HANDWRITING ON THE avoiding signing up subscribers through Apple by directing people off the app Apple if that consumer was acquired WALL the App Store to evade the Apple tax . to register will get you kicked off the via the App Store, even if the consumer Apple figured it was better to cut the platform, probably forever . uses those services largely off the Apple Don’t say I didn’t warn you back in June of ongoing tax to get subscription plays on platform — on Xboxes, PCs, TVs, smart 2016 . board . That means it’s totally within bounds for speakers, in-dash applications, etc . Amazon to acquire Kindle consumers Cook said last week that iPhone unit Subscription models, of course, are the on Amazon .com, and for Apple to allow That still gives apps like Netflix and sales are no longer the right metric “it” thing in payments, and Apple’s revenue those consumers to download the Kindle Spotify pause — and for legitimate for measuring Apple’s success . What boost was to further incent developers app and consume those Kindle purchases reasons . he believes will replace that metric — to hop onto that recurring revenue on Apple devices — which it does . In because it has to — is what he’s been bandwagon for the digital goods intended fact, the only way Kindle purchases can talking up with analysts over the last THE APP USAGE/SPEND MISMATCH to be consumed on the Apple platform be consumed on Apple devices is if the two years, using a talk track that more According to October 2018 App Annie — books, news and media content, consumer activates those purchases on recently has compared Apple’s Services data, although Netflix is the No. 1 app games, productivity tools used digitally, Amazon .com — and that’s how Amazon largesse as equivalent in size to a Fortune across all app stores as measured by streaming music or video services . Apple wants it . 100 company . provided a very thorough set of operating

consumer spend, it’s tenth when it comes brand recognition and other, less costly, Most would probably pay a fee to be Apple — in much the same way as those to usage and downloads . consumer acquisition channels available available for download in the App Store services might expect to pay any other to acquire and activate customers . and to be used on the iPhone . Google customer activation channel for finding There, Facebook’s properties — already pays Apple for a privileged and converting a qualified lead. Messenger, Instagram, WhatsApp and And it’s also because most developers position in the app ecosystem . Maybe Facebook — take four out of the top five haven’t yet taken the digital subscription Apple will decide that Facebook — which Maybe that’s not 15 or 30 percent, since spots . app bait — only 20 percent of them have isn’t exactly a pauper — should pay up the price of those subscriptions is higher, opted into such a subscription model too . but Apple could decide the activation Apple made $11 billion in 2017 from App since the June 2016 announcement . of every new Blue Apron, Dollar Shave Store revenues — collected from in-app Those who have taken the leap say they Then there are the subscriptions for Club, BarkBox, Wag, Stitch Fix, Birchbox, purchases, paid apps and ad revenue are seeing revenue increases, which products and services activated in the Fabletics or any one of the growing from promoted apps in the App Store, and means Apple is seeing that too . But the App Store for services consumed off the number of automobile subscription plenty more from its own subscription 80 percent still on the sidelines don’t Apple platform — such as meal kits, box- services will come with a 2, 3 or 5 percent services, like Apple Music . seem convinced that either their services of-the-month club offerings and delivery tax on that revenue stream for as long as are well-suited to such a model or that services — all of which are today excluded that subscription is active . But there’s only so much Apple can do they want to adapt their solutions so that from the Apple revenue tax . to drive organic growth from its own they are . Apple could also decide that any app subscriptions . And it will take time for In fact, Apple’s terms of service that’s well-suited to mobile platform Apple to buy and then assimilate any So, for Apple to move the Services specifically say that payment for those usage — any kind of reservation, food content platforms and the revenue revenue, it needs to do a lot more . in-app services must be done outside delivery aggregator, quick-service generated along with them . the app — via traditional credit card, restaurant app that enables mobile order- THE APPLE TAX MAN COMETH mobile wallets or Apple Pay — because ahead or transportation services such Until then, simply adding a toll collector the iTunes payment system that collects as Uber and Lyft — should also pay a fee Like, it needs to figure out a way to tax all for subscription apps for digital services the tax can’t monitor or meter those based on the usage of those apps on of the other apps in the App Store . isn’t going to give Apple the Services transactions . their platforms . revenue boost it needs to blunt the reality For starters, it could extend the tax to of diminishing iPhone revenue . But maybe not for long . Maybe Apple does that by making those free digital apps, particularly the ones purchases flow through the iTunes that make their money off advertising . That’s particularly true because the big There’s nothing to prevent Apple from platform or Apple Pay as the default players that drive lots of consumer spend deciding that some portion of those payment button . today via the App Store have enough subscription activations are paid to

That certainly would be one way for Apple in the results of the PYMNTS/Visa How Apple is deflecting those punches, first by It’s risky . to juice Apple Pay usage . We Will Pay study . making it harder to see how bad iPhone sales are, while at the same time shifting Maybe apps will rebel . At four years of age, Apple Pay is a star THE IPHONE ROPE-A-DOPE the narrative — and its strategy — to in a show without much of an audience, maximize Services revenue, well before But that’s hard since iPhone users, while The late, great Muhammad Ali beat even though the number of people Apple the crowd thinks it’s down for the count . outnumbered by Android users, account George Foreman in the fight that will reports with Apple Pay is increasing . That Then, it will come out swinging with for the majority of app usage for a lot of forever be known as the “Rumble in the may have a lot to do with messaging potentially the most potent punch it has: apps . Jungle” because he practiced being people that upgrading their iOS is eventually taxing all of the apps in the pummeled against ropes that would act incomplete unless they install Apple Pay . Apple app ecosystem in some way . So, it just might work . as shock absorbers against Foreman’s It’s quite possible that people counted as punches the day of the match . users are installing Apple Pay because Of course, the business merits of one Unless voice-activated platforms like they think they have to, not because they or any of these ideas for gunning up Alexa and Google Assistant ruin their It worked . plan to use it . Services revenue by taxing the apps plans . ecosystem could likely have some While everyone watching thought Ali, who Cook said last week that Apple Pay is the disastrous downstream effects for Apple . went into the match as the underdog, was leading mobile contactless player, with being creamed, he had a strategy . transaction growth that has eclipsed that But none of them are implausible, or even of PayPal at the mobile point of sale and that far-fetched . He took his beating against the ropes, a growing acceptance at most of the top until he saw Foreman getting tired . He retailers in the U .S . Apple might think it’s sitting in the then came out swinging and won the catbird’s seat with 1 .3 billion iPhone users match . That would be a great story if people were who are sticky to its platform and who really using Apple Pay to buy things at use all the apps — and can easily charge Such is the story with Apple and its those merchants . Upgrading a merchant for using its platform . slowing iPhone sales story . terminal to enable contactless payments, by default, enables Apple Pay acceptance If apps want to be part of that ecosystem Apple is taking its punches, with but is not a guarantee of consumers and available to those consumers, Apple observers now starting to pile on, unsure using Apple Pay at those merchants to might tell them: tough luck — pay up or go of its ability to continue the winning buy things . It’s not what we’ve seen over somewhere else . streak the iPhone has given Apple for the last four years or, even more recently, more than a decade .

