Have you got too many cards in your wallet? Between credit cards, debit cards, healthcare cards, frequent flyer cards, transportation cards, drivers license and so on, our wallets are often jammed packed and crowded. I’ve got 13 cards in my wallet currently which is about middle of the road in my office with one of the guys — who has a manbag concept few of us had ever seen — carrying 19 cards.
Wouldn’t it be nice if all your cards morphed into one ‘smart card’?
Converting all our cards into one is a concept we can all understand and we feel the pain points on a daily basis. There have been a few attempts to ‘crack this nut’, most recently in the form of two heavily backed San Francisco companies in Plastc and Coin. However, there is a reason why this is a ‘hard nut to crack’ and even if you are successful, digital disruption in this space is now rampant with financial services players like AliPay, Apple Pay, and others making mega in-roads to digitalise cards and card issuing for good.
You may not get a new credit card in the mail in a few years, it might be emailed to you.
Both Plastc and Coin not only raised a fair chunk of capital, they raised a great deal of exposure and press from the Bay Area with messages of ‘game-changing technology’ and ‘pioneering payments’.
Coin’s founders went through Y Combinator, raised US$15.5m in total from some of Silicon Valley’s best known VC’s including Sherpa Capital, SoftTech Ventures, Spark Capital, K9 Ventures to name a few. Coin’s founder — Karthik Balakrishnan spent some time at PayPal as a Manager in software development and knew many of the people you need to know in the bay area to get something like this off the ground. The board members Coin placed were also strong with Osama Bedier (from Poynt), Jeff Clavier— founder of SoftTech Ventures and Manu Kumar — Founder of K9 Ventures. If anyone was going to make something of the concept it was this crew.
In Plastc’s case, this company came out of no-where with a similar concept showcasing ‘the most intelligently designed, full-featured and secure payment device on the market’. Plastc managed to raise US$5.3m in funding from crowd-sourced platform Kickstarter and raised another US$9m for pre-orders of their first product. In total, both companies had similar capital at their disposal.
However, both companies are no longer here today with Coin being acquired by Fitbit after a host of product troubles and Plastc filing for bankruptcy before shipping a single product. With a dedicated reddit site discussing scamming that happened at Plastc and where to find the guy. Never a good sign if you pre-ordered.
I understand there is a lot of tension in the air surrounding Plastc’s bankruptcy, and the thousands of backers that have been left high and dry; but this post goes behind why these companies struggled with getting the concept off the ground, not the actual downfall. Thankfully Visa, Mastercard and AMEX will be on your side as a cardholder and I’d suggest a chargeback route to redeem your money if you pre-ordered the product.
While the concept of building a ‘smartcard’ for all cards is intriguing on the surface, I thought I’d get into the reasons why this is a hard space to excel in, and what’s on the horizon that makes VC’s nervous about backing similar concepts.
Why is this space hard?
I’ve been in the Fintech space for 6 years now, mainly in the payments vertical. While I don’t know every detail of the scheme space, I have a fairly reasonable understanding of the terminal and gateway space which compliments card schemes. (Scheme means Visa, Mastercard, American Express and other card you may have in your wallet today).
Several factors stand out to me which I want to go over:
- Swipe vs EMV cards. This just got more difficult.
- Scheme Regulations: It’s a nightmare — with many zombies, werewolves and ugly creatures.
- Production/ Manufacturing: It’s another nightmare.
- There is a simpler way: Digital disruption with digital wallets.
Let’s get into it.
Swipe vs EMV cards. This just got more difficult.
Both Plastc and Coin were pioneering card technology companies. In the US, where both companies are founded, EMV cards are only now starting to gain market traction — albeit more slowly than expected. Swipe cards are still widely used and I feel digital wallets will bypass EMV card mass-adoption and the US won't have the same penetration rates of EMV cards that Asia and Europe have had.
