Apple turning Iphones into payment terminals; Visa customers made $2.5 billion in payments through crypto-linked cards; Meta’s crypto Diem is dead;

Perspective for today:

1. Is there a long way for Walmart to become a super app?
2. Apple turning Iphones into payment terminals
3. West is slow with B2B marketplaces adoption
4. Visa customers made $2.5 billion in payments through crypto-linked cards
5. Meta’s crypto project Diem is dead before it was ever born
6. Digital wallets: social media platforms vs fintechs
7. Solving the Blockchain Trilemma: Layer 1

Is there a long way for Walmart to become a super app?

According to The Wall Street Journal retail giant Walmart announced that it will acquire two fintech startups including Even Responsible Finance, which Walmart already uses to offer its employees early wage access, and One Finance, a neobank.

Walmart’s super app opportunity is a lot bigger than just acquiring and integrating a neobank and earned wage access provider.

To achieve super app status, Walmart will need to integrate its:

1) Shopify marketplace; 2) Connect ad platform; 3) health centers; and 4) existing investments in eCommerce, logistics, supply chain, and inventory management.

This won’t be an easy task.

Two factors have prevented — or at least, provided resistance to — the development of super apps in the US:

Industry structure.

Many industries in the US are dominated by oligopolies — three to four really large firms that control 60% to 80% (or more) of the market share in that industry. A company from outside that industry trying to create a super app will be met with resistance from the oligopolies who may see themselves as potential super app creators.

Consumer behavior and attitudes.

The heterogeneity of the US population in terms of wants, needs, and desires means that the loss of choice that inevitably comes from using a super app will be rejected by a large number of Americans.

So, Walmart won’t be able to create a super app in the US, right? Not necessarily. There are two reasons why Walmart’s prospects for a super app in the US are legit. Walmart has:

An underserved customer base. Practically everyone in the US shops at Walmart at some point, but the company’s core segment — non-urban, low- to middle-income consumers — is often underserved by the oligopolies dominating many industries.

A head start. Walmart may be starting from scratch in building a super app, but it has decades of experience of building an integrated, cross-industry supply chain. With the exception of Amazon, who else can make that claim (and I’m not even sure Amazon could make that claim)?

While Walmart will position a super app in terms of how it benefits low- to middle-income consumers, the company stands to benefit significantly from a successful walled garden. Its DNA is efficiency and cost control — and that’s the ultimate promise of a super app for the supercenter.

Very interesting article Ron Shevlin.

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Apple turning Iphones into payment terminals. Square should expect some rivalry

Apple is planning a new service that will let small businesses accept payments directly on their iPhones without any extra hardware, according to people with knowledge of the matter.

The company has been working on the new feature since around 2020, when it paid about $100 million for a Canadian startup called Mobeewave that developed technology for smartphones to accept payments with the tap of a credit card. The system will likely use the iPhone’s near field communications, or NFC, chip that is currently used for Apple Pay.

In order to accept payments on an iPhone today, merchants need to use payment terminals that plug in or communicate with the phone via Bluetooth.

The move could impact payments providers that rely on Apple’s iPhones to facilitate sales, such as Block’s Square, which dominates the market. If Apple lets any app use the new technology, then Square can continue accepting payments via Apple devices without needing to worry about providing its own hardware.

If Apple requires merchants to use Apple Pay or its own payment processing system, that could compete directly with Square.

Apple has been escalating its push in payments in recent years, launching the Apple Card in the U.S. in 2019 and rolling out Apple device installment plans on the credit card later that year. It also offers the Apple Cash card for digital peer-to-peer payments and is working on a service for Apple Pay that would let people buy things and pay them off later in installments, Bloomberg reported last year.

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West is slow with B2B marketplaces adoption

B2B marketplaces, notably fast-moving consumer goods (FMCG) marketplaces, are gaining steam in the Global South, which includes Latin America, Africa, Asia and ¾ of the world population. Informal commerce is central to these economies, driven by small mom and pop shops and kiosks across major cities and even rural areas. There are 6M of such retailers in India, 7M in China, 2M in Brazil, and 2M in Pakistan, and they carry everything from toiletries to medicine to electronics.