almart’s Q3 earnings – and keep Walmart’s bottom line healthy, The Walmart/Amazon last week was a story of too . strong digital sales and W Yet, despite these strong Q3 results, 16 consecutive quarters of same-store Whole Paycheck sales growth . Consumers, executives said, investors weren’t wowed: Walmart’s continue to walk into Walmart stores and stock dropped 2 percent on news of its add more things to their shopping baskets . earnings on Thursday, and another 2 Matchup percent on Friday . That’s a lot of feet – belonging to some 140 million consumers globally (100 Maybe that’s because they are looking million or so in the U .S .), who each week around the corner, beyond this most walk into one of those physical stores, recent quarter, and are worried about in addition to the 100 million who are what they see: that Walmart’s healthy said to shop one of the retailer’s online share of paycheck is being challenged channels . Walmart’s strong digital growth, by another retailer whose “customer as at 43 percent last quarter, has now boss” mantra and commitment to low propelled has now propelled Walmart to prices and stocked shelves is just as within spitting distance of the No . 3 post important as it was for Sam Walton 56 position, displacing Apple, at roughly 4 years ago . percent of retail sales . That retailer is, of course, Amazon . All of those things are precisely what Sam Walton staked the Walmart brand on 56 Today, based on brand-new PYMNTS years ago when he opened the first store proprietary analysis, Walmart accounts in Bentonville, Arkansas . The brand was for roughly 8 .9 percent of consumer retail built on keeping prices low, and stocking spending in the U .S . and 2 .8 percent of all shelves with a variety of merchandise consumer spending in the U .S . categories that would keep consumers coming back week after week . That That probably sounds pretty good . combination, he believed, would capture a Until you look at this chart . healthy share of the consumer’s paycheck

At 6 .4 percent and 2 .1 percent, respectively, Amazon is nipping at the heels of Walmart’s Based on our analysis, that spending relevant methodology, I estimated that share of consumer spending . Perhaps more troubling for Walmart, however, is that share gap will close even more rapidly, seven out of every 10 households on Amazon’s share of spend, overall and within retail, has grown rapidly over the last four given Walmart’s increasing loss of share Beacon Hill shopped Amazon for the years . to Amazon in many of the key categories holidays . that drive big chunks of consumer retail Walmart’s has remained relatively flat. spending today . In an effort to be much more scientific and reliable, our data teams built a And the investments that Amazon sophisticated statistical model to is making in other areas outside of measure what we coined the Amazon retail account for large chunks of the Whole Paycheck phenomenon . consumer’s paycheck overall, and will continue to do so in the years to come . We started with census data to estimate how much households in the U .S . spent, THE BATTLE FOR THE CONSUMER’S overall, in 2018 across all spending WHOLE PAYCHECK categories .

PYMNTS first published the Amazon That’s $62,941 . Whole Paycheck Index a month or so ago – driven, in part, by my curiosity over We then drilled into how that spend the degree to which consumer spend was is allocated across different spend being redirected toward Amazon and its categories . The lion’s share of that growing consumer and retail footprint, $62,941 – 31 percent – is spent on retail and away from more traditional retail purchases (food, electronics, clothing, channels . etc .) . Housing (18 .5 percent) and healthcare (17 .0 percent) round out the That curiosity was piqued by my walks top three . to the office when I am in town (I live in Beacon Hill in Boston) and my mental We then created a proprietary data model, counts of the number of Amazon boxes I using a variety of data sources and see out on trash day . Last holiday season, statistical techniques to calculate the by my own informal and non-statistically

electronics, auto parts, clothing and home furnishings into the mix, the percent of all retail spend attributed to those categories climbs to about two-thirds .

Walmart looks well-positioned in mostly all of them .

Until you look at this chart .

“paycheck index” for both Amazon and You might be thinking, hey, this looks Walmart . pretty strong – incredibly strong, in fact – in the segments that drive a big chunk The story of the Amazon Whole Paycheck of consumer spend, like food, auto parts, Index is here, which I’ll come back to in a furniture/home furnishings, clothing and minute, so let’s instead focus on Walmart even health/personal products . Whole Paycheck numbers . You would be right . Here’s Walmart’s share of consumer spend by retail product category . Food and healthcare account for about 44 percent of all retail spend . And adding

You don’t have to be a math whiz kid and health and personal care (at 43 .0 to note that the slope of the lines on percent) . this chart and those on Walmart’s look remarkably different . MINDING THE WHOLE PAYCHECK GAP

The consumer spending share gap Walmart’s are largely flat, and Amazon’s between Walmart, the biggest retailer by are rising – in every category . market cap, and the world’s largest digital For Amazon, the slope of those lines retailer is being narrowed by three things . is moving up and to the right, rapidly, First, the rapid growth in online sales, of in the categories that are helping them which Amazon has a 50 percent share. close the total spending and total retail spending paycheck gap with Walmart . When it’s easier to do so, consumers now buy things online – and with Amazon That makes the story of the Amazon It’s a growth story, though, that’s make purchases . That is a remarkable about half of the time . That’s either by Whole Paycheck Index not so much about tempered by Amazon’s acquisitions in adoption curve in just four years, and a shopping on the Amazon marketplace, the percentage of spend – since one segments that drive large chunks of use case that will increasingly serve as a via one of the brands that it now owns – could argue whether 2 .1 percent of total consumer spend, and also drive feet commerce tailwind for Amazon the more Zappos or Shopbop, for example – or via spend or 6 .4 percent of all retail spend is into Walmart stores: grocery with Whole places that Alexa turns up . Walmart’s one of the 80 or so private-label brands too high or too low or maybe just about Foods, and healthcare/prescriptions with voice story is entirely dependent on the that it now operates . right . its $1 billion acquisition of PillPack in adoption curve of Google and Google June of 2018 . Assistant, and the ecosystem beyond For Walmart, landing the spot of No . 3 But the remarkable annual growth rate Walmart that will give consumers a largest etailer in the world sounds great, (CAGR) that Amazon has achieved over Then there’s the pervasiveness of Alexa reason to opt into Google and not Alexa . until you realize that the gap between the last four years has been in segments and the consumer’s growing adoption of it and the No . 1 player – Amazon – is that represent the big chunks of that voice as a commerce enabler . PYMNTS’ If you’re Walmart, these charts – and bigger than the Grand Canyon today, spend: grocery (at 106 percent), auto latest How We Will Pay study, done in those facts – are downright scary . despite Walmart’s own impressive growth parts (at 32 .7 percent), furniture/home collaboration with Visa, highlights the story of late . furnishings (at 41 .8 percent), clothing (at universal appeal of voice – 28 percent According to our analysis, Walmart has 43 percent), electronics (at 27 percent) of all consumers own a voice-activated already ceded ground to Amazon in the device, and 27 percent of those use it to clothing and electronics categories –

sporting, books and music, too . Home WHERE THE WHOLE PAYCHECK BATTLE Walmart is keenly aware that grocery It’s no surprise, then, in looking at this furnishings is literally neck and neck WILL BE FOUGHT and competitive grocery prices are what chart, why Walmart has made grocery its (Walmart at 10 .5 percent and Amazon at get consumers into the Walmart stores, focal point . Grocery has always been Walmart’s bread 9 .7 percent), given Amazon’s rapid growth and are driving sales and investments in and butter – pun intended . But over the over the last four years, and the recent innovations to keep consumers coming And why Amazon acquired Whole Foods . last four years, its share of that consumer launch of its own private-label furniture back . spend has remained largely flat at 18.5 line . For Amazon to make a dent in the roughly percent . For instance, curbside pickup is now, 8 percent of consumer spend that is All of this makes the Walmart/Amazon or soon will be, available in 40 percent food and beverage, the retailer needed But largely flat is all relative, since grocery rivalry over who will be the biggest, of all Walmart stores in the U .S ., and a physical store footprint to meet the represents more than half – 56 percent baddest retailer of them all about one and the acquisition of Jet .com has helped consumer where she buys groceries – of all Walmart’s sales . That makes that only one thing: who will be the biggest, Walmart bolster its online grocery sales . today – and where distribution centers 18 5. percent an enormous number . It’s baddest player in grocery and health- Plus, their investments in services and for grocery delivery could be easily a number that also includes 18 percent related services, where 44 percent of all partnerships have helped to solve for last- accessible . of all SNAP food stamp redemptions, retail spend in physical stores still holds mile delivery logistics . with Walmart reportedly as the largest sway – at least for now . The grocery gap between the two, for individual recipient of that program . now, is enormous .

