Welcome to our new Payments Insights newsletter, a morning email with the top news and analysis on the digital payments industry, produced by BI Intelligence.
O2 DROPS ITS MOBILE WALLET IN THE UK.The Telefonica-owned mobile operator is dropping its mobile wallet service just 18 months after launch. Starting in early March, the service will no longer be available.
The mobile wallet suffered from low adoption rates which likely led to its discontinuation. In addition, O2 has forged partnerships with competitors Vodafone and EE to build a new mobile commerce platform called Weve, which includes a mobile wallet along with location-based marketing services. So, O2 isn’t totally out of the mobile wallet game.
One of the biggest hurdles to the success of any mobile wallet is convincing merchants to purchase the technology that reads and accepts mobile wallet payments. And when there are so many different mobile wallets vying for merchant and consumer adoption, it’s especially difficult to get any single mobile wallet off the ground. One way to solve that problem is for telecoms to team up in an effort to provide a more ubiquitous solution. We expect that other large payments networks and mobile operators will continue to partner in an effort to reach a wider swath of merchants and consumers. (Computer World UK)
BITCOIN’S POTENTIALLY FATAL FLAW. Transaction confirmation in the Bitcoin network requires that users across the network solve mathematical puzzles using their computers. This distributes the power to confirm Bitcoin transactions throughout the network. One weakness in the system is that users or groups of users can increase the probability of solving the puzzles by increasing computing power. So, a group with enough computing power could decide which transactions should and shouldn’t be confirmed. In order to do this effectively a person or a group would have to have computing power greater than half of the computing power in the entire network. Last week, a Bitcoin mining group, GHash.io, reached 43% of the mining power in the network. GHash.io doesn’t want to destroy Bitcoin, so the mining group voluntarily reduced the computing power in its mining pool, but that doesn’t mean that everyone who mines Bitcoin is equally as right-minded. The event highlights a systemic weakness in Bitcoin, one that doesn’t seem to have an easy fix. (Business Insider)
OVERSTOCK.COM HAD A HUGE FIRST DAY ACCEPTING BITCOIN. According to a tweet from Overstock.com CEO Patrick Byrne, customers paid for 840 orders in Bitcoin on Friday. The value of the orders in aggregate was $US130,000. Friday was the first day that the company allowed customers to pay for goods using the digital currency. Overstock.com’s success accepting Bitcoin provides evidence that Bitcoin, or a similar digital currency, could become a popular method of payment. (Patrick Byrne’s tweet)
TARGET DATA BREACH UPDATE. After an internal audit, Target believes that as many as 70 million payment cards used at its stores may have been compromised in the U.S. between Nov. 27 and Dec.15. That’s up from the first estimate of 40 million. The breach highlights how weaknesses in the legacy payments system can affect the largest retailers. It also highlights potential opportunities for new payment technology companies to meet the market’s security needs. (Business Insider)
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NYC WANTS TO GET TO KNOW BITCOIN. The New York City Economic Development Corporation is hosting an invite-only event for representatives from Bitcoin startups, policy officials, and venture capitalists to meet and discuss the implications of the emerging digital currency. (Re/code)
INDEPENDENT ATM OPERATORS FACE A MASSIVE HURDLE. Payment cards in the U.S. are scheduled to be upgraded to the EMV standard by 2015. The EMV standard, also known as “chip and pin,” is more secure than legacy magnetic stripe cards. When the new standard is implemented, merchant acquirers will assume liability for magnetic strip-based fraud. This will likely put pressure on ATM operators to upgrade their hardware to the EMV standard as well because companies that process ATM transactions may either deny service or increase the cost of processing transactions for merchants who don’t make the upgrade. These upgrades will be expensive and won’t increase the profitability of owning an ATM, which may lead some independent ATM operators to move out of the business altogether. (Payments Source)
REGULATORY CLARIFICATION FOR BITCOIN STARTUPS.One of the big questions that Bitcoin startups have is whether or not they will be regulated as money transmitters, which are subject to a host of onerous and perhaps prohibitive regulations. For a company like Bitpay, which acts as a Bitcoin payments processor, the answer is likely “no,” according to Broox Peterson, formerly Senior Vice President and Assistant General Counsel at Visa International. The definition of a money transmitter expressly excludes businesses that process transactions from a consumer on behalf of a merchant. (Payments Views)
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