For those who don’t know, EMV or EMVCo was a regulatory body set up by EuroPay, Mastercard and Visa. EMVCo’s first action was to set a global standard in card and terminal certification and compliance, while reducing fraud overall. EMV released their own version of a new card with an embedded microprocessor that can store and protect card data. At the time, the more commonly used swipe cards could be easily ‘skimmed’ and cardholders were rightly cautious about card theft and fraud.
EMV Card with ‘Chip’ or “Microprocessor’.
These cards were trialled in the UK in 2003 and I had one from my Bank in the UK Lloyds TSB in 2005 — another early adoption product for me. It’s taken some time for card issuers and banks to adopt EMV cards because they are more expensive per card and the card terminals at the time needed to be replaced to accommodate the new type of EMV cards.
It’s like building a better VCR tape in 2017, no one is going to buy one or use one.
With that in mind, EMV cards are still coming to the US and I’m sure the VC investors were looking for both Coin and Plastc to utilise EMV card technology or be left behind with the increasingly redundant swipe card options. It’s not a good place to be when you develop a new solution using an already out-of-date technology. It’s like building a better VCR tape in 2017, no one is going to use one or buy one.
Both Coin and Plastc wanted to utilise their own EMV card’s microprocessor and enable multiple card data to utilise the microprocessor. As you can imagine, this is a nightmare to get Visa, Mastercard and other schemes to agree with. Card data is religion for schemes — and not to be f**ked with.
Card schemes don’t give you ‘the keys’ to do this easily, and their priority is card-data security. Visa, Mastercard and Amex are investing millions into digital cards and wallets, so why spend the time on something they even feel obsolete. That’s the first problem and the biggest.
Scheme Regulations: It’s a nightmare — with many zombies, werewolves and cardigan wearers.
Scheme rules, card protocols and card regulations in general is a nightmare. Anyone in the card scheme regulation space is known to wear cardigans, thick glasses and would be more interested in the hardest version of Sudoku than a good night out.
American Express has 5+ card protocols currently active and each card differs on protocol depend on the type of card, who manufacturer it and who issued it. Each region (Europe, Americas, JAPA or Africa) will have a different series of protocols (some overlap) and that’s why your American Express card may work with one bank terminal, and not on another. It’s up to both — the bank and the terminal manufacturers to be up-to-date with the latest scheme protocols in order for the consumer to use the card.
As an example, I have an American Express card I can use at Coles, but not Aldi. Coles terminals have been certified with my cards protocol in mind, whereas the Aldi Terminals from Quest have not.
Anyone looking to ‘integrate’ the various card-issuers cards will have to assure the Visa’s and Mastercard’s of the world that your technology can work on the majority of the cards that are currently issued and enable them securely. It’s way way simpler on the swipe cards to do this because there is less complexity, however with EMV cards, they’ve been built with cardholder data security in mind and are light years ahead on cryptography security. Something Plastc and Coin will have to solve and accommodate for.
Other aspects include EMV chip and EMV Contactless payment compliance which are two different types of certification. Accepting both forms adds another element to make things difficult for anyone looking to become a card-issuer and developer.
It’s not easy and would take 12+ months just to get through certification and regulations alone, and that’s if you know what you are doing.
Production/ Manufacturing: It’s another nightmare.
If you look at where banks get their cards made, a few names rise to the top. These include, but not limited to; Gemalto, Giesecke & Devrient, Valid and AB Corp. The International Card Manufacturers Association has a list of all the manufacturers that are recognised around the world. Most of these companies not only specialise in smart card manufacturing, but other areas of financial services that banks and other service providers utilise.
I’ve been to China and Japan a few times and I’ve seen a PCI compliant factory where they make sensitive products like card terminals and EMV cards. They are secure like data centres, and yet have a workforce of thousands. Every stage of the process of manufacturing is documented including getting the cards into the hands of the cardholder via post.
Card schemes don’t want to deal with a supply chain attack because if a company like Plastc or Coin were hacked, it’s not an easy process to fix from a cardholder perspective and could cost the schemes billions of dollars and years of legacy security issues.