But all food dollars may not be created to store foot traffic and those larger of healthcare – and premium costs – Of course, Amazon, too, is investing in equally right now, and the share of basket sizes . for its 2 .2 million employees by creating other aspects of healthcare and health- consumers who are buying groceries programs with similar incentives . related products, ranging from the online online across all age groups in growing Health and personal care is also where sales of medical equipment to a joint by double digits . And today, when Walmart is making investments to At about $100 million in annual revenue, healthcare venture with JPMorgan Chase consumers think about what to eat for remove friction and create stickier Amazon’s PillPack acquisition has a long and Berkshire Hathaway that will reinvent dinner, they aren’t always looking for consumer relationships . The retailer has road to hoe to best Walmart’s hold on healthcare delivery for first their collective what’s in the fridge from the last grocery made the Walmart app more Rx friendly, the share of the consumer’s paycheck workforces, and then for who knows who run to cook . Prepared foods, meal kits and opened express lanes in stores to dedicated to prescription refills. But else once the model is in place . and delivery services are all now very reduce the amount of time people spend there’s a reason that when the news was much in the mix, requiring both Amazon waiting in lines for refills. Walmart now announced, the shares of major drug TO THE CONSUMER GO THE SPENDING and Walmart to adapt their offerings operates 19 clinics inside its stores to distributors took a market cap hit of AND PAYCHECK SPOILS through their grocery store beachheads attend to routine, non-emergency health- $13 billion, just as the market cap of the Looking at the share of consumer spend to accommodate those changing related matters . major grocery chains took a $22 billion hit overall, and by retail category, is a new preferences . when Amazon announced it was buying and interesting way to see how Walmart Over the years, Walmart has launched Whole Foods in June of 2017 . and Amazon are each playing to their Then there’s spend on health and programs with incentives for consumers strengths and placing their bets on how personal care, which today captures 5 2. to eat healthier and visit the doctor, Once the PillPack acquisition is cleared to keep and grow that share . percent of consumer spend, and growing . combining pharmacy refills and doctor’s this year, Amazon will be set up to fill It’s an area where Walmart leads Amazon visits with a chance to drive more spend online prescriptions for consumers in 49 What seems clear is that both Walmart in terms of share of consumer retail across all of Walmart . For example, of the 50 states . That threatens existing and Amazon recognize that consumer spend, but where the gap appears to be women on Medicaid who maintain a distribution outlets like traditional drug choice will never just be about one narrowing – and where Amazon is also regular schedule of prenatal doctor’s stores – including Walmart, who was said channel versus the other, but about who growing quickly . visits get incentives to buy specific items to be a PillPack suitor but rebuffed . can deliver what they want with the least at Walmart to keep themselves and amount of friction . Today, Walmart is the fourth largest their babies healthy . Others with chronic The market’s reaction to the PillPack pharmacy operator in the U S. ., driving health conditions, such as diabetes news reflects its expectation for Amazon And that’s increasingly in categories more than $20 billion annually in or hypertension, are given similar to become a force by making prescription where inspecting things in the physical pharmacy sales. Filling and refilling incentives . And as the largest employer refills as easy as shopping online, and store no longer seems to be all that prescriptions is not only an important in the U S. ,. Walmart is working with to make next-day or same-day delivery a important . One needs only to look revenue driver, but also a big contributor insurance companies to reduce the cost competitive advantage .

at Amazon’s share of clothing and each will make investments to better their accessories or home furnishings to score, and the role that logistics will have see how real that consumer reality has in deciding how all of this ends up . become . As both Sam Walton and Jeff Bezos know That’s why we’ll keep our eyes peeled on well, the consumer is the boss . And it’s the two big sectors that will decide how the consumer who will decide how it all this retail rivalry plays out – food/grocery shakes out . and health/personal services – and how

he verdict is in . LETTING THEIR FINGERS DO THE SHOPPING What Black Friday Black Friday was a boon for A study conducted in 2016 reported T online retail . that consumers touch their phones Tells Us About 2,617 times a day – about once every 33 Nostalgia still drove consumers to seconds . physical stores to snag and brag about The Future Of Retail great deals and to get into the holiday At the time, that stat seemed amazing, swing of things that only nicely decorated even unbelievable . malls – complete with holiday music, Santa Claus and the looming reality of a It’s actually neither – but rather, a Christmas deadline – can deliver . testament to how important mobile devices are to consumers in navigating But this year, millions more took not to their day-to-day lives . And it shows their cars to trek to the malls for those much of a catalyst they’ve become in deals, but to their couches instead . blurring the online and offline worlds Adobe’s analysis of 80 of the top 100 for consumers and the people and internet retailers found that consumers businesses they touch – now every 33 racked up two billion dollars in sales via seconds . their smartphones between Thanksgiving and the end of the day on Black Friday . Nowhere have we seen these devices have more of an impact than in how But in one way, Black Friday wasn’t much consumers shop and how they do – and different for consumers than any other will – pay for their purchases . shopping day .

Our second annual study, in collaboration Most of them were out looking for a with Visa, tells the story of how quickly good deal and a convenient shopping – and enthusiastically – consumers experience, and using their mobile embrace new connected devices and use phones to help them with both . cases to contextualize their shopping and buying experiences .

