Tag Archives: paypal

Innovation and Alignment – Collaborating to stay ahead

I took a Human Centered Design workshop a year ago to learn more about the innovation process. My big epiphany from that workshop was that alignment is not achieved by convincing others, it’s an outcome of true collaboration…. Obvious, right? But how many people/companies really, truly, authentically do this?
Those organizations who adopt a truly collaborative culture will be able to stay ahead in the age of digital disruption because the nature of digital innovation pushes people, organizations, and industries into reinventing themselves to the core: their value propositions, their business models, and their competencies. This process of reinvention is difficult (an understatement) because, by its very nature, the outcomes are controversial.
Eight years ago, when I was heading up PayPal Mobile’s Business Development efforts for North America, mobile payments was still in its infancy. Our small team recognized that mobile payments had the power to disrupt the incumbent players in the industry. We saw, even back in 2007 (pre-iPhone), that it could be PayPal’s foray into retail, remittances, and other new areas. While we were able to put into place many of the fundamental building blocks that later led to today’s most strategic growth business for PayPal, we failed to gain senior executive alignment on our vision back in 2007. It is true that there were many unknowns in the industry back then, but I would suggest that the failure was due, in large part, to lack of collaboration with the stakeholders across the firm. We were a new business area that was isolated. We were nimble and fast-moving, but we failed to bring in other key stakeholders (outside of our team) to create a unified vision together.
Many companies have innovation labs or new business groups and could fall into the same trap. Seven years later I have worked with startups and large organizations alike, all seeking to ride the digital financial services wave or defend themselves against it. I look forward to the next interesting challenge – to work with organizations who either embrace HCD methods already, or who are struggling, or believe they will soon struggle, with issues of alignment around innovation and to help them overcome these challenges by introducing collaboration methods and helping to drive cultural change.

Why ApplePay is the Uber of PayPal’s Taxi Service

It has been too long since I’ve blogged, but with the recent announcements around ApplePay and as the former head of PayPal Mobile Business Development for North America, I feel compelled to do so. More to come later as more news is synthesized in my brain…

First, let me start by saying, I may quite possibly be the last person who had a Nokia phone in the U.S.  My loyalty as an Apple user is relatively recent.  Some time in the last 6 years, I begrudgingly bought an iPhone, because I had to do so to understand mobile payments. Like everyone else, I can’t imagine my life pre-iPhone anymore.

It has been an exciting week in mobile payments between MCX’s announcement last week with their merchant-focused mobile payments/loyalty service riding on prepaid card and debit rails and, of course, Apple’s new Apple Pay service announced on Sept. 9. Conspicuously absent from all this news is PayPal.

PayPal is in big trouble.

How, you say, can PayPal, the 100 lb gorilla in ecommerce payments and mobile payments be in trouble? After all, it has over 150+ million active accounts worldwide (every time you sneeze, there are 25+ more million accounts added) and processed $25 billion in mobile payments volume in 2013, by far, the leader in mCommerce in the US/globally (except for China). Doesn’t size in payments matter? Besides, they have cross-platform (iOS, Android), online/and mobile payments mark. How could they get unseated?

Some thoughts to consider:

1. Apple Pay, integrated into the iOS, calls into question PayPal’s value proposition that used to set it apart from others. PayPal grew its business through arbitrage. PayPal met a very important need in 1999-2000 and beyond. Specifically, they provided security, trust, and convenience in online payments between parties that didn’t know/trust one another. They did this through arbitrage… riding the rails of ACH to bring “real-time” payments and acting as the trusted middleman between people (P2P auctions) and, eventually, consumers and merchants. Later, their value prop included convenience since you didn’t have to input your card details (which resonated particularly in the mobile UI in the beginning of mobile commerce times.)
Apple now has a more convenient, more secure service which works seamlessly within the iOS itself. They have 800+ million iTunes accounts which are auto-enrolled with the phone upgrade. Any in-app experience, I believe, is going to work better, faster, more secure than any other’s within the iPhone experience. Unless Apple mucks this up terribly (they rarely do, except Apple Maps), ApplePay flow will likely trump PayPal’s in a heartbeat. And if you maintain that PayPal has a significant online presence, you’re correct. However, PayPal’s growth market is mobile (and mobile retail.) Apple has outflanked PayPal in their largest growing market. Over time, as PayPal becomes less relevant in mobile, it will also become less relevant in its current core business, online. Remember: share of mind and share of wallet matter in payments.

