Ebay and PayPal Splitting. Why is This a Good Thing?

Ebay and PayPal have been together since 2002, when Ebay decided to acquire PayPal for $1.5 billion. At that moment both companies were heavy weights in their respective fields and growth was booming. Ebay struggled with a previous solution, called Billpoint, until deciding to give in and purchase PayPal.

eBay-and-PayPalSince then, both gained a lot from the other. Ebay benefited from PayPal’s ease of use and helped its customers send money to one another. This helped streamline and secure the purchase process, thus increasing transactions. PayPal, one the other hand, piggy backed on Ebay’s massive user base and international exposure. Its revenue increased by the year and in the second quarter of 2014, it amounted to 45% of Ebay Inc’s total revenue.

The fast growth of PayPal, as well the whole “payments revolution” potential lead Carl Icahn to propose a split between Ebay and PayPal this year. Icahn’s proposal / attack was then fended off by Ebay CEO John Donahoe and PayPal ex-leader David Marcus. Since february 2014, a lot of things happened. David Marcus left the company to join Facebook and biggest of the biggest, tech mammoth Apple launched the Apple Pay. What seemed like a closed case soon turned into a huge split between the companies.

Now – John Donahoe will still run Ebay Inc until the split is official. As of that moment he will step down as CEO and Ebay will be lead by Devin Wenig, now president of eBay Marketplaces. PayPal will split into a new company, directed by Dan Schulman, now president at American Express, Enterprise Growth Group.

PayPal benefits from Ebay Inc. spliting. The split means that PayPal will be able to roam free, grow and develop independently. On the other hand Ebay will be able to … well … do everything it was doing before. The marketplace division is not gaining much from the split. It loses a revenue stream, its shares will drop and it will have to find a new way to keep up with its growth in the future.

However PayPal needs independence to keep up with increasing competition in the omnichannel payments landscape. It needs to innovate, it has to connect online and offline and it has to do a bit better on mobile devices. The split will help the company evolve and here are three reasons why:

1. PayPal can mean more than just payments

Banking as we know is shifting from an old, rigid system to a new way of doing business. That means more than wiring money. It means deposits, it means financing, it means Peer 2 Peer Lending and more. Under Ebay, PayPal was bound to stick to payments and money transfers. Now that Ebay is no longer the umbrella that fosters PayPal innovation, we may soon see more financial goodies from PayPal.

2. PayPal should be more than an accessory to Ebay

Elon Musk explained best why Ebay should not hold PayPal back: “It doesn’t make sense that a global payment system is a subsidiary of an auction website… It’s as if Target owned Visa or something”.

The fact is PayPal outgrows Ebay. It can and should be a global financial company, a field that’s obviously larger than Ebay’s marketplaces can ever be.

3. PayPal could grow even faster as a separately traded company

It’s no secret that Ebay has already done what it could to help PayPal. Now it’s just living off PayPal’s growth. As a separately traded company PayPal can become a larger company, more attractive to investors, which in turn can help the company finance its expansion, growth and fight against Apple, Google, Amazon and even AliBaba.

But …

Carl Icahn is known as a corporate raider and maybe there’s more to this story than meets the eye. There is a possibility that he and others are just splitting the company to later organize a take over from companies such as Visa, MasterCard or one of the larger banks. What could be a profitable short-term strategy could hurt PayPal in the long run and kill one of the most promising financial companies in the world.

Home Depot discloses 56 million Credit Card Numbers lost in Security Breach

Home Depot, the largest home improvement retailer, has announced that 56 million credit card numbers have been compromised. In what is now known to be the biggest security breach in corporate history, Home Depot has been the target of an attack that lasted from April to September 2014.20140916_homedepot

Home Depot managed to beat the previous record, held by Target with 40 million compromised credit cards. As a result of Target’s security breach, the company laid off its CIO. Chairman, President and CEO Gregg Steinhafel then announced his resignation as a result of the security breach and previous unfortunate events, like losing $941 millions in a failed Canadian expansion.

Background

September 2nd: the same man that announced Target’s breach, Brian Krebs, announces a new security breach. This time on Home Depot. The same day, Home Depot starts digging through its POS systems and on the September 8th announces that indeed, a breach has happened.