That increasingly includes voice-activated Which is, they don’t – at least not in the purchase and walk out holding in her The conventional wisdom at the time devices, the use of which to enable traditional sense of the word . hands . was that physical retail would remain a purchases has accelerated dramatically relevant — and dominant — part of the over the last 12 months . Now, 28 percent FIND BEFORE THEY BUY THE PHYSICAL RETAIL DEATH SPIRAL, retail shopping mix . After all, they said, of all U .S . consumers report owning a TAKE TWO more than 95 percent of all sales still In September of 2018, PYMNTS voice-activated device, 27 percent of happened in a physical store . conducted a new study of 4,900 In 2014, I wrote a piece about the whom used it to make a purchase in the consumers to better understand their coming physical retail death spiral when seven days we tracked their purchasing Fast-forward four years to a booming use of the mobile device in making reports about foot traffic at malls during behavior . The proliferation of devices economy in which consumers are purchases once completed exclusively the holiday season showed a marked and apps that enable voice purchasing shopping until they are dropping, feeling in the physical store . We asked these downward trend . That reporting then will only shift more commerce in that ever more confident about their incomes consumers to describe the last purchase wasn’t just about an aberrant slip for that direction . and earning prospects and filling their they made in a 24-hour period, staggering particular holiday season, but one that shopping baskets higher than ever before . the study over a week-long period so we had, at that time, been nose-diving for the For merchants, this portfolio of could capture responses across different three years prior . connected devices represents an The Wall Street Journal reported days . unprecedented opportunity to capture yesterday that foot traffic in physical We didn’t really need a team of data and convert consumers into customers stores is down for the fifth straight year, What we found is a reality that most scientists poring over data to produce wherever they are, and whenever they but not quite as sharply as in years past retailers probably already know: those results: All one had to do was visit happen to be in the mood to make a — not just during holiday times, but all the Consumers making the decision to visit a the mall and observe how few people purchase . time . store isn’t about the surprise and delight were shopping there . of what they might find when they get In fact, Adobe reported that 49 percent Yet this decline comes as the economy is there . At the time of that story, there were those of online traffic onBlack Friday was strong and consumers are buying more who rationalized the decline in foot traffic generated by smartphones, and the than they have in years – but just not at In fact, it’s quite the opposite . as consumers being cautious about devices were used to turn 30 percent of the physical store in the way they once spending . Then only a few years out from all online purchases into sales . did . Today, visits to physical stores are about under the financial crisis, consumers the consumers’ certainty – even before were using their phones and laptops more They are also a real-time disruptor of how For more than 83 percent of the she arrives – that what she wants to often to find good deals in an effort to consumers now use the physical stores consumers we studied, stores are no buy is in stock and available for her to watch their spending, they supposed . to shop . longer places of discovery, but where they

The physical retail ship is still sinking . Shopping in the physical store ranked a distant third at 58 percent . The 22 percent of consumers in our study who made a purchase online did The physical retail ship is still sinking . so across a variety of retail segments, including clothing and accessories and, THE NEW RETAIL REALITY to a smaller extent, groceries and order- Busy consumers now place a premium on ahead at QSRs . the value of their time, and view mobile and other connected devices as efficient All of these results were for an otherwise enablers of their purchases regardless of run-of-the-mill week in the fall . where they happen to be: at home, at the Nearly a quarter of online shoppers in our office, while commuting or even while out study made purchases in excess of $100 . and socializing with friends . Nearly 59 percent of the consumers who Convenience is their calling card – and are making purchases using smartphones retail’s new reality . are women . More than a third (36 percent) used debit cards to make those That’s true for all types of purchases . purchases, 28 percent used credit cards and 11 percent used PayPal . Sixty-one percent of consumers go to fulfill the things they have used their Stores have increasingly become places discovered the last item of clothing Sixty-one percent of those consumers smartphones to scout out first. where consumers walk in knowing what they purchased online . And 42 percent expressed their “extreme” satisfaction they want to buy, and how much they of those consumers ended up making with purchases made that way . According to our study, only 16 .5 percent will pay — or pick up what has already that purchase online. Nearly fifty-two of consumers in the U .S . now use the purchased and paid for online . (51 .5) percent discovered the last The only channel to beat the mobile physical store exclusively to discover mass merchant product online, with 39 phone? what they want to buy, a remarkable shift Only 79 percent of the weekday percent of those consumers making that in the space of decade when that number consumers we studied made a purchase That would be the desktop computer, at purchase online. Those who fulfilled in was pretty darn close to 100 percent . in a physical store, including for food and 65 percent . the store did so after knowing what they groceries .

wanted and where they needed to get it at That’s why Black Friday is little more than the best price . a souped-up version of how consumers shop and buy things today . Consumers no In fact, reports suggest that traffic in longer have to go to the store to find great the physical stores was strong in the deals on the things they want to buy . And mornings when door-buster type deals on Black Friday or any other day, they were promoted but otherwise light the don’t have to get up early to snag a spot remainder of the day . in line or fight for a parking spot at the mall to get those deals . Deals drove foot traffic, making the pitter patter of those little retail feet All they have to do is reach for their don’t necessarily belong to profit-making smartphones every 33 seconds to check customers, but rather those who want for deal alerts and emails – and then click the certainty of a great deal and the Buy . product in their hands .

Smartphones have democratized access to perfect information about those deals and those sales, giving consumers their short list of stores where they can buy them at the best possible price .

That is, if getting that product immediately is an important priority .

Soon, logistics will democratize that, too, giving consumers the ability to take possession of those items the very same day, even further reducing their need to visit the physical store to get what they want to buy .

n 1954, mathematician L .J . Savage WHAT’S REAL AND WHAT’S RELEVANT published research about how Why Consumers Researchers say that consumers make consumers process information I 35,000 decisions a day . That’s about when making decisions . Dubbed the sure- 2,000 decisions every hour, or one every thing principle, Savage’s work showed Will Shrug Off two seconds . Those decisions vary that consumers consider a variety of greatly in importance, significance and inputs when making decisions . They also context . Many are rote, routine, low-risk The Marriott Breach mentally bucket – and then disregard and made based on past experience – – inputs that may be important, but not whether it’s cold enough outside to wear important enough to change their minds a hat or whether there’s enough time to about something they really want to do . stop by Starbucks to pick up a coffee on the way to the office. To make his point, Savage used the example of someone contemplating the Others are made on the basis of the purchase of real estate . For that person, desired outcome, the odds of personal the outcome of an upcoming election was downside risk and the friction associated regarded as relevant . After weighing the with an alternative course of action . pros and cons of each election outcome, that person decided to buy the property For example, the fact that 90 people die anyway . The election outcome, while every day in the U .S . in an auto accident a relevant input, was not the relevant doesn’t stop 138 million people from decision driver for someone who had getting into their cars every day and already decided they wanted to own that driving to and from work . Driving is piece of property . better than walking or, for many, even better than an alternative mode of If the sure-thing principle can be believed, transportation . then last week’s Marriott breach of 500 million customer records won’t have The same holds true each time a person much of an impact on the consumer’s steps on an airplane . Planes do crash, decision to book a hotel room at a and when they do, it is horrific and many Marriott property for their next trip . people usually die . But most people