2. Apple drives mobile consumer behavior, not PayPal. Back when I was at PayPal in 2007 & 2008, the mobile business was just a toddler who was learning its legs, we had grandiose ideas around retail/NFC and how we would grow our business in this space. This was pre-iPhone. We, that first team making foray into mobile payments, learned a lot along the way. One big takeaway was that PayPal couldn’t drive new consumer behavior on the mobile phone. Although text-to-buy and text-to-give were innovative services, few consumers used them. People barely used text messaging at the time, let alone learning a new payment method on this type of interface. Just because the technology worked, didn’t mean you could shove it successfully into the market. Sadly, this lesson went out the door as employee turnover continued in the mobile business which led to the same mistakes, including launching mobile number password/PIN at the retailer… a behavior few would adopt since it flew in the face of every other learned consumer behavior (bar codes, tapping phone, etc.) that others were building.  The rest of the ecosystem (and consumer behavior) had to evolve… And it wasn’t until iPhone Apps that PayPal Mobile adoption rates began to grow. Apple set the consumer behavior, and everyone else had to then run their service on top of that behavior. If I were Apple, I’d make sure my consumer experience on ApplePay far surpassed anything else anyone could do on my device.

3. Apple is the ONLY company that can achieve merchant adoption through consumer demand. Wait, what?! I have maintained for the past 9 years that mobile payments in the US is solving a consumer need that doesn’t exist. In fact, mobile payments/offers/loyalty really meet the merchant’s needs… to use it as leverage to drive down transaction fees and develop a stronger 1:1 relationship with the consumer (to drive sales.) So, Apple, being consumer-focused… how could they drive consumer adoption where the need doesn’t exist and how could they possibly drive merchant adoption?

One thing that Apple has proven is that they break all the rules we believe about consumer demand/technology/services. For that reason, I believe they will drive consumers to demand mobile payments and actually drive merchants to adopt because of that consumer demand. Apple Pay will be a “must have” in the future. Apple solves the chicken and egg dilemma through consumer-centric approach in a way no other company can. While many say that Apple is not meeting merchant needs and won’t be able to achieve success accordingly, I say, are Visa and MC more merchant-centric with their fees? Those who drive sales win the hearts and minds of merchants. Pure and simple. (Which is why mobile content providers paid 50% to MNOs for so long…)

PayPal’s approach has been to undercut MC and Visa fees to drive merchant adoption. My guess on Apple’s approach… prove that merchants will lose sales. Guess which one merchants care about more?

4. Apple has befriended the Banks (for the most part) while PayPal has alienated them. Ecosystem matters. PayPal is now “going it alone” with no friends with the big banks and associations, no friends with the MNOs (which are irrelevant now anyway), and no mobile OS control. In a world where ubiquity matters, having partners/friends that are ubiquitous in open loop helps. Because Apple doesn’t process the payment but just passes on the payload, they don’t have to grow a new business around risk analysis, customer service, etc. while also befriending everyone already in the payments value chain (even though they charge issuers $ bps on every transaction, something no one else has been able to get away with.)

Bold statements on PayPal’s strategic options

1. The enemy of my enemy is my friend: Google, meet PayPal. PayPal, meet Google. Shake and make up. Time to speed date.

2. Should eBay spin out PayPal: Really? Is this even a question anymore? While execs were busy debating if/when PayPal should be spun out, Apple has been planting the seeds for 3 years to eat your lunch. Time to move fast before your most important asset loses significant value in the next 5 years.

