More on credit cards...

Happy Hour (2 beers) + Happier Hour (s) (4 beers) = Headache, I’m 38, one day I’ll learn that it is ok to stop at 2, one day.

Yeah GOOG and AAPL don’t bring much except the hardware / software in the handset currently. I suspect that Google is hoping to capture some data and get really local when it comes down to it, but that is pure speculation. But let’s stick with the speculation. They want to know what transactions are happening and when. Why? Because that is worth a lot, when they know what was just purchased and where. Apple, I’m never sure about, but they probably have a plan. Of course, it would have to be acknowledged that you are sharing your info for deals. Example, let’s assume that I had some discipline and I was about to call it after 2 beers last night. As, I’m checking out (very easy in this scenario), Google feeds the merchant some info that I’m easily sold on a ½ price beer and burger combo (they sold me on it before). As I’m checking out, I get a coupon for a ½ price beer/burger combo. I stay, get drunk and spend a lot more, everyone gets paid off of my poor judgment. The possibilities are limitless. Instead of just getting chips at the table, Google lets the Bellagio know that “Big Fish Lee” just asked for a stack of black chips at the craps table. They are all over you trying to get you stay in their casino, comping rooms and whatever. Basically a very localized and targeted Groupon/Loyalty program combo. Grocery stores have been trying to do this for years with the coupons printed on the back of the receipts using your loyalty card for ID – not real-time. These examples are worth a lot, but I just made them up off of the top of my head, I guarantee there are much smarter people figuring out all kinds of innovative advertising systems. Effective local advertising is the Holy Grail for SMB’s and Google knows this, which is why they tried to snatch Groupon up and why Groupon was smart in giving them the Heisman.

I think that eventually the 2% fee that you pay will be eaten away. Acknowledging that I’m no expert on the subject, I’d guess that number was originally the cost of a guaranteed transaction for the merchant (V/MA take the fraud risk), but I have no clue. In addition, processing costs had to be higher in the days that they had a credit card machine which took a physical imprint of the card, requiring the them to process a bunch of paper on the backend, however this does not cost as much to do when it is an all-IT solution at scale. Probably why MA has 50% operating margins? I know that PayPal even charges more, starting at 2.9% + $0.30. Why? It is an all-IT solution! But a sketchy one. It is pretty sketchy sending money online with not much more than an email account, a password and a link to a bank/card. A question that I have is the following: If you fill your PayPal account with a credit card, I guess they are being charged 2% and then charging you (the merchant) 2.9%? I don’t know, not worth figuring out. In any event, PayPal is a legit player now and will compete for transactions with MA and V, especially in the connected world. Why I think the charges go down is as a result more competition, but the but the enabling technology allowing this competition to compete will be that is that it is possible to have a lot more factors of authentication and thus allowing for smaller players to get involved without the risk. It is possible to have your ID embedded in your phone so that the payment and ID are intertwined, and then you could enter a pin to complete the transaction, furthermore it would be possible to have other stuff like GPS data as well etc (so that they know you are actually there). In other words it could be a VERY secure transaction and one that doesn’t require a 2% surcharge.

My secret service buddy was headed to bust some MoneyGram fraud scheme last night. I asked him why they (MoneyGram / Western Union) even still exist and he said basically for sketchy practices (fraud or to get around something). So there will also probably be those who create systems for these sketchy practices and charge higher fees. Will drug dealers be bumping phones?

Lee, you will not replace your card with a phone, I’m certain of that. But I’d bet Jake and Mike will and they’ll call you “old fashioned” …

Days of the Credit Cards Numbered?

Days of the credit card are numbered, part 2. I have spouted off about this for some time now, but it seems that there is a lot of activity in the area of Near Field Communication capability to be placed in cell phones. In an article that ran in Business Week, it talks about Google’s efforts, which are well known. This is an article from November in PCWorld: http://www.pcworld.com/article/210861/what_googles_nfc_android_phones_will_mean_for_you.html

But what I did not know is that Apple is also working on something, although it is rumored in the above article. Bank of Apple? But first things first, in order to fight the fight, you have to have a solution and this is probably why Apple has been active. A solution is already available in some Samsung and Nokia phones. Particularly in the new Google Nexus S, which is why Eric Schmidt all fired up on the stuff. What does this mean? Expect this to happen sooner than later because, well, competition and deep pockets that’s why. The phone is the easy side of the equation, getting merchants to sign on could be a bit more difficult. Why do we care? I’m not really sure why we care to be honest, it is simply pretty cool that you can carry money in your phone. Your ID and other information. Husam told me about one of his friends that has a credit card machine that attaches to his iPhone for poker night. This will eliminate the need for that, just a phone “bump” will take care it. If you are on a cold streak in Vegas? Don’t fret, bounce your phone off of the reader, enter your pin and get some chips. The reality is that we should be aware of the opportunities that may present themselves surrounding this. I assume that any money that we might make would be from payment processing or in security software, then again I have no idea. By telling you, now you are responsible too, even though the likelihood that you read this is fairly low. By my estimation, without having done any real research, NFC chips are very simple, very low power and very low cost. There are a number of standards that already exist and there is one of these chips in your card key, or is it key card, I always forget. Secure payment is the obvious solution, but the technology will work well for any secure exchange of data at close range such as boarding passes, electronic keys, coupons in the aisle etc. The credit card interchange fees will be/are threatened. I believe that the issuing banks feel the bulk of the pain, but I’m not sure. For the credit card companies, they will lose their take eventually. Australia has proven this to be possible by forcing the interchange rates down (those communists). There cannot be much terminal value in those oil wells for the credit card companies. However, they will certainly fight hard to maintain share by getting their NFC payment systems up to speed and forcing vendors to offer their service. In the end, I think Visa and Mastercard should probably start making phones…

Random Thoughts

I think we are probably at peak oil. On the back of this, I can only assume that alternative energies are going to take off once again. This will be the second boom in alternative energies in the last five years. I believe that controls for electric motors might be a segment to look at. Of course, the obvious is battery technologies. Storing energy in large batteries may be an opportunity to harness lumpy energy sources such as wind and solar.

With population growth, we are certainly going to run out of food. We are also going to run out of basic materials. I believe that this will fuel inflation for the long-term. However, this inflation is different than the typical wage price spiral. As a result, it will equate to a lower standard of living. The reason for this is that it is not a monetary mechanism, but it is a function of simple lack of supply which causes basic materials and food to be spread over more and more people. That’s how you end up with a smaller chunk of a finite pie.

I believe that technology is where we will look for productivity gains. Of course, by definition this is what technology is. However, unique ways to organize, manage and display information will help workers become more productive. I believe that companies like ARM technologies will benefit the most, which as these simple designs will end up powering data centers. It is this simplicity across all segments that will win out. Simple and usable is a theme to look for.