We’ve launched a new research effort exploring best practices among merchants about how payments and fraud risk management functions are organized, staffed, and measured.

If you work in the payments or fraud risk management functions for a merchant, please take a few minutes to complete our survey. In exchange for your help, we’ll share the results with you.

You can find the survey here.

Thanks for helping us out!

I want to be able to use my phone to tap a tag on a piece of merchandise at a store… and know that the item will be delivered to my home, and my card on file at the merchant be charged. I was in Macy’s yesterday, looking at bath mats – the line was too long, so I walked away. But I would have tapped….

And I know, this is what Amazon and others enable if you scan the barcode. But why can’t I buy it from the merchant whose store I am in?

Every year I try to attend what I think of as the PayPal Developers Conference. This year what used to be the PayPal X Innovate Conference was expanded to include eBay app development, Magento app development, and –– most importantly –– X.commerce app development. X.commerce is eBay’s new end-to-end, multi-channel commerce technology platform. While most of the conference was focused on the X.commerce platform, this is the second of two posts reflecting on what’s new with PayPal.

I’m a good customer, I really am. I have a strong sense of what I want. I don’t like to second guess things or over think what I’m about to buy. I shop on quality, not just price. I like to be made aware of and sold relevant companion products. I don’t mind paying extra for convenience. And, when I find a seller I like, I’ll buy from them time and time again.

So when I walk into a new online store, I expected to be treated like… an anonymous dog. Nobody knows I’m a good customer, nobody knows how they could cater to my needs, and, worst of all, nobody knows that I should be treated as special!

All this may be about to change with an eBay initiative that provides PayPal users with a commerce identity they can use when shopping online.

Introducing the Commerce Identity

The major PayPal product announcement at the recent X.commerce Innovate Conference is a federated login scheme called PayPal Access. From the press release:

Available to global retailers today, PayPal Access gives consumers the ability to sign up and sign in to participating websites with just their PayPal usernames and passwords. PayPal has more than 100 million accounts in 190 markets worldwide.

Unlike identity solutions currently on the market, PayPal Access provides everything consumers and merchants need to create an account and complete a transaction – including user verification, shipping information, and payment details. By helping retailers simplify login and account creation, PayPal Access can help increase conversion and loyalty on merchants’ websites. Research shows that nearly one out of every four consumers abandon their shopping carts when they’re asked to register an account.

“There’s still too much friction in online shopping,” said Damon Hougland, general manager of Identity and Informatics for X.commerce. “Consumers don’t want to enter multiple pages of information to make a purchase. With PayPal Access, consumers can spend less time filling out forms and more time buying. Retailers can create a great shopping experience for millions of customers who already trust PayPal to buy online.”

With just two clicks or taps, a customer can sign up or sign in to a retail site. Important user information, such as shipping address, will be automatically updated. Although customers can choose to use their financial details stored in their PayPal accounts, PayPal keeps that information private and secure.

PayPal Access differs from other federated login schemes (Google, Facebook, Yahoo, etc.) in an important way – it implies something about me as a potential buyer, and it optionally (at my discretion) shares information about me that will help grease the skids and make my overall purchase experience more streamlined and more valuable.

How is this accomplished? Logging in to a website with my social identity, using my Facebook credential for example, tells the seller that I have an account with Facebook. That’s all. It implies very little and is pretty undifferentiated, as over 800 million people have managed to open an account on Facebook. But using my commerce identity via PayPal Access tells the seller that I’m a buyer. It tells them, minimally, that I’ve set up a PayPal account, attached a payment method to that account, and the account is in good standing.

Above and beyond that, PayPal Access gives me the option to share a number of commerce-related attributes with the seller:

• First Name, Last Name, Full Name
• Phone Number, Email Address(s), Address(s)
• Time Zone, Preferred Language, Gender, and Date of Birth
• PayPal Verified Status and Account Type

Sharing my name and contact information up front means I don’t have to waste time entering data that is already in my PayPal account. Sharing my time zone, preferred language, gender, and age helps the seller customize their site to better support me. And using my PayPal login credential to access my buyer account on subsequent purchases means that I won’t forget how to log into the sellers website the next time I come back. PayPal claims that 45% of consumers abandon the seller site on subsequent purchases when they can’t remember their site-specific password. So this is all good stuff.

But the really interesting part to me is the ability to share my PayPal status—whether or not I’m a verified PayPal buyer and my PayPal account type (personal, premier, business, or student). Sharing the verified status is huge. While the exact definition of being “verified” varies country by country, in the United States it tells the seller that I’ve done one good purchase using either my payment card or my bank account. In short, it tells them that I’m a known good buyer. Sharing the account type is just gravy, in that it helps clarify whether I’m buying for myself or on behalf of a company.

The first question here is about privacy, and, in that regard, PayPal makes two important points. First, no attributes are shared unless explicitly approved by the user—which specific attributes are being shared and what website they are sharing them with. And second, sensitive payment data is never shared. In fact, PayPal Access completely separates the sign-on processing from checkout processing. A buyer could use PayPal Access to establish their account with the seller, and then use another payment method (unrelated to PayPal) during checkout.

PayPal Access is available now for sellers to start implementing, and the company indicates that people should start to see the PayPal Access login option appearing in January on eBay properties and various seller sites that currently accept PayPal as a payment option. They think it is highly unlikely that PayPal Access will ever be used as a general-purpose single sign-on solution that is unrelated to commerce.

Enhancing My Commerce Identity With My Reputation

PayPal Access is a good start for helping me take my good buyer status with me as I go from site to site. But there’s more reputational things being contemplated.

PayPal Access is only one of several products from the “Access and Informatics” group inside eBay’s X.commerce business unit. There are two other companion products, that have just started alpha testing: X.commerce Segmentation Service and the X.commerce Prospect Score. These are directly tied to the user’s behavior as a buyer.