Krebs reports that the same group of Russian and Ukrainian hackers that managed to steal Target’s data were responsible for the hack. The same day a new batch of credit cards shows up online. The batch’s code name: European Sanctions.

Implications

16 days later, Home Depot announced that it managed to clear all infected systems and has “has completed a major payment security project that provides enhanced encryption of payment data at point of sale”.

The company worked with security firms, banking partners and the Secret Service to find out as much as possible about the breach. Results show that hackers used custom built, never before seen malware. This was not the work of some isolated hackers group, acting on its own. A very well organized attack has been put in motion.

Home Depot has worked with banks to provide customer support to those in need. A small local bank, Dollar Bank, as well as larger banks such as JP Morgan Chase and Capital One, have started replacing credit cards.

Although Home Depot has not been hit by the market just as heavily as Target, one can still feel the tension looming over the retailer’s security actions. Consumers are more careful in how they use their credit cards and banks have jumped on board the Apple Pay system, which promises better security.

Is there a cyber war out there?

The fact that the same group of hackers seem to have been involved in attacking Target, as well as Home Depot points to a maybe. But then you have the Secret Service involved. You have an ex-Homeland Security contractor acting as CIO with Target. You have the FBI investigating whether Russia is behind the recent JP Morgan Chase cyber attack.

But most of all – you have Edward Snowden, defected to Russia with a few gigs of classified information on US cyber intelligence actions. Some of those actions may have included packing backdoors and security flaws into US digital infrastructure. Too bad.

Yes, there there probably is a cyber war going on and the US and Europe are extremely exposed. Retailers should pay a lot more attention to their security backbones and check each potential backdoor, should they not want to suffer the same unfortunate events Home Depot, Target and others have faced.

 

 

 

 

What does Apple Pay mean for Retailers?

Apple announced its newest products and everybody focused on the much awaited iWatch or the iPhone 6 and 6 Plus. The real news, however, both business-wise and from a consumer point of view is the launch of Apple Pay, an NFC (Near Field Communications) ready payment system. Simply put, Apple’s payment system allows customers to store credit card data on their iPhones and when the time comes, just tap to pay.

apple-paymentThe product launch was not unexpected. With the previous operating system launch, Apple packed several features that would allow for better mobile commerce. The iCloud Keychain was introduced to Safari in order to allow both faster logins to known websites as well as, in the future, a faster checkout.

With Apple Pay, the Cupertino company joins the omnichannel payment war as was predicted in this previous post. Google, Amazon, Ebay (through PayPal), AliBaba and even Facebook are trying to get a piece of the $15 trillion payments market. As banks and established financial institutions have failed to meet customer expectations in mobile payments, the gap between needs and available options will probably be filled by one of the tech titans.

Google tried its luck with the Google Wallet, Ebay’s PayPal is now crossing the bridge into offline teritorry and Facebook recruited Paypal’s former CEO David Marcus.  Marcus is the man that helped Paypal grow from $750 million in 2010 to $27 billion in 2013, so one can only assume Facebook is also serious about payments.

To help the product take off, Apple signed 220 000 merchants onboard its Apple Pay project. Among them: Mc Donald’s, Babies R Us, Macy’s, Staples, Sephora and of course, all Apple retail stores. The 220 k merchants are just 2.4% of the total 7 to 9 million merchants in the US but it is a great start given the fact that Apple has a habit on pulling seemingly impossible feats, starting with close to nothing.

For example the iTunes Store launched with not more than 200 000 songs and only Mac Users could move the purchased songs to their iPods By September 2012, it was home to more than 37 million songs, 700,000 apps, 190,000 TV episodes and 45,000 films. By February 2013, the iTunes store had sold more than 25 billion songs worldwide.

So yes, there is a pattern here and there is probably a whole lot of room for improvement in the payments area.

Apple Pay’s security

Although recent iCloud security issues clouded the product launch, the security behind the payment technology looks great. First of all it allows customers to save credit card data on their phone without exposing sensible details to potential hackers. It also features the Touch ID identification technique where users sign payments with their biometric input (the fingerprint).

