The Showdown in the Desert Lacks Punch

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Each year a heavy-weight title fight takes place at the Money2020 Conference in Las Vegas, Nevada. Dubbed as the “world’s largest payments and financial services innovation event,” the conference pits financial services incumbents – banks, card networks, merchant acquirers – against fintech disruptors for a four-day bout over the future of payments. The founders of the conference – Anil Aggarwal and Jonathan Weiner – impressively built a $100m business in less than three years, and the conference now boasts more than 10,000+ attendees, including 1,000+ CEOs.

In prior years, the conference was headlined by tense showdowns between fintech startups – armed with a war-chest of VC funding – and industry incumbents – hoping to defend legacy business models in an increasingly digital world. Often panel discussions would spill over into heated debates such as the 2014 dust-up between Mike Cook (WMT) /Jim McCarthy (V) over Card-Not-Present rates for in-app purchases, or the 2015 argument over the growing disconnect between public and private fintech valuations. But in 2016 the tone was noticeably different. Perhaps the tempered tone is a sign funding for early stage companies has peaked in the current cycle, as KPMG/CB Insights reports global VC fintech funding was down 52% y/y in 3Q16.

But make no mistake at this year’s Money2020, the incumbents were in charge! Previous year’s themes of disintermediation and disruption gave way to the need for partnership and collaboration in a complicated payments ecosystem. Three conference themes to watch in 2017:

  • Zelle set to challenge Venmo in 2017: Bank owned, Zelle created through the merger of ClearXchange/Early Warning has 19 financial institutions signed on to accept Peer-2-Peer payments between partner institutions beginning in 2017. Collectively the 19 FI’s hold 76m mobile banking customers across the U.S. While impressive, consider Venmo has 184m active PayPal users as of 2Q16. Two things important to watch in 2017: 1.) Customer adoption of Zelle – The company plans to add more banks throughout the year, and will likely aggressively market Zelle as a competitor to Venmo, and it just so happens Zelle deposits are FDIC insured. 2.) Does PayPal leverage it’s growing Venmo user base to rollout Customer–2–Business payments via a “Pay with Venmo” button which would allow PayPal to serve as an acquirer/gateway for its 14.5m merchants as of 2Q16.
  • EMV clunky rollout continues: There are currently 10 million POS terminals in the United States, which will grow by 3m to 13m under new EMV standards. Today 4.5m terminals are EMV compliant; while another 5.5m require upgrades (concentrated at smaller merchants). The card networks created a one-time demand surge for POS manufactures by mandating a fraud liability shift in October 1, 2015. The surge in demand near last fall’s deadline liability deadline overwhelmed ISO’s and merchant acquirers who are needed to certify terminal devices. This created a backlog in EMV adoption, which further reduced EMV adoption at smaller merchants. As a result the card networks extended full liability until April 2018. Two things to watch in 2017: 1.) The pace of EMV adoptions/certification at SMBs given the card networks have introduced “quick chip” which reduces certification time from ~6months to ~3 weeks. 2.) Adoption of NFC payment, given tokenization provides a competing form of security, albeit typically through a device that is also EMV capable.
  • Blockchain partnerships are accelerating, but adoption still years away: While almost every major bank is testing Blockchain technology for a variety of use cases widespread adoption remains years away. There is long list of recent blockchain announcements which were discussed at the conference: Visa/Chain partnership on B2B transactions for corporate clients, BAML/IBM partnership on trade finance, Ripple/BAML partnership on interoperability of ledgers and creation of the Payments Steering Group. While the future of the technology is still unfolding, there is the possibility for significant cost savings in the back-offices of financial institutions. Stay tuned!