• Segmentation Service – “Segmentation Service APIs enable you to know more about customers such as average spending value, average frequency of using PayPal transactions online, recent transactions, and level of purchasing activity.”
• Prospect Score – “This API enables you to know the purchasing potential of a user visiting your site. Users are classified into Gold, Silver, or Bronze based on their average spending value, frequency, and online transactions.”

The data passed back through the Segmentation Service and Prospect Score are indicative, not absolute. So a user’s average spending value returned as part of the Segmentation Service might be high, medium, or low. Their recent transaction level might be bustling, active, engaged, or passive.

The Prospect Score is dynamic and reflective of the buyer’s behavior in the category. If the user is a frequent online shoes buyer, for example, they would be a Gold prospect when they logon to a site that sells shoes. The same user might only be a Silver or Bronze prospect when they logon to another type of site. The score is a composite drawn on purchases made with PayPal and purchases made on various eBay properties. It’s not yet clear exactly how this will work, but we suspect the seller categories will somehow map to the same category topology used in the eBay marketplace.

Motivation and Final Thoughts

PayPal Access is free with no plans to charge for usage, according to the company. PayPal’s belief is that it’s a good way to project the brand and drive higher subsequent usage of PayPal as a payment method. This is believable to us. While the use of PayPal as a payment method is not required, we think it will be an obvious choice for most users.

PayPal believes that sellers may very well want to give special treatment to known good buyers – and that many good buyers will want to proactively share their fine reputation with sellers. They believe the Segmentation Service and the Prospect Score will be used by sellers to:

• Recognize their best potential customers when they walk in the virtual door
• Better personalize the shopping experience to meet their needs
• Optimized offers and incentives for targeted customers
• Provide enhanced reward programs to their most valued customers

One interesting aspect of this model is how it reinforces PayPal preference. PayPal users today don’t always select PayPal as their payment tender, and as a consequence, PayPal doesn’t have a complete profile of their buying behavior. In a subtle way, people might begin to favor PayPal over other payment options as they begin to think about how a purchase might positively influence their PayPal user reputation.

So what’s missing? PayPal needs to figure out how to tell a seller when the user’s PayPal account was created. The account creation date reflects the time-based value of the credential, which is exactly why American Express puts the “Member Since” date on the front of the card. Who might a seller treat better? An AmEx cardmember since 1991 or an AmEx cardmember since 2011?

Taken together collectively – PayPal Access, Segmentation Service, and Prospect Score – begin to lay the foundation for good buyers to finally take their reputation with them as they move from seller to seller online. The key question over the coming years is whether good buyers will find value in a portable reputation or prefer to remain dog-like in their pseudo anonymity.

Do I want a commerce identity? Yep, I sure do.

How about you? Do you? Share your comments below.

Russ: “Siri, are you ready to help me buy something online?”

Siri: “Not yet, Russ, but I may be able to at some point.”

Not the answer I was hoping for, but at least Siri was honest about it!

Siri, of course, is the new voice-enabled personal assistant that comes with all of the new Apple iPhone 4S smartphones. You can talk with Siri—to ask it questions and give it commands—while you focus on something else. This Apple television commercial provides a nice demonstration of Siri’s capabilities.

Our particular interest in Siri here at Glenbrook is how this (or other) intelligent voice-aware agents might be enabled at some point to truly streamline how we buy stuff online. We think of it as “conversational commerce”.

It’s easy to imagine the possibilities for using Siri to:

• Find the next Virgin America flight to Seattle, and book/buy an aisle seat
• Find a specific product online, select the merchant based on availability and total cost out the door, buy it, and have it shipped to your house
• Find when “Moneyball” is showing next at my neighborhood cinema, buy two tickets and deliver ‘em to my phone

I certainly don’t need a personal assistant to tell me if I should wear a raincoat, but it would be great to have an assistant to go into town (virtually) and help do the shopping!

From Intelligent Agent to Humble Personal Assistant

The core technology behind Siri was developed by SRI International and spun out as a venture-backed startup in 2007. That company, Siri, developed a wide variety of connections to structured data sources that could be used by the Siri app on a smartphone. Early partners included OpenTable (to review and place restaurant reservations), Taxi Magic (for taxi reservations), WeatherBug (for weather data), and so on.

Apple purchased Siri in April 2010 and clearly went about rethinking how to better integrate its technology into the iPhone. Apple, of course, controls all of the core applications on the iPhone, and is in a much stronger position than Siri to seamlessly integrate the assistant into mail, calendar, contacts, etc.

Now that Apple has launched the technology on the iPhone 4S, the focus is on Siri as a “humble” personal assistant that can help with normal every day tasks. Here’s a sampling of the integration points and the sort of things that Siri can help with today:

• Email – Email my sister about the trip
• Maps and directions – How do I get home? And, what’s the traffic like?
• Clock – Wake me up tomorrow at 7:00am
• Reminders – Remind me to call Mom over the weekend
• Messaging – Tell Susan I’m on my way
• Calendar – Set up a meeting with Erin at 9:00am this Thursday
• Address book – What’s Michael’s address?

TUAW (The Unofficial Apple Weblog) has a nice summary of all the integration points and tasks that Siri can currently complete.

Apple has not completely given up on those external data integrations. Siri still works with Yelp to find local points of interest (“Where’s a close Mexican restaurant?”) and WolframAlpha (“How many calories are in a bagel?”). When it needs to, Siri can take advantage of the iPhone’s geolocation data (with your permission, of course). There is also a nice interface to Wikipedia and to various search engines. In many cases, if Siri doesn’t know how to do something directly, it will try to find something online that tells you how to do it.

What makes Siri interesting, however, is that it can do more than just respond to voice-activated commands. It can infer what you want (to some degree) and have a dialog with you to clarify ambiguities and complete the task at hand. “I have a toothache” results in an external web search for dentists that are close to your current location. “I’m hungry”, for example, finds restaurants that are near by.