More thoughts to come later…

PayPal and Discover – A game changer?

Today’s announcement that PayPal has partnered with Discover Card, another closed loop payment company – but in retail, could mark a game changing scenario in the land grab for alternative payments in retail. While Discover certainly doesn’t have the reach of Visa and Mastercard, it does provide a significant boost to PayPal’s merchant acquiring network. This is a smart move for both companies since Discover is the network that lags behind the others in terms of acceptance and issuance, and PayPal knew that it couldn’t win the game by organically acquiring its merchants.
Still, as an ex-PayPal Mobile exec and as someone who has used the PayPal payment at Home Depot, I believe the user experience is flawed. Having the consumer type in their mobile number and PIN is an experience that derives from a technology solution that stands without the need for partnerships and significant POS upgrades rather than the right consumer experience. The problem with the mobile number and PIN method is that it goes against the grain of the user behavior everyone else in the industry is promoting (card swipe, bar code off the phone, and NFC). This leaves PayPal alone in building that behavior which is very heavy lifting, and one that would require a SIGNIFICANT value proposition to the convince consumers to try – a value proposition well beyond what is provided by PayPal today. Can PayPal pull this off? PayPal has never been known to really understand their consumer base. They never had to as they could ride on the coat tails of eBay to get their first 50+ million users. Or will PayPal finally shift into the technology handshakes that are promoted by the industry? Starbucks and the airlines finally got us all used to the barcode on the phone. Will PayPal finally adopt this handshake? Or do they believe that the laser required to read the bar code is too much of a hurdle for its now Discover merchants to buy into (let alone NFC POS readers)?
While the Discover deal is a huge boost on the merchant side, it’s now time to focus on the consumer. Let’s see whether PayPal makes a drastic change to the consumer experience as well. An Apple deal would be the perfect marriage, but perhaps too uncharacteristic for Apple…

PayPal at Home Depot – How does it Work and Does it Make Money?

As an ex-PayPal Mobile exec, I was pleased to find that PayPal has finally made strides into retail with their recent announcement around their partnership with Home Depot.

Since the internal pilot had completed and the ability to pay using PayPal was open to all PayPal users, I wanted to test the system out and understand how it worked (and what the business model looked like), so I signed up for the service and went to Home Depot to try it out. (By the way, I couldn’t find anything on the site to get me to the registration area for this, so I finally had to reach out to a PayPal mobile employee to find out where I could sign up!)
Here’s what my big question was.. (and this relates to the business model)… Is PayPal in the red or in the black on these transactions? This was the constant struggle we had 5 years ago while I was at PayPal when we were first contemplating retail payments using mobile.
What does this mean?
PayPal enables people to fund their accounts in several ways. You can have balances from selling goods or receiving money from others (or now depositing from a check.) You can link your bank account. You can get PayPal credit. Or you can link your credit/debit cards to fund your PayPal account. The cost to PayPal is in order of this priority. Balances are near zero cost. ACH pulls from bank accounts are pennies. Providing PayPal credit is cheap, but funding using cards is expensive because PayPal has to pay Visa, MC, or Amex for card-not-present transactions (although they get volume discounts.)
The difficulty is this: Card present interchange fees are SIGNIFICANTLY lower than card-not-present fees. This means that if you fund an account with a card-not-present card for a card-present transaction, you lose a MINIMUM of 100 basis points. So… on to my test.
Would PayPal allow me to pay for something at Home Depot using cards? (And note that American Express cards are even more expensive than Visa or MC)
So, I unlinked my bank account. I drained my PayPal balance (note: PayPal always pulls from the least costly sources first, so it was necessary to do this.) I unlinked my Visa/MC cards, and kept only the Amex card as the funding source. Would PayPal allow me to do the transaction?
1. Went to Home Depot Self Checkout Kiosk. To see pictures, visit my PINTEREST site
2. Chose PayPal as the method to pay on the self checkout kiosk
3. When prompted by the POS, I entered my mobile number and PIN
4. “Declined” = PayPal does not let you pay using American Express
5. So, I then added a Visa/MC card
6. Went through the flow again
7. This time, it was accepted. I got a paper receipt and a text message with a link to a digital receipt from PayPal
Bottom line – PayPal is losing money on transactions that are funded by cards, but I’m assuming they are assuming that they will either make it up with users who fund with balances, ACH pulls, and credit, or they will make it up in value-added offerings that they will later launch that compliments retail payments.
For any PayPal folks reading this blog, here’s a suggestion on better user experience:
1. Make it easy for people to register for this by making the registration page easy to find
2. The checkout is confusing because on the POS, there’s a button that says “Pay with PayPal” but if you hit that button, it prompts you for the PayPal card. Users don’t know that they have to choose the PayPal option on the kiosk rather than the POS
3. Let consumers know AHEAD of time during registration that AMEX-only funded accounts won’t work
Stay tuned to see how this all pans out…