who fly don’t die in crashes, and more and many vowed never to shop the store Consumers, analysts say, are numb to Consumers know that the banks have than 100,000 flights jam-packed with again, they said . the breach news, brushing it off as “yeah, their backs, even in the face of breaches people take off and land safely every day, whatever” and continuing on with their at the places where they routinely shop . globally . In fact, researchers say that a Until they did . lives . So, despite the headlines, for most person would have to fly once a day for consumers, it’s business as usual – no For proof, one need look no further than 55,000 years before encountering a fatal Foot traffic dropped in the months big deal and no big change . the Equifax hack, when the credentials act . Flying is safer than driving, or even immediately following the breach, but of most every adult in the U .S . were laid probably walking, in Manhattan . analysts couldn’t discern how much of That’s because, although merchant bare and are now available for sale on the that was related to post-holiday shopping breaches may make the news, the reality Dark Web . So, people continue to drive and step fatigue and how much was the result of of those breaches doesn’t touch the vast on an airplane since the odds of being breach backlash . It was reported that majority of consumers . There’s no change On the one-year anniversary of that personally impacted by an adverse event some consumers whose cards were in behavior is because most consumers breach, it was reported that only 8 are quite slim. And the benefits of driving compromised said they stopped using haven’t and won’t be impacted – and percent of consumers took Equifax up on and flying far outweigh the alternatives. them at Target – while still shopping when they are, they won’t incur enough of their offer to freeze their credit reports . there – and reverted to cash instead . a loss to force a change in their shopping Fewer still cancelled their credit and debit People also keep shopping at merchants behaviors . cards . that were once hacked . Until that friction got in the way of consumers doing what they really wanted For that, merchants can thank the banks Yet 90 percent of consumers have since WHAT’S RELEVANT IN RETAIL to do: shop at Target and check out using and the payment networks . taken proactive steps to monitor use their credit and debit cards . of their payment credentials by either In December of 2013, Target was Banks have invested billions in systems checking their accounts more regularly, breached . Which is exactly what they did . to detect and prevent fraud using stolen setting up usage alerts or changing credentials, and to secure their networks their PIN numbers in an abundance of Hackers got off with some 41 million Consumers who liked shopping at Target from the hacks that could expose precaution . More than half of consumers customer accounts, including payment and found the experience easy and them . They continue to invest further in surveyed by Nerd Wallet believe that card details . That breach cost then-CEO convenient continued to shop there, just “true AI” tech and biometrics to further banks are doing enough to protect their Gregg Steinhafel his job, and became the like always . strengthen digital identity verification and information and keep it out of the reach poster child for EMV and the need to lock authentication . of hackers . down payment card security to protect Just as millions of consumers have kept against counterfeit fraud at the physical shopping the many more merchants that It should then come as no surprise that it point of sale . Consumers were furious, have been breached since . is the banks and the payments networks,

including PayPal, that consumers trust That keeps the consumer’s confidence proactively and aggressively made an For merchants, that’s great news, to deliver innovative – and secure – high in using payments products at the investment in upgrading their point-of- since consumers keep spending even payments and commerce experiences, physical and now many virtual points of sale systems to protect their customers if merchant systems keep getting according to the latest How We Will sale now available to them . from counterfeit card compromise . Yet compromised . Pay study done in collaboration with they did, and fraud at the point of sale Visa . Merchants — with the exception of That’s why the compromise of 500 million has dropped dramatically – some 75 If past is prologue, then, perhaps the only Amazon, whom they also trust — fall way Marriott customer records, second only percent over the course of the last three other sure thing is the need for the entire down on that list . to the Yahoo breach in terms of size and years . payments ecosystem – the payments scale, probably won’t change the behavior networks, payments services providers Even more interesting is that in that of the vast majority of their customers Now fraudsters, undaunted, have and banks – to keep the pressure on same study, more than three quarters of – much as we all might want a just moved online, which is where payments merchants to increase the safeguards on consumers report that data security and desserts for a system failure that is said volume is moving, too . The tactics these their systems and keep consumer data privacy concerns could keep them from to have continued for four years before it cybercrooks use to outsmart merchants out of the hands of the bad guys . taking full advantage of the payments and was detected . and the consumers who shop them have commerce innovations made possible by become increasingly sophisticated . the myriad of connected devices that now It will be the banks’ and the networks’ enable them . investments and diligence that will keep And, unfortunately, as the ongoing string maintain consumers’ confidence in of breaches shows us, most recently Yet consumer adoption and use of those using their credentials to book rooms at the Marriott breach, merchant efforts to innovations continues to grow . Just like Marriott properties and everywhere else shut down fraud continue to lag behind consumers would probably say they they want to use them . the advances in technology capable of would be less likely to fly following a detecting and stopping it . horrific plane crash — yet still do. It’s their sure thing . For consumers, when it comes to Consumers trust their decisions to And therein lies the dilemma facing the shopping and buying online, their sure use those devices to shop and pay at payments ecosystem today . thing is knowing that they’re more than merchants, because banks, payment likely to escape harm, even if their networks and payments services Absent the Target breach and the credentials have been sold to the highest providers continue to invest in the decision by payment networks to shift bidder on the Dark Web in an attempt to integrity of the payments ecosystem, and liability to merchants that didn’t step up, commit fraud at their expense . often insure consumers against loss . it is unlikely that merchants would have

he year is 2007 . in 2000 and acquired by HSBC in 2006 after struggling for years to get Headlines are filled with acceptance at merchants.] T news of a “revolutionary” product that will change the fortunes of Creating a product that pulled funds from merchants and unlock countless benefits depository accounts at other issuers for consumers when using it . Analysts at and was accepted at any Mastercard- the time called this product “an historic accepting merchant gave Cap One opportunity” to bolster the merchant’s something new to offer consumers — and “corroding bottom lines,” and innovators a new business model around which to rushed to build new applications to help build rewards to get consumers on board . them seize it . The consumer value prop was the And what was the product? functionality of a debit-like product, since funds to pay merchants were pulled No, not the iPhone, but that would be a directly from their checking accounts, good guess . without the consumer having to switch their existing DDA account to a new bank It’s the decoupled debit card . to get the generous cash-back goodies . Merchants paid less when they accepted Capital One made the headlines then those cards . — a genius move, many called it at that time, for an issuer that lacked demand in Inspired, retailers set out to develop their deposit accounts and had no other way own products with those same benefits: to provide a debit-like offering that would debit functionality, rich consumer rewards Decoupled make their brand sticky to consumers . and a lower interchange fee burden when consumers used them to shop their [Note to the payments history buffs stores . Debit out there: The real decoupled debit interchange pioneer was a company This all went … basically, nowhere. — Again? called Tempo, aka Debitman, established

Aside from a handful of special use to use ACH-linked branded payments projected the savings and bottom line managed to capture nearly a quarter of cases, there wasn’t mass adoption of apps and methods to avoid paying impact when implemented . sales over a decade hasn’t done badly . decoupled debit cards, and merchants interchange fees, I had to look twice at didn’t end up issuing many . Decoupled the dateline . Yet all of them were devoid of the reality But that may be as good as it gets . debit accounts for very little of ACH of how consumers want to pay merchants volume . To me, it seemed like déjà vu all over and the underlying benefit of using The REDCard has seen its growth slow again, as that famous American payment cards . appreciably since 2013, the year of the But today, more than a decade since philosopher, Yogi Berra, put it . infamous Target breach . those headlines and lackluster Many of those schemes have either performance, decoupled debit is again Just like 2000, and then again in 2007 fizzled and died, or are today found Between 2010 and 2013, it’s been in the news, touted (again) as the with the initial hype over decoupled debit . sputtering . reported that the volume of sales on interchange fee elixir for merchants — the REDCard grew from 6 percent made more powerful, they say, in the Just like 2010, with the launch of ISIS, The only real success story, the Target to 19 percent – in other words, like age of merchant-branded payments aka Softcard, and its merchant-friendly REDCard, has plateaued . gangbusters . apps . Instead of calling it decoupled mobile payments scheme . debit this time, though, it now has a new When it was first introduced in 2007, But between 2013 and 2015, it’s been a name — and in the EU, a new friend in the Just like 2012, with the launch of MCX the REDCard was cited as a merchant- different story . regulator who is breathing new life into it and CurrentC merchant-branded, ACH- branded ACH payments wunderkind, a Over those two years, REDCard sales under the auspices of PSD2 . linked mobile payments products . pathbreaker for merchants that wanted to keep their best customers in the grew more slowly: from 19 percent to 22 There’s only one problem . And each time, the headlines were all fold using their most economically percent of all Target sales . And between about how great these merchant-branded advantageous payments product . 2015 and 2017, REDCard sales grew from Consumers in the U S. ., by and large, initiatives would be . REDCard holders linked that card to their 22 percent to 24 percent . haven’t taken the bait, and have even checking account, and users were given more reasons not to now . For the merchants . 5 percent cash back on purchases made In May, Target introduced a new loyalty using it . program that could be linked to any Detailed financial models showed payment card a customer wants to use . 2018: SAME SONG, DIFFERENT VERSE merchants the billions they would save Today, Target says that REDCard The richer rewards still accrue to the I have to admit that after reading the using new schemes that sidestepped the transactions account for roughly 24 REDCard holders whom, Target says, Bloomberg story last week describing card networks . Fancy PowerPoint decks percent of sales, and that’s nothing to produce baskets that are as much as how retailers are revving up their efforts detailed examples of those schemes and sneeze at . A payment method that has