Moving Towards Conversational Commerce

The first thing that has to happen is that Apple has to open up Siri for integration with other apps on the phone. Right now, Siri is pretty locked down, and it’s officially still in beta. I’ve got to believe that over the next couple of iOS upgrade cycles, Apple might figure out how to open Siri up and expose the ability to initiate actions using some combination of objects and verbs. “Siri, have LinkedIn check my inbox for invitations.” That would be a good start.

Beyond that, there are still a lot of open questions and things that will need to be sorted out for Siri to help people buy things online. Here are a couple of thoughts I’ve been mulling over in my head:

• Where’s the right point of integration? If there were Siri APIs would it be possible to access them remotely inside a mobile-optimized checkout flow or would they only be available to apps installed on the phone? I’m betting that local apps will be the way to go. I’m also thinking that Apple is going to have to figure out how to take itself out of the voice dialog between a commerce-enabled app and me. I don’t want anything I say about payment credentials passed in the clear, for example, or logged by Apple servers in the sky.
• Payment credentials on file will be key. It’s hard to imagine conversational commerce ever being about voice entry of a card number, expiration date, and CVN. Rather, it needs to be about enabling the use of my payment details that are kept on file with trusted sellers or trusted wallet providers.
• Voice biometrics could be important. Currently, unlocking payments data on file is usually done with a username and password. That’s going to have to change. Maybe the username can be replaced by my globally unique phone number and traditional password replaced by a spoken pass phrase. Voice biometrics might become useful for a purpose other than just enterprise password reset.
• Amazon PassPhrase could be voice enabled. I’ve always liked the Amazon PassPhrase model and its use of the password to imply both a payment method and ship-to address. I have “Menlo Park” configured, for example, to tell Amazon to ship the item to Glenbrook headquarters in Menlo Park and use my corporate American Express card as the payment method. I’m sure Amazon has this patented six ways from Sunday, but I still like the notion. This might really be useful if the Amazon PassPhrase was also combined with voice biometrics.

So, here’s just one possible “end game” example for my vision of conversational commerce.

I want to get in my car, auto pair my phone with my internal car microphone and speakers, start driving down US 101 towards a client site, voice command Siri to come alive, ask it if there are two great seats still available together for tonight’s Giant’s game, interactively review the seats by location and price with Siri to find the seats I like, command it to purchase those two seats (using my preferred payment method stored in my digital wallet in the cloud) and deliver the tickets to my iPhone. Magical.

Wishful thinking? Share your thoughts in a comment below!

Every year I try to attend what I think of as the PayPal Developers Conference. This year what used to be the PayPal X Innovate Conference was expanded to include eBay app development, Magento app development, and –– most importantly –– X.commerce app development. X.commerce is eBay’s new end-to-end, multi-channel commerce technology platform. While most of the conference was focused on the X.commerce platform, this is the first of two posts reflecting on what’s new with PayPal.

Over the last several quarters eBay has beating the drum about extending PayPal’s momentum in online payments to point of sale in the offline world. More recently, PayPal starting talking about wanting to help brick-and-mortar retailers engage with consumers through the entire purchase process — from customer acquisition, to in-store engagement, payments, and post-purchase retention. This vision is nicely pulled together in a video entitled “PayPal: Future of Shopping” that PayPal released about a month ago.

So, with the marketing campaign in full force, much of the industry was waiting to see what PayPal would say at last week’s X.Commerce Innovate Conference in San Francisco. First, the bad news. None of the shopping capabilities shown in the video were announced. Now, the good news. To show how these shopping concepts might work in everyday life, PayPal did assemble a Shopping Showcase demonstration and provided access to experts to answer questions from curious developers.

The Showcase was divided into a number of “vignettes” that illustrated different end-to-end use cases. Most involved some sort of front-end customer engagement utilizing a combination of shopping list, local product inventory, purchase incentives, loyalty points, gift card balances, etc. The vignettes showed how these components could be combined when the consumer is out running errands and shopping on a typical Saturday afternoon.

It’s hard to say which scenario would be best received in the market, but there is no question that PayPal is swinging for the fence, so to speak, and rethinking how shopping could be made easier for both buyers and sellers. We especially liked the way a shopping list could be built online and then shared with the merchant upon in-store check-in to match what the consumer wants with product availability and purchase incentives from the merchant.

Presumably, most of the merchandising capabilities would be drawn from the various acquisitions eBay and PayPal have made over the last 18 months –– companies like Milo, Where, etc. They might be accessed as their own app in a SmartPhone or integrated with the PayPal Mobile app. Besides the standard capabilities we’re familiar with today in the PayPal Mobile app, PayPal also imagines users would have a wallet capability that would hold the consumer’s payment methods, current offers, loyalty cards, gift cards, available points, purchase history, and digital receipts.

We’re always curious about who controls the wallet and where the payment data resides. In PayPal’s case, the wallet would be one of many functions inside the PayPal Mobile app. And the wallet in the app would act as the user interface to the consumer’s payment data in the cloud. This is in sharp contrast to the models being advocated by both Google and Isis, where the wallet is the app and the payment data is in the phone.

While all this merchandising stuff is interesting, let’s get to payments. PayPal envisions three different ways that a consumer might use PayPal for purchases in a brick-and-mortar setting.

Option #1 – PayPal Card

The PayPal Card is an unembossed, PIN-enabled payment card with the PayPal logo on the front and a magnetic stripe on the back. There is no visible customer name, card number, expiration date, or CVN on the outside of the card. The basic motion for the buyer would be to swipe the card, enter their PIN, and approve of the purchase amount. Essentially, the same motion of using a PIN debit card today. Funding would be drawn from the buyer’s default PayPal payment method.

Here’s how it would hypothetically work. When swiped at the point of sale, the merchant’s iPOS software would communicate over an Internet SSL connection with unannounced PayPal APIs to authenticate the buyer, access and apply relevant credits, capture the transaction, and generate a digital receipt. The digital receipt would be stored in the buyer’s PayPal account and a purchase alert sent to the buyer’s mobile device.