The credit card information is not beemed online but rather stored in a special chip, on the iPhone, a hardware – software combination that Apple named Secure Element. When a transaction is processed, credit card details are not sent to Apple’s servers and the retailer can’t see the data. Instead, a proxy account number is issued that the retailers charges. Each transaction is secured by an unique security code that authenticates it. Apple has laid more layers of security then we came to expect and that should work just great. But take it with a pinch of salt because everything is secure untill it is not anymore.

The company states that it does not store transaction data regarding location, products purchased or the amount the customer has spent. That certainly leaves room to question why exactly would Apple choose not to store these valuable data. The answer lies with data from Bloomberg sources. According to these anonymous sources, Apple has partnered with banks in the system to receive a percentage from each transaction.

The banks involved are JP Morgan Chase & Co, Bank of America and Citigroup Inc. They agreed to integrate their cards into the system and alongside came three of the biggest card networks – Visa Inc., Mastercard Inc. And American Express Co.

So we have a great lineup for Apply Pay and although NFC payments where slow to take off, it seems that Apple’s incredible effort to bring every important player on board will be the push mobile payments needs right now.

As the company promissed it won’t charge users, merchants or developers, one of the biggest issues (the cost issue) seems to be out of the way. With customers using their mobiles more and more, retailers will be forced to adopt some form of omnichannel payment system.

How does Apple Pay benefit retailers?

Retailers and merchants in general receive several incentives to adopt NFC payment compliant technology.

First of all, the Apple Pay system allows a greater connectivity between online and offline sales channels. Customers can order products on the web store, in the brick and mortar stores or within a mobile app. The security and speed allow for greater ease of use.

The second big advantage is payment speed. By just tapping the phone, customers can pay within a 10 second timeframe, improving sales speed. This allows merchants to move customers through almost instantly.

Third big advantage Apple brings is an improvement in mobile purchases and payments. Although customers are so far browsing for products, they rather pay on the web store or order and pick up in a physical store. The biggest bottleneck is the mobile payment experience, one that is just awful for most retailers.

Famously Amazon has solved this issue with its One-Click Payments, where registered customers can use previously stored credit card data to move as fast as possible through the checkout process. Amazon’s patent sits at the heart of Apple’s payment system within iTunes, an extraordinarely usable example of mobile payments.

Actually that’s one of Apple’s strong points when implementing Apple Pay. The company will leverage almost 800 million iTunes accounts, most of them having their cards linked to the account. The magic of paying with a tap will now probably become mainstream.

Is Mobile Commerce Taking Over Ecommerce?

A chart based on US Census Bureau and Comscore data was published by Business Insider. It shows Mobile Commerce growing three times faster than Ecommerce overall.

Is Mobile Commerce taking on "classic" Ecommerce?

Is Mobile Commerce taking on “classic” Ecommerce? Source.

The numbers behind it are very interesting:

  1. mobile commerce is on the rise and has registered a 48% YoY growth, in the second quarter. It now accounts for $8 billion in online spending.
  2. overall ecommerce (including mobile commerce) grew “only” 15.9% year over year in the second quarter and totals $70.1 billion in online sales.

However…

Stop betting on (just) mobile. We’re not there yet.

Smartphones and tablets have brought forth a revolution in computing and social interaction. Unfortunately for overenthusiastic mobile-only fans, mcommerce usage is lagging behind mobile device adoption.

If you look at the chart above you’ll see there’s a  linear growth in mobile commerce. Not a hockey puck growth. Not even an accelerated growth.

Even more – ecommerce accounts for only 5.9% of all retail. Mobile commerce itself is just 11.4% of ecommerce. This means mobile commerce, however ambitious is pretty much insignifiant. It accounts for just 0.67% of total US retail.

Smartphones and tablets are extremely popular. Mobile commerce – not so much.

And hey – it’s not the fact that people don’t like smartphones. Oh no. People love smartphones:

Growth in smartphone penetration in the US.

Growth in smartphone penetration in the US. Source.

 

 

They also love tablets. Almost 42% of all US adults own at least a tablet. Remember – this is a product that went on sale only 4 years ago, when Apple introduced the iPad. In just 4 short years, the tablet has become a virtually ubiquitous computing item for US adults.