50 percent higher than non-REDCard despite the growth in retail spending they the mobile pays shout, entreat and wish it Merchants have been the subject of customers . have ignited — and all of the benefits to be so, consumers just haven’t been all many of those breaches, which resulted that have accrued to merchants when that interested . in compromised payments credentials . But Target execs concede that not accepting them . At least cards can be replaced easily and all customers want to establish a It’s also not clear what merchants are the consumer has some protection . With new payment method in order to be It’s a battle that exists even though fighting for anymore when it comes to merchant-branded ACH-based products, considered — and treated as — a loyal merchants dangle store-branded cards in debit interchange . The Durbin amendment not so much . Consumers will likely think Target customer . front of consumers and few say yes . capped interchange at 24 cents, twice about giving their bank credentials significantly reducing the difference to hack-prone merchants . Particularly, it seems, one whose loyalty And it’s a battle that rages even though between ACH and debit . is measured solely by their interest in the notion of ACH-linked, merchant- Not surprisingly, perhaps, when we asked linking their checking account to it . branded payments schemes haven’t In fact, those economics – or perhaps last summer who consumers trust to exactly set the world on fire — despite the lack of them – helped to shutter most innovate their payments experiences, So, what’s different about the new talk of the investments and valiant efforts made decoupled debit schemes operating at the merchants (with one exception) don’t rise ACH-based cards? by merchants, merchant consortia and time, since there just wasn’t enough of an to the top of the list – in fact, they sink innovators to convince consumers to give economic proposition to fund the kind of way to the bottom . Nothing, really . them a try . rich rewards that might get consumers to make the move – although frankly, there Banks that issue network-branded cards, Well, maybe there is one thing . There’s a simple reason for that wasn’t much evidence they would move PayPal and Amazon round out the top resistance . anyway . five. Consumers, it seems, want a layer THE CONSUMER-MERCHANT of protection – a trusted intermediary INTERCHANGE BATTLEFIELD Consumers make their payments A move that now, in the face of the litany – standing between their payments decisions based on what’s best for them, of merchant breaches, seems a big ask The merchant’s war on interchange fees credentials used at a merchant and the not how much it costs a merchant to of consumers for whom the safety and (or just the merchant discount for three- precious funds they have sitting in their accept what they want to use . security of their payments and bank party systems) is as constant as the sun bank accounts . Consumers use their account credentials is at all-time high . rising every day in the east and setting debit cards, all right – just the ones And if we’ve taken one lesson from every day in the west . issued by their banks . the mobile, contactless point of sale Since 2005, sources claim there have experiment, it’s that it’s not so easy to get been 4,500 data breaches, 3,455 of which It’s a battle that has raged for nearly all That really shouldn’t be bad news for consumers to change their preferences, have happened since 2013, the year of of the 60 years that general purpose merchants, particularly as technology once established . No matter how hard the Target breach . payments cards have been in existence, and digital platforms open new channels

for consumers to find products and once said was the cheapest way that a Unlike most fairy tales, it does not come merchants from which they’d like to buy . consumer could pay them . with a happy ending – as that piece then, Getting consumers comfortable with or the reality of the scheme now, has those new experiences can only happen But even that has changed . proven . if consumers are comfortable that they are protected when they plunk in their Cashless is now becoming king in stores, payments credentials and click (or say) as merchants push digital over paper “buy ”. (and coin) in the name of efficiency and a better user experience . Consumers As for interchange, and the business are using less of it – and using it only model that underpins the payments introduces friction for cashiers who system that operates globally today have to take it and make change, not to and powers trillions of dollars in sales, mention the consumer who is standing in someone has to pay . line behind someone who pays that way .

Consumers don’t, so merchants must In fact, the real irony may be that the – and the biggest of those merchants merchants that once sought regulations pay very little, despite the protections to reduce card acceptance so they could consumers are afforded if things go do more with cash, may now be faced amiss . For every story that talks about with regulation to make them take cash merchants touting merchant-branded instead of cards . schemes to reduce interchange, there are thousands that just want to get the sale At least, if New Jersey lawmakers have before someone else does . their say .

Perhaps even more ironic is that the Oh, and if you want a real walk down justification for interchange fee reduction memory lane, check out my MCX Fairy was once to give merchants more parity Tale, a piece that I wrote back in 2013 in the cost of accepting cash at the when talk of their replacing card networks point of sale – a form of payment they was at a fever pitch .

n about two weeks, 2018 will be And we’ve seen blockchain and one for the history books . And blockchain tech keep the press release I from a payments and commerce business thriving with a dearth of tangible perspective, it really has been one heck of results behind it . a year . Right around this time last year, I made Over the last 12 months, we’ve seen several predictions about what the year in consumers acquire and use connected payments might look like in 2018 . Rather devices in new and different ways in the than call winners and losers, I put forward pursuit of commerce . a few broad themes that I thought would underpin the events of the year to come . We’ve seen big moves from key players to consolidate the payments ecosystem, Now that we are nearly on the other side streamline payments friction and gain of that year, I thought it might be fun to scale . look back to see how well my predictions held up . We’ve seen regulators both here and abroad usher in new rules for how At the start of 2018, I said it would be payments and financial services are the year in which “power brokers would delivered, which threaten the structure boost their power.” Did and existence of Big Tech . By that, I meant those with scale would Despite headlines to the contrary, we’ve expand their presence in the ecosystem Payments seen physical retail continue to be and strengthen their relationships with decimated as consumers shun stores for consumers . the convenience of online purchase and 2018 delivery . Why? Because payments and commerce require scale . Predictions We’ve seen crypto plummet – although at $3k+, it isn’t clear whether the bubble has But unlike the power brokers of old who Come True? burst just yet . bullied their way into the consumers’