It’s not clear how consumers would get their PayPal card, but its easy to imagine existing PayPal users would simply ask for one on their PayPal dashboard so they could use their PayPal account at the POS. PayPal stressed a number of times that there is no hardware upgrade required by the merchant –– its simply a software integration. In addition, if the terminal has enough interactive capabilities, the merchant might want to ask the buyer if they want to apply relevant coupons or use loyalty points.

A point of clarification here — because this is a payment card used at the POS it’s natural to think there would be some underlying use made of the existing card industry infrastructure. But that’s not the case. The transaction does not use existing card industry “rails” nor is there necessarily a merchant acquirer involved.

Option #2 – Empty Hands

The second option, called “Empty Hands”, replaces the swipe of the PayPal Card with the terminal entry of a phone number and PIN. PayPal believes this is what a buyer would use when they don’t have a PayPal Card with them at the time of purchase. Essentially, they have empty hands. The basic motion would be to select PayPal as the payment option (Credit, Debit, PayPal), enter their registered phone number, enter their PIN, and approve the purchase amount. Like the PayPal Card option, funding would be drawn from the consumer’s default PayPal payment method.

Behind the scenes, the Empty Hands options would work very similar to the PayPal Card option. Instead of the PayPal Card being the “token” to locate the buyer’s PayPal account, it is the buyer’s phone number.

Option #3 – In-Aisle Purchase

With the third option, called an in-aisle purchase, the PayPal Mobile app is the exclusive interface for the purchase done in-store — and because PayPal fully controls the point of interaction on the mobile devices, it can provide a richer set of features. Instead of just accepting the default payment methods, the consumer might pre-select their preferred funding source for the purchase — and would be able to see and control how various offers and gift card balances might be applied to reduce the total “out the door” cost.

One innovation that PayPal imagines is being able to offer installment payments to qualified buyers. The buyer might, for example, want to break a $300 purchase into a series of three $100 installments transactions against the payment method of their choice. Installment payments are an especially interesting twist in the PayPal funding model because they potentially blur the traditional banking industry distinction between credit and debit.

Once the purchase is complete, the buyer receives their receipt electronically and can leave the store. In industry terminology, this is unassisted checkout so it will be up to the merchant how they want to verify payment prior to their customer leaving with the goods. For low-value goods or familiar customers it might just be the buyer flashing their phone receipt on the way out the store. Large ticket merchants might want to restrict in-aisle purchases to just goods that are picked up from the dock or delivered to their home.

Post Purchase Flexibility

Regardless of payment method, PayPal envisions offering certain qualified buyers the ability to adjust their funding methods after they leave the store, and potentially the option to set up installment payments for select purchases instead of one-time payments. This would have nothing to do with the merchant. They would get paid immediately in real-time for things they sell, irrespective of what funding method is used or when the funds are actually received by PayPal.

The capability, which PayPal believes will be unique in the industry, gives buyers the ability to sit down at the end of the day’s errands and adjust how they want to fund various purchases –– perhaps using their bank account for budgeted purchases, their credit card for discretionary purchases, and installment purchases for large ticket items. Not every buyer would qualify for installment payments, and the available installment options might not be the same. PayPal indicated, for example, that small ticket purchases might be available to be adjusted for 7 to 14 days, while larger ticket items might be adjustable up to 30 days.

How does this work? As indicated earlier, merchants get paid immediately by PayPal, meaning that purchases are credited in real-time to the merchant’s PayPal account. On the buyer side, PayPal would hold the default funding transactions for some amount of time, giving the buyer the chance to change which source they want to use. Simplistically, you might think of this as a user changing a pending ACH transaction to a pending credit card transaction before it is submitted into the appropriate network at the end of the day. But instead of submitting all transactions every night, as they do today, they would wait days or potentially weeks before they submit the transaction. In the case of installment payments, they are breaking down the single funding transaction into 3 or 6 equal installment transactions.

Sounds risky, but PayPal must obviously feel good about their ability to risk manage their customers and their transactions. And if you think about it, this model is not a lot different than their current model. Today, every merchant is funded immediately even though PayPal doesn’t collect the funds for several days, and is not guaranteed that funds will be available for bank-funded purchases.

Glenbrook’s Reaction

eBay has been very vocal about mobile starting to blur the distinction between online and offline, and that’s something we see very clearly as an important trend in the market. We think buyers and sellers don’t see the distinction today and, quite frankly, don’t care. Consumers just want to buy things and merchants just want to sell things.

It is interesting that PayPal is focused on optimizing the shopping experience, and not just the payment experience. As many have pointed out, it’s not just how long it takes to swipe your payment card at BestBuy –– it’s how long you have to wait in line for that privilege. Either way, you have to prove to the door police that you’ve paid for your purchase. So, the emphasis on the overall shopping experience instead of just the payments piece seems right.

Of course, the hard part about ramping up any sort of new payment paradigm is breaking open the chicken and egg problem. Here PayPal is working both sides of the hen house –– providing a rationale for merchants to adopt without the capital expense of redeploying terminals, and providing consumers with an incentive to use PayPal as a payment option at POS.

For merchants, the value proposition is clearly all about selling more –– auto alerting consumers when a store location a couple of blocks a way has an item in stock; auto matching shopping lists with inventory availability to apply coupons; in-aisle checkout to reduce line abandonment; 100 million active buyers with multiple payment methods on file, etc.

For consumers, the value proposition is all about convenience –– interactive access to coupons and credits; loyalty point management; digital receipt tracking and management; no-interest installment payments on large purchases; post-purchase reshuffling of payment methods to better manage daily or weekly budgeting; in-aisle purchasing to eliminate wait times to get out of the store; and on and on.

Will it work? Who knows? There are open questions on the actual products, real-world adoption challenges, strength of the value proposition, credibility of the initial partners, and overall economics and pricing. Still, PayPal’s vision is quite ambitious. If this whole thing doesn’t work out, it won’t because PayPal was thinking too small.