From a supply chain perspective, Both Plastc and Coin would need to bring a third-party provider with experience in to assist, get the provider up to speed with their card’s technology, supply chain security and to meet the requirements of EMV through the entire process. That is easier said than done.
There is a simpler way: Digital Disruption with digital wallets & wearables.
AliPay on left and ApplePay on right. Source Ant Financial and Apple.
The credit card is not dead, nor will be in the next few decades, however the way we use them and the physical card will be on the way out soon enough.
Apple Pay
It took several generations of iPhone’s for Apple to release an NFC-enabled iPhone, even after Samsung and HTC smartphones had this feature for a few years previous. In-deed mobile or digital wallets have taken some time for consumers to embrace with user numbers slowly on the rise. FastCompany’s recent article suggested 12 million monthly users are using Apple Pay, up from 5 million a few months ago.
The slow adoption of Apple Pay is a combination of bank acceptance, the requirement of the retailers to update card terminal technology, and consumers embracing it.
One of the biggest challengers for Apple is from a consumer perspective, using Apple Pay doesn’t really add a great deal of value. There is no extra incentive offered and it can be clunky to use if you have to put in your passcode and open the app.
With Apple Watch now in it’s second generation, and FitBit’s acquisition of Coin’s tech stack and developers, a wearable play for a smartcard experience could be a simpler and more opportunistic way to market. Other players like Inamo are looking at the financial wearable space.
AliPay/ Ant Financial
AliPay — (Alibaba’s ‘PayPal’) isn’t as reliant on banks, card schemes or terminal manufacturers as Apple Pay is. The Chinese financial services company uses a combination of QR codes, peer-to-peer transfers and tokenisation to get the job done.
AliPay is now a massive company with 270 million active users, easily eclipsing Apple Pay’s monthly active user base. Having China (and through acquisition of PayTm — India as well) embrace Alibaba has rocketed AliPay into the forefront of the payment landscape in only a few years.
Both AliPay and Apple Pay not only have similar functionality what Coin and Plastc to, but they digitalise the card and place it onto a users smartphone. Both offer a host of services like paying bills, reward card integration, online shopping and peer-to-peer payments that Coin and Plastc weren’t able to offer to their users.
Most of all, Apple and Alibaba are two of the biggest, cashed-up and most innovative companies in the world with dedicated divisions to make sure they get this right. Big players with a vision that supersedes the more ‘one dimensional’ approach from Coin and Plastc is a recipe for disaster.
Did we learn anything?
We learn more from failures, than we do successes.
The fintech ‘payment’ space is a difficult area to truly innovate . As an innovator in payments, you need to address card schemes, banks, regulators, consumers, hardware manufacturers and supply chain management to make this work. Those areas are the main ones and there are a few more I haven’t included that could equally be as challenging to overcome. That’s a tall order for even the biggest names in payments.
Overall, I feel any disruption in the space of Fintech is worthwhile embracing. Coin felt like they ran into a combination of regulatory issues, matched with the market emergence of digital wallets. Plastc, feels like a copycat on a more sinister scale.
At least Coin’s technology can be ‘phoenixed’ in the form of Fitbit’s payment services. However I’d suggest the acquisition was mainly talent driven since Coin’s tech stack would have to be greatly modified to be used on a smart wearable.
Other players are emerging with ONE in the US going for a simpler ‘swipe’ route. The difference is ONE is ‘powered by’ Ciright, a technology company with a host of brands that complement a smart card concept. I think the concept of a ‘smartcard’ is still worth exploring in emerging markets like Africa and South America, however the opportunity is limited with mega players disrupting the very core of the technology.
It’s sad to see any startup fail, however R.I.P Coin and to a lesser extent Plastc. This might not be the official end to the smart card dream, as a few are still alive and kicking, but there doesn’t seem to be a hell of a lot of life left.