pocketbooks, it would be the consumers wants to use – type, click, text, voice, that it will no longer publish units sold payments – Apple . It hasn’t turned out who invited those power brokers into their click or swipe . going forward . And it quickly lost the $1T that way . While their operating systems worlds . mantle and – who would have thunk it – and devices have enabled consumers to And I added that consumers would decide hit a lower market cap than Microsoft . shop anytime and anywhere using their And that they’d do that via the growing who made that list – in 2018 and in the smartphones, their respective attempts proliferation of connected devices that years to come . 2018 was the year in which we saw Apple to control access to consumers via their give them access to the internet anytime, Pay continue to languish as a mobile “Pays” have failed to gain traction – either anywhere, as well as a connection to For that, I think I did pretty well . point-of-sale payments method, despite online or off . any entity – a merchant, a business, a Apple’s claims of its growing user base bank – where she wants to do business . Look no further than Amazon’s grip on the and its global expansion in countries Instead, think about what has developed These connected devices, I said last year, consumer and her purchase behaviors, where contactless POS is used by even more momentum in 2018 . would shorten the distance between PayPal’s growing share of mobile wallet consumers carrying contactless cards . the consumer and a business – a store, online, Walmart’s moves to grow its Alexa, the voice-activated assistant a manufacturer, a bank – while also base (online and off), the card network’s It’s a year that we’ve seen Apple continue that is now in everything from glasses, increasing the distance between the embrace of Secure Remote Commerce to flounder with the execution of its voice- thermostats and washers to lights, brands consumers were purchasing and (SRC) as a way to create a secure and activated strategy, despite being the early bathroom fixtures and cars – as well as the underlying payments they would use interoperable standard for the 75 percent leader with Siri, and shift its focus to in its own Echo devices and hundreds of to make those purchases . of online checkout that happens via guest services by doubling down on selling into others – can enable commerce anywhere checkout and the pervasiveness of voice- its existing installed base services like the consumer wants to take her . I suggested that those forces would, this activated commerce – Alexa, in particular healthcare . Merchants from the smallest mop-and- year, drive an appreciable shift in the – as the trusted broker of commerce, pop to the biggest of the big, like Nike and balance of payments power to those with in-store and digital . Even Apple is thinking beyond the the Gap, can be found on Amazon and the scale that can deliver that access . connected device . accessed via any device the consumer That, in turn, would make the power Then I said to “think commerce first, not wants to use . brokers of 2018 not only those that made connected devices … and think power It’s a far cry from what was the connected devices, but also the software brokers like Amazon, not Apple.” conventional wisdom a few years past the One of the largest merchant apps in and payments platforms that enabled launch of the iPhone and the birth of the Apple’s ecosystem, Amazon, has built a access across any platform . That means 2018 was the year we saw Apple, the App Store . Prime customer base that it is now taking any operating system, and any device company that hit a $1T market cap, to any device, and a multitude of devices using whatever interface the consumer lose ground in smartphone sales – so Then, the pundits told the world to now have access to those consumers much so that it announced last quarter make way for the new power broker in via Amazon’s voice-activated assistant,

Alexa . She and Amazon can direct any Little did I know at the time – and boy, did garden in 2018 seemed more like an participating retailers that want in on the consumer purchase on and off Amazon, I get lucky on this prediction . This year asterisk to its main business – mobile voice-activated shopping game . using Amazon Pay to complete payment would become the one Facebook would advertising – than a serious entree into – device-independent, but very much like to soon forget . the world of payments and commerce . In 2018, it was commerce players that Amazon payments-dependent . Even though Facebook, now more had the most success in turning intent Between fake news, Russian election than ever, needs a foil to its mobile ad to buy into a purchase, not those that Device-centric players, like Apple, are now meddling and data breaches, the world’s business . first had to convince consumers that at risk – more so than ever – of losing largest social network has seen an their platform was capable of enabling a ground, and control, over the customer, erosion of trust and advertising dollars, But it’s yet to be proven that consumers purchase . since there are now so many different as both eyeballs and advertisers have who are trolling through Facebook want ways that consumers, commerce and abandoned the site . The ambitions to use that time or those platforms to At the start of 2018, I said to “think payments can be connected without Facebook might have once had to shop . ubiquity, not niche … so think card it, including other smartphone brands . establish itself as a commerce ecosystem networks, not niche alt pay plays.” Commerce-centric players can make seem like an uphill climb, absent two In 2018, we observed the rise of a thousand devices bloom – and can things: Consumers thinking about contextual commerce opportunities as What I said last year is that as the world influence how and where consumers Facebook as a place to “go shopping” and platforms integrated payments into their of commerce moves ever more digital, so shop, buy and pay . Device-centric players the intervention of a trusted intermediary apps to turn product discovery into a sale does the consumer’s expectation to use with closed ecosystems remain at the to give consumers confidence that buying on platforms where there is an intent to the same method of payment everywhere mercy of producing the smash hits that on that platform is safe and secure . buy, which is not necessarily Facebook . she wants to shop, and with every device enough consumers want to buy and use, she uses to enable those purchases . and keep buying and using . For years, Facebook has been trying to It was also the year that we saw Google, parlay the massive amount of consumers’ the search engine and consumer gateway I said then that in the digital world, just Connected devices enable commerce, but time spent inside its walled gardens into to search, do more to close those intent- like in the physical world, that’s using only if there is a commerce ecosystem a big-time commerce play . to-purchase loops, since product queries network-branded card products that run for them to tap . In 2018, it became the via search reflect a consumer’s intent to across the ubiquitous global rails they domain of others, not Apple’s . Despite more opportunities to shop via buy . operate – worldwide . the News Feed and on Instagram, the In 2018, I said to “think intent, not launch of Marketplace as a challenger We saw Google expand its line of And the more that connected devices content … and think Google, not to Craigslist, and the ability for users to branded hardware devices to turn “ask add more commerce waypoints on those Facebook.” buy tickets to movies and concerts on Google” into a sale via Google Assistant, consumers’ digital shopping journeys, Facebook, commerce inside their walled in addition to opening its ecosystem to the more difficult it will become for any

alt payment brand to get enough scale to or build interoperable mobile-first That said, 2018 wasn’t a such great year It was a year that we heard consumers, enable those buying preferences . payments networks across the globe . to be a Chinese power broker in China when asked, tell us they’d appreciate the (the government clamped down on contactless experience given its speed The reason? 2018 was a year that we saw Alipay Tencent’s game platform) or outside of of checkout, and we saw an innovator, expand acceptance in key markets to the country (as Alipay found when the Mobeewave, release an app that Friction – and eliminating it . That enable Chinese consumers to use their U .S . government blocked its MoneyGram turned every chip-enabled phone into a means eliminating decisions, steps and trusted payment method to buy outside deal) . contactless POS device that could further obstacles on the way to a buy . And that of their home country . They did this pave the way for a contactless card means being ubiquitous . by building on what Alipay had already At the start of 2018, I also said that ignition in the U .S . done with First Data and Verifone, and “remote payments would kill the That wouldn’t be niche pays – and we by partnering with or investing in digital physical POS … so think remote, not Those moves all acknowledge the failure haven’t seen any of them launch or gain payments players like Paytm, GCash and contactless.” of the mobile wallet to ignite contactless scale in 2018 . Openpay in markets like the Philippines, in the store, as well as the acceptance India, Japan and Latin America . It was I was pretty emphatic that 2018 would of the physical card form factor at the Venmo launched as a payment tender also a year that we saw Ant Financial not be the year that NFC payments would physical point of sale . Moving forward, type in 2018, but one that is riding the license its tech platform to Chinese banks ignite at the physical point of sale in the with a contactless chip on those cards PayPal acceptance mark in-app, and to help them establish more of a digital U .S . and a greater number of merchants that the Mastercard rails anywhere that financial services footprint so that they, are NFC-enabled, there will be multiple Mastercard is accepted when consumers too, could expand their reach in and And I was right in one way, maybe not in ways to use those familiar form factors to use the Venmo plastic card on or offline. outside of China . another . check out in a store .