A couple of weeks ago, eBay held an Analyst Day where eBay senior management shared their thinking about the future of the changing commerce landscape – and how they’re thinking about taking the “e” out of eCommerce. (Click here for the PDF of the presentation.)

What’s this taking out the “e” business all about? It’s about the influence of mobile on integrating online and offline commerce together). At Glenbrook, we call this notion the “Commerce Context” – simply stated, the commerce context is where you are enabled to transact and buy stuff. With the rapid adoption of smart phones, our personal commerce contexts are rapidly expanding to places where we don’t have to stand in line at a checkout counter or at our desk in front of a computer screen! These new mobile devices put commerce in our hands.

Increasingly, I’m hearing savvy web developers say their first priority today is designing for the mobile experience (both using mobile apps on the devices and web sites tailored for the mobile experience. A lower priority is designing for the traditional web browser experience. So mobile is big, and getting much bigger very fast. We’re moving rapidly from eCommerce to just Commerce – literally done anywhere you want to be.

PayPal’s a significant beneficiary of this shift. A bit over ten years old, PayPal’s management was forecasting 2011 revenue of about $4.2 billion at the Analyst Day – also noting its margins would be increasing as well. Last year, PayPal reported handling $92 billion in total payment volume, growing at a 24% compound rate over the last three years. PayPal forecast that to grow to over $125 billion by 2013 – yielding 2013 revenues between $6 – 7 billion. You can quickly do the math and see the kind of revenue PayPal is generating from every dollar of payment volume it processes.

It’s quite a story. As a “payments geek”, I continue to admire how PayPal is exploiting the global (e)Commerce opportunity in innovative ways. PayPal is perhaps the best example of a new platform play in payments – as it continues to accelerate in growing its share of payments.

But, alas, PayPal’s not alone. At the recent iPad 2 announcement, Apple CEO Steve Jobs highlighted that Apple has over 200 MM payment cards on file – perhaps the largest such collection on the planet? (PayPal’s number of active accounts at the end of 2010 was 94 MM). Amazon has another large collection of consumer card credentials on file as, I suspect, does Google – and perhaps others? Might these “cloud wallets” be new enablers for easier payments? I’m sure time will tell.

What do you think? Share your thoughts in the comments below! Or, send me a private email!

Last week my partner Russ Jones and I were exploring some of new ideas in the mobile payments space when we came across the notion of the “Commerce Context” – defined as when you and I, as consumers, are in an environment (a context) that’s enabled for commerce.

The last fifteen years of the eCommerce evolution on the web (and, indeed, the somewhat earlier introduction of mail order/telephone order commerce) enabled the expansion of our personal Commerce Contexts from just shopping at local stores face-to-face to being able to shop remotely.

Our Commerce Context was significantly enlarged by the evolution of the Internet and web technologies. From any place where we had a computer and an Internet connection we could shop for essentially anything from almost anywhere online.

One of the most interesting aspects of the evolution of smart phones over the last three years (led by the iPhone and its amazing Safari/Webkit-based browser) has been the expansion of our personal Commerce Contexts beyond traditional desktop computing environments.

Today, with our smart phones in hand, suddenly we now have 24×7 personal Commerce Contexts. We’re able to search, browse, find and buy almost anything we’d ever need from a tiny device we hold in our hands – somewhat incredibly with no wires. We can make restaurant reservations, buy from eBay or Amazon.com, etc. Almost anywhere, almost anytime.

With the latest version of Apple’s iPhone app, we can make Genius Bar appointments at nearby stores from our handsets and check-in locally when we get there, etc. So, this context isn’t just for purchasing – it’s also for customer service and support.

What does this significantly expanded Commerce Context mean for the key stakeholders in consumer payments?

• For merchants – obviously, it begins with being enabled for smart phone shopping experiences – including making shopping as quick and easy as possible with smart phone applications that step above the basic browser. I can’t be bothered to enter my payment credentials – so help me – if you want my repeat business – by helping me avoid all of that data entry nonsense.
• For card issuers – it begins with embracing the mobile lifestyle and advocating it to cardholders. This goes a step beyond simply supporting mobile customer service – it includes educating and encouraging their cardholders to shop from their phones. Remember the “Pepsi Generation” – all about the lifestyle experience, not about the product? Similarly, mobile-savvy issuers will embrace the “Mobile Generation” from a lifestyle perspective – supported, of course, with products and services that fulfill it.
• Finally, for consumers – simply taking advantage of these capabilities!

What are your thoughts on this notion of an expanded Commerce Context? How is it affecting you personally? As a merchant? As a card issuer?

This week I’ve been in Amsterdam for Sibos – the annual international banking conference sponsored by SWIFT. (For those of you who aren’t familiar with SWIFT it is a consortium of worldwide banks that runs a global secure network connecting banks in over 200 countries. Interbank messages to support payments and brokerage trades all travel via SWIFT.) This was my first Sibos and I’m impressed. There were over 9000 attendees from 150 countries, 170 sessions and 175 speakers, including yours truly. The exhibit hall was filled with the most extravagant booths I’ve ever seen – more over-the-top than BAI during the late 90s. It was all very well organized although I can’t believe they didn’t have wifi widely available (it made the Twitter coverage somewhat spotty, but we did our best).

It will take me a few days to digest and synthesize Sibos 2010 but here are some of the key themes and links to some must-see videos:

Cautiously Optimistic

The mood was generally positive. From what I gather the last two conferences were dreadfully gloomy: ’08 was right in the midst of the crisis with executives arriving only to turn around and board return flights to head straight back to the office, and last year in Hong Kong was subdued as a result of belt-tightening, with everyone unsure whether they’d still have a job, plus a Typhoon on the first day! So this year, with things feeling relatively normal the mood was one of relief, with a tinge of optimism.