Internet in “The Real World”: PayPal payments off-PC?

The distinction delineating online and offline payments is blurring as the world becomes more Internet-connected outside of the home or office. This mash-up of technology begins to create new opportunities for alternative online payments companies to play “in the real world.” In a recent conference in Canada, Scott Thompson, President of PayPal, spoke of the new ways people will pay in the future based on immediate consumption rather than intended future usage, citing the ability to pay directly to a journalist rather than subscribe to magazine or newspaper. From that discussion, CTV writes, “PayPal plans to have a presence on virtually anything that’s connected to the Internet – starting with smart phones and moving to Web-enabled TVs and other connected gadgets…”
As vending machines, parking meters, televisions, and mobile phones become increasingly Internet-enabled, PayPal’s 84 million consumer accounts and 8 million business accounts may be leveraged in the “real world” as a potential closed-loop payment rail. Those accounts, which have emails and passwords and some which have mobile numbers and PINs, become an interesting method to enable such payments for various Internet-connected devices. Many of these channels today leverage cash, which suggests a green-field opportunity in payments. Some of these devices are increasingly accepting cards, which begins to question how Visa (NYSE: V), MasterCard (NYSE: MA), and American Express (NYSE: AMEX) may react.

As more devices become Internet-enabled, the existing rails of off-line payments players may not be able to maintain the market dominance seen in the past. The battle of connectivity and payments rails will become an interesting one.
Menekse Gencer founded mPay Connect, a consulting service for clients seeking to launch mobile payments. Her consulting service advises banks, mobile network operators, and third parties on go-to-market-strategy, product design, and business development. Her market expertise extends from North America to emerging markets such as Bangladesh and sub-Saharan Africa. Prior to founding mPay Connect, Menekse led PayPal Mobile’s Business Development efforts in North America during which time she closed PayPal’s first mobile network operator deal to launch PayPal Send Money on Sprint.

Menekse has an MBA from Wharton and a B.A. in Macroeconomics from Harvard University and was previously featured on the cover of Fortune Small Business Magazine for her innovative startup in emerging technology. She is the founder of the Mobile Payments Series(TM) initiative which hosts panel discussions and networking events for professionals in the mobile money industry and has over 400 members in her LinkedIn Group: Mobile Payments Series – mPay Connect. She is a recognized expert in this field and has lectured on mobile money at events for Harvard Business School, Wharton MBA, and Columbia Business School. She is active in assisting organizations such as The World Economic Forum, mHealth Alliance, and IntraHealth on the intersection of Mobile Finance with industries such as Agriculture, mHealth, and Off-Grid Energy. She is a frequent guest speaker at mobile money conferences in Africa, South Asia, and The Middle East. Menekse is a board advisor to several startups in this space and has advised angel investors, venture capitalists, and hedge funds on the mobile money industry. She has 17 years of experience as a consultant and industry leader in high tech, mobile, and financial services.

To learn more about her consulting services, contact her at: mgencer@mpayconnect.com.