Tablet penetration among US adults. Source.

Tablet penetration among US adults. Source.

So – people are buying mobile devices like crazy. PC sales are dropping yet the mobile commerce is just 0.67% .Why?

The short answer - there is no mobile commerce. 

Mobile is the bridge. It helps connect the physical world to the virtual world. The act of purchasing happens on multiple channels. Mobile is not “the future”. It is the present yet the present comes in a form we have not met before – a bridge across channels.

If we take the time to see matters from the consumer’s point of view things are not as black and white as we expect them to be. Few if any consumers think in terms of mobile OR desktop OR brick and mortar. The consumer will spend time in a B&M store, browse the web to search for the right products, do a little showrooming to find the be best pricing. In the end, the whole purchasing experience stretches across channels and some are more popular than others.

But the customer has only one perspective where channels blend in. The omnichannel perspective. To provide the ecosystem for this perspective, the new retailers will try to understand and implement omnichannel retail because mobile, however massive, is just a piece of the puzzle.

Online Grocery Market is about explode. Uber wants in.

Top 5 groceries markets in the world. Source.

Top 5 groceries markets in the world. Source.

Quickly – think of one market you know is a sure bet for growth. If you guessed the groceries market, awesome! You’ve spotted the subtle hint in the title. The groceries market in the US is expected to reach $1.1 trillion in 2016. China, the largest groceries market, is expected to peak at almost $1.6 trillion in 2016. India, Brazil and Russia are growing at a fast pace and are expected to overtake Japan within the same threshold.

All in all – the US and BRIC states groceries market is expected to total $4.2 trillion within the next two years.

That’s a big market. Obviously, some of those groceries will be purchased online. For the online groceries market to take off, some disruption has to happen. Although not yet mainstream, we can see signs that consumers will be purchasing at least some of their groceries online.

Amazon is going Fresh

If there is one thing that online retailers need to get right in the groceries market – that is the logistics. From a consumer point of view, a reliable fulfillment and a guaranteed product freshness is a must. To do that, online and omnichannel retailers need to set new logistics policies to allow for a quick order delivery, without loss in product quality. Do we know a company that is really good at online retailing logistics? Of course we do:

Amazon is clearly the leader in online retailing so it was expected to move into this market. It did so 5 years ago. Its Amazon Fresh grocery service was first tested in Seattle. Now the company unleashed the grocery service in San Diego. Customers in Northern and Southern California can pick from 500.000 products, ranging from vegetables and milk to batteries and hair care products.

Jeff Bezos previously mentioned that in order to become a $200 billion company, Amazon has to learn to sell food and clothes. The obvious target was Walmart, a company with revenue north of $475 billion.

To do so, the company will continue to improve its service and increase the number of cities Amazon Fresh is available in. “We’ll continue our methodical approach – measuring and refining AmazonFresh – with the goal of bringing this incredible service to more cities over time” mentioned Bezos, addressing Amazon’s shareholders.

The methodical approach Jeff Bezos is talking about might reach New York soon enough. Re/Code mentioned the company has already prepared an warehouse in the area, instructed suppliers to ship frozen products to it and is hiring workforce for the service.

In New York, Amazon will have to face competition from online groceries retailers such as FreshDirect or popular startup Instacart.

Online Groceries in Europe are growing fast

It’s not just the US, though. Online supermarket Ocado now covers 73% of UK’s population, more than any other supermarket chain. It’s plans are outrageously ambitious: take the world by storm through a global marketplace, similar to Amazon’s. Only for groceries.

Whatever it is they’re doing – it must be right because the company jumped from being evaluated at less than £300 million to a £2.3bn valuation in less than 13 months.

Uber rides into ecommerce, brings groceries

Uber's Groceries Order interface

Uber’s Groceries Order interface

You’ve probably heard a bit about Uber. It’s that company that’s turning the cab industry on its head, enraging french cab drivers and linking riders with drivers.

Now it’s testing a new service, called Corner Store, in Washington. Customers can order from a limited inventory right now, 100 products only, ranging from “drinks” to “feminine care” to “first aid”. Not in that particular order.