Don’t get me wrong – there is acute uncertainty in the banking industry. But I was struck by how self-aware and open delegates and speakers were. Regulation, business models, trust in banks and bankers, profitability and even the relevance of the industry were openly questioned and debated.

Globalization (and Localization)

This event underscores the fact that payments are inherently local. Despite the reach of multinational banks, financial technology providers, and collaborative payment networks, most countries rely on domestic payment schemes for the vast majority of transactions. SWIFT was formed as a means to increase the efficiency of the correspondent banking relationships that all banks rely on to support their customers cross-border needs. Yes, SEPA will change things (at least in Europe) but it’s going to take awhile. The most often repeated (and often mispronounced!) word of the week was “interoperability” — recognizing that if we can’t all use the exact same standards, we can at least find ways to translate from one format to another in order to pass transactions and conduct business globally.

As large US and European banks seek continued growth, despite sluggish recovery at home, they turn to emerging markets such as India and China. (The Chinese bank pavilions on the exhibit floor were the largest of all as the Chinese banks demonstrated their importance.) There was a promising panel discussion on banking in India and China with really impressive participants, but sadly three quarters of the session was taken up by prepared introductory remarks and what little debate there was sounded very scripted. I was disappointed. An earlier session, featuring Om Prakash Bhatt, Chairman of the State Bank of india, highlighted the contrast between the developed and developing world, as he described that the biggest challenge facing Indian banks is how to manage rampant growth.

The recently published World Payments Report 2010 demonstrates the resilience of the payments industry, despite the economic crisis, but also underscores regional differences in payment preferences. Growth is strongest in emerging markets — such as China (up 29%), South Africa (up 25%) and Russia (up 66%) — although admittedly from a low base. I wasn’t surprised to hear Bertrand Lavayssiere of Capgemini observe that one of the primary drivers of increased adoption of electronic payment is eCommerce. At Glenbrook we’ve had a deluge of requests from clients wanting to understand payments in emerging markets. Often we advise those clients that they will have to rely on non-bank partners to deliver domestic payment assistance, particularly when it comes to e-commerce in markets where cards are much less popular and people rely on eWallets, local debit card schemes, and even cash.

Regulation

The uncertainty regarding regulation was one of the most dominant themes at the conference. With Sibos in Amsterdam this year SEPA was on the forefront, although regulatory activity in the UK and the US was on the radar, too. The Europeans are acutely sensitive to local interpretations of EU-wide regulation. There was considerable talk of “geographic arbitrage” opportunities opening up as a result. As an American it was a eye-opening to witness the fissures in the supposedly united Europe. Recent economic woes have only underscored the tensions. SEPA – the ongoing effort to consolidate the domestic payment schemes in Europe – is moving ahead very, very slowly. The EU acknowledges that widespread adoption will require a mandated deadline; an open hearing is scheduled for mid-November. Meanwhile, the industry is waiting for pending announcement of mandatory SEPA deadlines and in the midst of the uncertainty not much is happening.

Innovation

Nearly every session mentioned innovation, and the need for banks to up the ante in order to remain relevant and continue to meet shareholder expectations for growth and profit. Throughout the week, it was clear that the banks all seem to know that they need to add value to payments in order to ensure margins, yet they can’t seem to execute. It’s a classic case of analysis paralysis.

Meanwhile, in sharp contrast to all the talk about innovation in the broader conference, there is a mini-conference within Sibos devoted to innovation called Innotribe. I applaud the efforts of Peter Vander Auwera, the leader of SWIFT’s Innotribe effort, who had the vision and put in significant effort to make this second annual Innotribe a reality. He brought together an impressive International group of technology thought leaders and VCs to stir things up. (It was amusing and actually rather nice to see the California/Silicon Valley Sibos attendees in their suits – we clean up well!) SWIFT also enlisted some of the most talented facilitators I’ve ever witnessed. It was really impressive.

Here are a few pictures to give you a sense of the energy and content of the Innotribe sessions:

Cloud computing concepts from Innotribe

Smart Data brainstorming at Innotribe

It was sad, however, when one of the SWIFT employees admitted that they’ve been talking about innovation for three years and haven’t started yet. That’s tough.

With coaching and support six teams worked in 2 hour sessions throughout the conference to develop innovative banking business concepts. They presented their efforts on the last day of the conference and were judged by a panel of bankers and SWIFT board members as well as a team of VCs. The winning concept received 50,000 Euro in start-up funding from SWIFT. I will do a follow-up post featuring more about Innotribe, the contest, and the winning idea.

Mobile

There was a star-studded panel to discuss mobile payments, featuring carriers, handset manufacturers, money transfer companies, and banks. Much of the debate centered on whether or not banks have a role to play in mobile payments – the consensus seems to be yes, but that the role will vary from market to market, depending on the varying degrees of cooperation and relative assets of carriers, banks, and regulators in each country.

Friend-of-Glenbrook Carol Realini, CEO of Obopay observed “If you want to know the potential of mobile go to Kenya. Kenya is the silicon valley of Africa.” Today there are 14 million mobile banking users in Kenya. The astounding success of m-Pesa is widely discussed – at Sibos and at other industry gatherings – but it is hard to emulate in other markets. There was only one (government controlled) carrier, so interoperability was not an issue.

At the conclusion of the debate, the moderator asked the audience whether banks would participate or lead in mobile payments. Nearly the whole room nodded in agreement that banks would participate, but only one person raised their hand to indicate that they believed banks would take a leading role in mobile payment.