I said to think global power brokers, like This was also the year that we saw The mobile wallet that was once regaled But, as I said at the start of 2018, that Tencent and Alipay. WeChat Pay establish partnerships with as the driver of contactless payments at assumes checkout in the store continues key players to expand into Malaysia and the point of sale remains stagnant, now to happen as it does today – card plus At the start of 2018, I said that Japan, and set the stage for expansion four years post-launch . checkout counter . And that’s not the ecosystems that control access to more in the U S. . This move also built on physical POS checkout future . than one billion users of its payments a foundation that has seen Tencent 2018 was, though, the year that the method are too big for anyone to ignore – invest more than $3 billion over the last nation’s largest card issuer – Chase – So, while we may not have ignited as are their moves to create easier on- seven years to take stakes in 40 U .S . made the decision to convert its portfolio contactless at the point of sale or killed ramps to establish payments acceptance companies, like Snap . of Visa cards to contactless for use at the POS checkout, my money remains on point of sale starting in 2019 . the latter via what I call the ultimate in

contactless: remote payments . When millennials, who value convenience over innovations . It’s also a year in which we Meanwhile, payments are moving faster consumers use apps to order ahead, price and even product selection . saw crypto and the blockchain – the than ever . they pay online for products fulfilled in internet of money – crash and burn, the store . And when they do, checkout 2018 was the year that I said despite the hype and the billions poured Existing rails – ACH and network debit becomes irrelevant, as do POS terminals, “innovation will happen at the edges … into those ventures . rails – are zipping payments back and checkout lines and lanes . It’s contactless so think incremental, not big bang.” forth between people and businesses like in the truest sense of the word . It’s one that also saw nearly 200 press there’s no tomorrow . Last year, I said that if you believe releases on blockchain innovations, In 2018, we saw a groundswell of those payments is all about scale and that the but fewer than 10 stories of how that Same-day ACH is ubiquitous, and there use cases . Using a mobile device to pay big will only get bigger, there are only change-the-world innovation was, in fact, are proposals to increase the number of for something – even while standing two possible paths for the smaller guys: changing the world beyond that initial settlement windows to include weekends in the store – is being embraced by Either they disappear or they leverage press release . and holidays . Faster payments using consumers, as retailers are using mobile the assets made available to them by debit cards and technology platforms devices to help consumers avoid lines the power brokers to drive their own In 2018, I said “faster payments get are depositing money into consumers’ and bringing the checkout to them . innovations . faster by using existing rails … so think bank accounts in real time, while enabling Retailers are encouraging consumers to smarter, not just faster.” new use cases like the deposit of loan stage those purchases – to order and pay The enormous opportunity, in 2018 proceeds, insurance claims, airline online and pick up in store, since having and beyond, I said, was harnessing Faster payments has been a recurring voucher payments, and instant payroll feet in the store for any reason is better the creativity of innovators – not to theme in payments ever since the Fed for gig and wage earners, as well as SMB than having no feet and no sale . rebuild the payments and commerce assembled its Faster Payments Task merchants . ecosystem from scratch, but to amplify Force to study the issue back in May of Over time – but not over such a long time their innovations by leveraging the assets 2015 . In 2018, we saw that instant money didn’t – I still believe that remote payments those power brokers have built to help require the Fed or a task force . will marginalize POS checkouts in them scale and deliver more value to end In 2018, we saw that task force get stores, as well as how consumers use users . reconstituted and a new one launched – On the B2B side of the house, in 2018, remote payments to buy and pay . I said one that is now investigating the role of we saw blockchain and crypto hit the at the start of 2018 that stores would 2018 was a year that we saw a lot of the Fed (hint: regulation) in making faster skids, despite the press releases to the be used by consumers as showrooms incremental improvements on the path payments happen faster – and maybe contrary, while at the same time, global, and fulfillment centers – and our latest toward eliminating friction in payments even by regulatory fiat. compliant network rails were facilitating research on this topic makes that point and commerce, and innovators using the real-time movement and settlement loud and clear, particularly for the bridge APIs and SDKs to accelerate their own of digitized assets, including data,

between banks and cross-border . We saw No different at the end of 2018 than it SKUs in one single spot – and that’s a use to access that ecosystem and buy SWIFT leverage its connections to 11,000 was at the beginning . whole lot easier than popping from app to something . And they create on-ramps banks to enable the real-time settlement app to find and buy what they want. for brands that want a direct relationship of funds cross-border, as well . In 2018, I said “skills take on apps … so with the consumer to cut out the app and think access, not apps.” So, as I said in 2018, if consumers aren’t retailer middleman and get that access . Banks, which need to all be on board for going to the app stores and searching for any of this to work as advertised – see Then, I said that if you believe that voice what’s new, and aren’t downloading and Skills shift the power from app stores and my earlier point about ubiquity – sort of would be an underlying component of the using new apps, then developers aren’t retailers to the connected devices that like it this way, too, even though they are future of commerce and payments, then being asked to create them . And so they’d allow consumers’ devices to access new exploring faster payments alternatives . it’s skills, and not apps, that will drive find other ecosystems to keep them busy ecosystems, creating a new power center They have a business model for enabling developers’ interest moving forward . (and paid) . of commerce that consumers, using the these payments, and don’t feel the need power of their voices, will control . to invest billions into a network that It makes sense . In 2018, consumers That’s voice . will take years and years to become didn’t all of a sudden become obsessed It’s a shift that accelerated in 2018 and ubiquitous . Corporates want faster with apps (games excluded) and start Here at the end of 2018, Alexa counts will continue in the year to come . payments, they say, even though secure downloading them like crazy . In fact, some 50,000 skills as part of her payments top their list . And certainty of when it comes to those for shopping and ecosystem . In 2017, that number was What I did at the start of the year was payments trumps all . commerce, they’ve really plateaued . And 25,000 . Developers are skating to where share the framework for how I look at App Annie also reports that consumers the puck is moving, not necessarily where the dynamic world of payments and As I said at the start of the year, in a spend a whole 50 minutes a month on the puck has always been played . commerce – one that considers the perfect world, we’d all junk what we have shopping apps . complexity of the world of payments and start from scratch using the tools Voice commerce doesn’t require the and the reality of how consumers and that are available today . But the world Consumers spend about five hours on consumer to download anything at all – businesses engage with new ways to pay isn’t perfect, and payments – on a global their mobile phones every day, so that or even specify at which store she wants and new access points capable of making scale – is a complicated beast . Today, as means they are spending an average of to shop . those purchases . it’s always been, banks and networks that 1 .7 minutes (50/30) on shopping apps . want to enable instant payouts today to Most of that time is spent on a few Voice commerce and the ecosystem it is 2018 was a fascinating year, one that I anyone can do that – all that’s needed is key apps – with Amazon and Walmart . creating puts products or services before believe set the stage for the innovations a business model to support it . com in the number one and two spots, stores . Skills in a voice ecosystem build that we will see emerge in the year to accordingly . That’s because those apps bridges from today’s digital environments come – a year in which the developments give consumers access to millions of to the connected devices that consumers

we have seen in 2018 will only strengthen and accelerate .

I’ll have more to say on that the first Monday of 2019 .

Until then, my very best to each of you for a wonderful holiday season and a healthy, happy and prosperous New Year .

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