Wall Street Embraces Silicon Valley as Tech Shakes Up FinanceBy
Payment processors seek partnerships with e-commerce giants
Visa, Mastercard ‘domination’ seen as driving payments push
Moving money has become big business.
More customers using cards instead of cash has boosted Visa Inc. and Mastercard Inc.’s stock, but introduced new competitors. Silicon Valley’s steady march into lending and payments was on display this week at the Money 20/20 conference in Las Vegas, where more than 11,000 people gathered to discuss the future of payments.
Here are the biggest takeaways:
The payments business has drawn increasing interest from technology players including Amazon.com Inc., Apple Inc. and Facebook Inc. That’s because it’s at the center of consumers’ lives, which is prime real estate for technology firms that want to create more ways for customers to transact with them.
More than 4,000 banks have signed up to work with Apple Pay, said Jennifer Bailey, who oversees the product. The service accounts for 90 percent of all mobile contactless transactions where it’s available, she said at the conference.
High-profile data breaches like the one Equifax Inc. recently suffered typically result in a spike in fraud and renewed calls for banks and merchants to ditch static passwords in favor of biometrics. This week, Visa announced a new platform that will help issuers and retailers quickly adopt some of these new authentication technologies, such as iris and fingerprint scanners.
Consumers also usually receive new credit cards to replace the ones exposed in the breach and then have to chase down retailers with their card on file to replace the number. Mastercard is looking to speed that process up. The network said this week it will offer a way for banks’ mobile apps to show consumers all the places their card information is stored.
Part of what’s driving technology companies to pursue payments is the success enjoyed by Chinese firms like Jack Ma’s Alipay and Tencent Holdings Ltd.’s Tenpay. The e-commerce giants moved into payments because they wanted to keep users in their ecosystem. Now, they dominate the mobile-payments market in China with a combined 90 percent share.
“Customers are using smartphones and chat services as integral parts of their life and so having a payment solution embedded makes sense,” said Derek White, head of customer solutions at Banco Bilbao Vizcaya Argentaria SA. Banks need to “ensure the payment services they run are better linked with the other platforms customers are using to search, shop, chat and connect,” he said.
For some banks, the increased competition has become another opportunity to partner. Discover Financial Services has been looking to work with emerging international payments networks to help them with global acceptance, Chief Executive Officer David Nelms said at the conference.
“There’s about 50 new networks that have started up in countries, partly as a backlash to Visa and Mastercard’s domination,” Nelms said. “But we’re finding none of them have aspirations to start a global network, so that’s when they plug into us and we give them that technology and acceptance.”
Payment processors are also benefiting from the new competition. Alipay, which is owned by Ant Financial, has been signing deals with firms including First Data Corp. and VeriFone Systems Inc. to gain acceptance at retailers and taxi cabs across the U.S. As the firm expands outside of China, banks and technology companies are noticing the user experience it provides.
Silicon Valley could also learn a thing or two from banks. Technology firms have long relied on artificial intelligence and machine learning to give them an edge over banks when it comes to underwriting and originating loans and improving the customer experience. But the algorithms powering those technologies have become increasingly complex, and the data scientists writing them often don’t come from banking backgrounds.
“The increased demand for AI and machine learning teams in every modern company will make the ethical considerations of how these technologies are applied in our society even more important,” said Thomson Nguyen, head of data science at Square Inc.’s lending unit.