Every bank technology firm seemed to have a brand new mobile app and there were even some slick iPad applications on display. At this point, I’d say that consumer mobile banking and payments are table stakes — every self-respecting bank should have a solution available and to be perfectly honest, the mobile banking discussions left me rather bored. However, I was really excited to see some business-oriented eInvoicing and payment mobile solutions. I’ll feature solutions I saw from LUUP, Fundtech, and Edge in more detail next week — the vendors are going to get me some screen prints to share. In the meantime, here’s the team at Fundtech showing off their iPad app:

Rhys Jones & Joe Mazzetti of Fundtech

Cloud Computing

It’s coming – perhaps not as soon as the financial technology vendors think – and is definitely relevant. The challenge for the banks is to evaluate their infrastructure and determine which capabilities are core and which are not and therefore candidates for SaaS. There was an intense debate about private vs public clouds – and whether a private cloud is an oxymoron. FinExtra has a nice video interview with Sean Kelley, Global CIO for Deutsche Asset Management talking about cloud computing and the bank’s use of Amazon and Google, among others.

The Future of Business Payments

On Monday I spoke to a respectably-sized crowd on The Future of Business Payments — the team at SWIFT asked me to be provocative and I did my best. It was a 90 min session and I spent half describing what makes B2B payments unique vs consumer transactions and outlining the challenges that prevent widespread adoption of e-Invoicing and electronic payments for businesses. And then I profiled twelve companies that are operating at the fringes of the B2B payment ecosystem and aren’t on the radar of banks, but should be. Reach out if you want to learn more.

As I listened to the speakers this week debate the relevance of banks and how they need to do a better job of wrapping value around increasingly commoditized payment services, it occurred to me that one of the most effective means to do so is to better support businesses by reliably delivering and synthesizing the data that accompanies payments between buyers and sellers. As large corporate increasingly connect directly to SWIFT, rather than rely on portals provided by banks to obtain payment data, there is an opportunity to focus on SMEs, a category that has been woefully neglected by banks and other business payment providers. As mature economies struggle to emerge from the economic downturn they increasingly look to smaller businesses to lead job creation. Banks can help by providing enhanced small business offerings, liquidly through early payment discount schemes, and perhaps the means to connect with some of the banks large enterprise customers that might be buyers.

[Meanwhile, in San Francisco at the PayPal Xinnovate conference for developers PayPal announced new business payment capabilities (and B2B pricing) -- the irony of the bankers getting anxious about innovation in Amsterdam while simultaneously the PayPal crowd was gathering in SF was not lost on me.]

Best Quotes

• Charles Goodhart, London School of Economics: it’s a difficult time to be a banker, whether you were doing gods work, or just behaving naturally.
• Paul Saffo, in response to one of the Innotribe pitches: “I’m a consumer, I don’t care about banks”
• Judd Holroyde, SVP, Head of Global Product Management & Delivery, Wells Fargo: “Innovation is difficult, but necessary to ensure margins in payments”
• Michael Steinbach, Chairman, Equens: “Banks tend to discuss and discuss and discuss whereas others [Google, PayPal, Apple] tend to act”
• David Sear, Managing Director, Travelex Global Business Payments: ”Banks need to concentrate on the consumer otherwise Apple eats your lunch”
• Lázaro Campos, CEO of SWIFT: “Asia Pacific is growing much faster than ever before, much of that intranet-Asia traffic.”
• Stephen Hester, RBS “We are all in this together. That requires humility and change”
• Carol Realini, CEO Obopay: “The mobile opportunity breaks down as follows: retail $10 Trillion, replacing checks & cash $5 Trillion, eCommerce and mCommerce: $500 Billion, cross-border P2P $400 Billion”
• John Hagel, referring to the Red Queen in Alice in Wonderland, who runs faster and faster to stay in the same place, Hagel commented that . “The financial industry is not even doing that well, it’s running faster and faster, but still sliding further and further behind.”
• Hans Van der Noordaa, CEO Banking Benelux, ING “The biggest mistake banks could make is to think we’ve fixed the trust issue”

Cool Stuff

The Finextra team recorded 33 videos throughout the conference. You can watch them here. I’m indebted to Liz Lumley and Finextra who graciously let me hang out in their booth and recharge my batteries (both literally and figuratively) throughout the conference. Liz also moderated a fantastic panel on social media usage by commercial bankers (as opposed to retail banking applications of social media). This session was simulcast on the web, so you can watch the whole thing here or read a brief recap here.

Official SWIFT conference converge (video, articles, photos) here. I recommend watching at least the Innovation Keynote and the Closing Plenary.

And here are some must-watch videos that made their debut in the Innotribe innovation sessions:

The Financial Reformation

The Future of Money

And now I’m off to explore Amsterdam by bicycle!

Glenbrook’s Russ Jones is attending the PayPal X Platform developers conference in San Francisco. His post from Day 1 is here.

The second day of payments conferences usually give me a chance to step back, reflect on what was announced on the first day, and catch up with some people to better understand how things really work. While PayPal said that the three big themes for the conference were mobile, social, and local, they could just as easily said convenience, speed, and personalization. At least that’s what many of the the new products and solutions said to me.

PayPal Embedded Payments

With Embedded Payments, PayPal is simplifying the user experience down to the point where buyers just click and pay with a minimal amount of friction. The experience is “embedded” in the sense that the user doesn’t have to leave the sellers website to go sign-in, pick their payment method, and approve the purchase. Instead, when they click the “Pay with PayPal” button, a simplified PayPal light box hovers over the seller’s website, providing the consumer with a simple 2-click or even 1-click streamlined purchase experience.

The number of clicks varies because it can be personalized to be as light or heavy as the user wants. One consumer might personalize their use of PayPal so that they login once, but then never login again as long as their own the same computer. Even as they move across sites on the web. Another consumer might personalize their experience so that they are always prompted for login, even on repeat purchases from the same site.

PayPal Embedded Payments is build on top of Adaptive Payments. That means that sellers and app developers have access to send money features, chained payments, parallel payments, etc. The version of Embedded Payments available right now doesn’t yet support the handling of ship-to addresses, but PayPal says that’s coming.

For existing merchants, the streamlined user experience is also available through PayPal Express Checkout. So there is no need, strictly speaking, to switch to Adaptive Payments just to offer buyers a simplified experience.

