Home > Uncategorized > Mobile Payments: He Who Owns the Back End Owns All

Mobile Payments: He Who Owns the Back End Owns All

I don’t want to be redundant and talk yet again about how online payments has transformed the business model for retail. I just have to walk down to University Avenue in Palo Alto to see how Amazon has cannibalized book store’s small local niches; my favorite bookstore growing up is going down and under…It makes sense though-why would consumers go buy books at local stores and pay sales tax when they can go online and circumvent that extra charge? Disclaimer: shipping and handling could cost more than the tax, but the positive externality from staying at home and saving time outweights driving over to the store.

Background aside, I thought in this post I’d map out the competitive landscape as to get a better sense of who the major players are. In any strategic scenario, I find it best to fully scope out and understand who the major players are in an ecosystem. As it is important to find out what their core competencies are, it is equally, if not more, paramount to unearth what value-added services they offer. These might be new services that the major players think have a lot of potential to drive new revenue, so they are rolled out in conjunction to their “cash cows”.

In mapping out the competitive landscape of online payments, I found that payment gateways play an under-rated role. Here’s what happens:

Transactional Flow

So what exactly do payment gateways do? I put this little diagram together to give a succinct answer:

Payment gateways are not going anywhere in the online shopping experience because they’re irreplaceable in the transactional flow. In the mobile space, this has important ramifications. Payment gateways will continue to be in the back end of mobile transactions as they link merchants with acquiring and issuing banks. Visa owns CyberSource; Google owns Google Checkout. While the payment gateway brand is transparent in NFC transactions, they work in the back end. So if NFC takes off, that means that Google can drive pure payment gateways out of business.

In the end, whoever controls the back end, or whoever controls the mechanism by which payments are processed in the mobile space,  takes home the prize.

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