And it’s not just Uber. Just like with omnichannel payments, it seems all the big boys want in. Google carefully nurtures Shopping Express, Ebay promises 1-2 hours delivery from local shops with Ebay Now and Walmart has Walmart ToGo ready for orders.

Now if anyone can actually make online groceries profitable …

 

 

 

 

Omnichannel Payments – Battle Between Giants

What comes to mind when you think digital payments? That would probably be PayPal. We all know Ebay subsidiary PayPal leads the game in digital Payments but now the game is set to change.

Paypal bets big on POS integration

Paypal bets big on POS integration

Although it does have the first mover advantage and has been going strong into omnichannel retail, PayPal is threatened by the largest tech companies in the world:

  1. First of all, company president David Marcus has resigned (or has been fired as rumor has it) to join Facebook. His mission – building a new type of … messaging tool. And by that I mean Facebook Payments.
  2. Google is pushing hard on its Google Wallet, a mobile bridge between online and offline sales. It is a fully NFC compatible payment system, which now accepts all major credit and debit cards, loyalty cards and discount cards. It also allows customers to save offers and buy using touch-to-pay systems.
  3. Everyone raved about the Amazon phone but the actual big news is … Amazon Payments. With over 200 million credit cards stored and the ability to pay with one click (for a very long time Amazon held the patent on that), Amazon is probably the biggest competitor to Ebay’s PayPal.
  4. Apple also has a huge database of credit cards stored on its server. It also has a massive database of customer options, customer history and a fully featured Keychain app built into Safari, ready to help customers do a quick checkout. Its wide device adoption allows it to become one of the most important players in the omnichannel payments area.
  5. Let’s not forget Ali Baba Group, the organization that controls over 84% of the fastest growing and biggest ecommerce market: China. AliPay is the group’s payment system, fully featured with the Yue Bao savings account. And now the company is set to have its IPO in the US.

Now this is the real Game of Thrones in the omnichannel world. Five tech monarchies are reaching for our wallets.

 

 

Target CEO Resigns Over Security Breach. Gets Paid Millions to Leave.

Last year american retailer Target was the victim of a security breach. The hack compromised personal data for over 110 million customers. What is now known to be one of the biggest security breach in corporate history has not left the company unscathed.

The Backstory

target-storesOn December 13th, 2013, Target executives meet with the US Justice Department. The reason: discussing a hack that exposed credit and debit card data for over 40 million customers. On December 18th security analyst  Brian Krebs breaks the news. The Secret Service is involved and Target gets investigated.

On Dec. 27, 2013 word’s out that PIN numbers for the stolen cards were accessed. Target acknowledges PIN’s were accessed but says they were not decrypted. Meanwhile Russian forums get flooded with millions of credit cards.

And then it gets worse: Target declares an additional 70 million customers were affected by the security breach. The company reveals poor Holiday sales. Lays off 475 employees and reports costs associated with the data loss topping $200 million.

Fortunately, employees get to wear jeans and polo shirts.

The breach left Target in a disastrous situation as profits dropped 46% in the last quarter (-$440 million), compared to the year before.

First the CIO, now the CEO

After the blast, some heads were sure to fall. First was CIO Beth Jacob, the obvious … target. To show it means business, the company brought Bob DeRodes on board, as new CIO and executive VP. DeRodes, 63, started on May 5th and now oversees the adoption of secure technology, with the help of $100 million worth of tech investments.

The new CIO is a tech security veteran, his previous endeavors including being a senior IT advisor for some organizations you might have heard of: the US Department of Homeland Security, US Department of Justice and the US Secretary of Defense.

gregg-steinhafel

Gregg Steinhafel

But that was not enough. Chairman, President and CEO Gregg Steinhafel announced his resignation. The breach left both Steinhafel and the company in a vulnerable position. 

The company announced the parts have reached a settlement that will probably allow the ex-CEO to walk out with over $11.7 million salary and incentive pay. Not bad for a CEO leaving a company that lost $941 million in its Canadian 2013 expansion, is under heavy fire from Amazon and Walmart and was just exposed to the biggest card robbery in history.

But than again, the man did work for Target for the past 35 years.