PayPal refers to the simplified, on-site purchase experience as “inline checkout”. This user experience, however, is not completely new in online payments. Amazon Payments recently announced a similar user experience for its buyers in an enhanced version of Checkout by Amazon. Before that, PayPal had offered inline checkout for smartphone apps through its PayPal Mobile Library. The common thread through all these examples is the elimination of the clunky redirect step.

I wouldn’t be surprised to see other payment enablers move away from the traditional redirect model to the newer inline model. But it’s going to take some technical known-how, particularly to streamline repetitive logins out of the user experience. To make this work, PayPal is using its risk management expertise to adjust things on the fly as necessary. The consumer might be asked to re-authenticate depending on what they are buying, where they are buying it, and how much it costs.

As an aside, PayPal is also applying the simplified, inline user experience to Adaptive Accounts as well. When a third-party app uses Adaptive Accounts to create PayPal accounts, the users won’t have to leave the app and go to the PayPal site just to establish their PayPal password. They can just hover over the app in a light box to quickly claim their new account.

PayPal for Digital Goods

PayPal for Digital Goods bundles a bunch of underlying things together to create a solution for a specific set of customers. In this case the customers are online game providers and other digital goods merchants that want a super easy, cost-efficient impulse purchase capability. PayPal for Digital Goods combines PayPal Embedded Payments (described above) with PayPal’s traditional micropayments pricing option.

When using the micropayments fee schedule, PayPal charges sellers $0.05 + 5% per transaction — which works out to be more economical than the typical $0.30 + 2.9% pricing on any purchase under $12.00. The variable part of the traditional fee is more expensive, for sure, but the fixed portion drops from $0.30 to $0.05. And its the fixed portion that most sellers complain about in digital goods.

Because PayPal for Digital Good is based on Embedded Payments, and Embedded Payments are based on Adaptive Payments, online site sites can also use all of its capabilities. They can use subscriptions, make pre-authorized payments in support of a pay-as-you go model, or just sell virtual goods on an ala carte basis. While not positioned as a micropayments solution, it sort of walks and talks like one.

PayPal also claims that it has adjusted its risk capabilities to better reflect online fraud in the digital goods market. But it was interesting to me that they didn’t extend their buyer protection program to cover digital goods purchases. Instead, they offered developers at the conference a session on best practices for managing digital goods fraud. Not what I was hoping for, but okay.

PayPal says that they like virtual currencies, and that virtual currencies have their place in this world, but clearly the company would prefer sellers to embrace PayPal for Digital Goods for direct monetization. They went out of their way to say that buyers will spend more on digital goods when they don’t have to worry about having unused, seller-specific virtual points left over at the end of the day.

Even without these new capabilities, PayPal claims to be on track to handle $3 billion in digital goods transactions in 2010. Clearly, that number will be going up dramatically as this solution makes its way into the market in coming months.

Glenbrook’s Russ Jones is attending the PayPal X Platform developers conference in San Francisco. His post from Day 2 is here.

The PayPal news feed was running full blast today given all the various products, initiatives, and alliances that were announced on the first day of the PayPal Developer Conference. This was PayPal’s second developer conference and they feel good about what they have accomplished since launching the PayPal X Platform a year ago. Here’s their report card on the first year:

• Signed up 50,000 new developers
• Launched 1,000 new payments-related apps
• Processed over $1 billion in TPV (by year end)

PayPal accomplishments aside, how was the conference? In a word, overwhelming. I’m not sure I’ve fully grasped everything that was introduced today. There were a flurry of announcements (and cool demos) about 2-click and even 1-click purchases of digital goods and a bunch of mobile payment announcements. Here are the other things that caught my attention:

PayPal Business Payments

The new pricing model that was announced at last years conference is finally available. But instead of two variations, it has been simplified down to a flat $0.50 per transaction for business payments funded by PayPal balance or bank account. This pricing is for commercial payments in general and is not intended for eCommerce transactions. Along with this new pricing, Paypal also introduced an Adaptive Storage API that is perfect for supporting the remittance data that typically accompanies a business payment.

This new pricing and remittance API is available to app developers that are developing business applications, and is not available to traditional eCommerce merchants. PayPal manages this through the app development lifecycle. In other words, developers have to apply to use this pricing and functionality and PayPal will vet the application before it is deployed.

We expect PayPal Business Payments to find a good reception in B2B payments, rent payments, healthcare payments, and other similar commercial markets. Learn more about PayPal X for business payments here.

PayPal App Marketplace

The PayPal App Marketplace provides PayPal partners with the ability to directly integrate their online functionality into the PayPal.com website. PayPal views its 90 million active users as the natural community for many of these apps, and believes the Marketplace is a good way to provide developers with access to the global PayPal user community.

We expect to see many invoicing and billing partners directly integrate into the PayPal website via the Marketplace. To the PayPal user, the apps are presented through an App Tray. PayPal indicates that the App Marketplace will be available next year.

PayPal Pay Anyone Partnerships

PayPal has previously announced various bank partnerships that use the PayPal Pay Anyone functionality. This gives bank customers (without PayPal accounts) the ability to send money to anybody by email address or telephone number. The big news at this years conference were two new partners. The “big bank” announced at this years conference was USAA Federal Savings Bank (USAA Bank), which will be working with PayPal to deploy Pay Anyone functionality in their online banking environment and in their mobile app.

More striking, perhaps, is a new partnership with Discover that provides Discover cardholders with the ability to send money to family and friends directly from their Discover online account or mobile device. The transactions are treated as purchase transactions, not cash advances, and qualify for 1% cashback rewards.

For personal transactions, there are no fees for either senders or receives on these transactions. Discover indicates that the economics of these transactions are based on a larger strategy to drive share and preference with cardholders in general. Discover motivation aside, it will be interesting to see if any other card issuers follow their lead and offer PayPal Pay Anyone functionality as a card enhancement.

Visit the PayPal X Platform website to browse through some of the applications are already up and running. Or visit the Adaptive APIs Quick Start Guide.

More tomorrow.