These retailers are critical to the lifeblood of commerce in these regions, and B2B marketplaces that provide constituents with credit to expand their businesses, guarantee payments and delivery, and software to order and promote products are gaining adoption. The software and financial products built into these marketplaces are extremely sticky, and can be a trojan horse for financial operating systems for retailers, distributors, wholesalers, and manufacturers. In some cases, these marketplaces can even be distribution points for consumer financial services.

We’ve seen many iterations of this model from Colombia to Indonesia (see below for a non-exhaustive map), and we believe there are two product primitives these marketplaces need to include:

1. “come for the tool, stay for the network” software for marketplace participants to enable digital transactions and financial management

2. embedded lending and payments to create liquidity in the marketplaces and to monetize a generally thin margin industry

While certain marketplaces have centralized logistics to deliver maximum value to retailers (i.e., by replacing the tedious cash and carry routine), others are taking a less capital intensive approach by driving more efficiency to existing distribution networks in the targeted region).

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Visa customers made $2.5 billion in payments through crypto-linked cards

Despite volatility in the cryptocurrency markets, the adoption of crypto as a means of payment appears to be rising.

In an earnings call on Thursday, Visa stated that its customers made $2.5 billion in payments using its crypto-linked cards during the first fiscal quarter of 2022. That’s over 70% of all crypto-card volume throughout fiscal 2021, signalling increased adoption of digital asset payments.

Within the first half of 2021, only $1 billion had been spent in crypto using Visa’s cards. While comparatively small now, that’s still a fraction of the crypto spending volume it processed in 2019 — though CNBC reported in July that Visa did not release exact numbers for that time.

Crypto-linked cards allow customers to spend crypto anywhere that accepts Visa, without merchants having to be familiar with the asset class at all. They receive transactions in fiat like typical Visa transactions, while the payment processor handles conversions on the back end.

The company also announced that it had expanded its number of partnerships for facilitating the service from 54 to over 65. These include crypto companies like Coinbase, Circle, and BlockFi.

Visa has demonstrated a broad interest in expanding the crypto industry and its adoption as a whole. In December, the company launched crypto-consultation services for its clients to get financial institutions involved with the asset class.

The payments giant also recently partnered with artist Micash Johnson to educate artists on how NFTs can help monetize their art and advance their careers.

Source.

Meta’s crypto project Diem is dead before it was ever born

So, what did Facebook do wrong?

Facebook announced its grand crypto plan on June 18, 2019: a “borderless global currency” called Libra, backed by a “collection of low-volatility assets like bank deposits and government securities, in currencies from stable and reputable central banks.”

Two years and seven months later, Facebook is called Meta, Libra is called Diem, and Diem is reportedly selling off all its assets. (It’s unclear what the assets are.)

Stablecoin was never really decentralized, despite Facebook insisting Libra was overseen by the Libra Association, a consortium of members based in Switzerland. Four months after announcing Libra, the Libra Association lost eight founding members, including Mastercard, PayPal, eBay, and Stripe. It was also hard for Facebook to argue Libra wasn’t just a Facebook thing when it put its own executive in charge of it: David Marcus, formerly the head of Facebook Messenger.

But Libra’s whiff of centralization wouldn’t on its own have spelled doom for the project. No, the problem for Libra from day one was Facebook’s brand.

Facebook’s stablecoin announcement was a “watershed moment,” Coin Center executive director Jerry Brito told Jeff Roberts for his must-read feature this week on the Biden Administration’s plan to clamp down on stablecoins.

Despite all that, there was one fact that suggested Libra could still succeed: 2 billion users. It’s tempting now to declare this is the end of Facebook’s crypto ambitions, but that’s not right.

It has gone all in on the metaverse, and the metaverse is widely seen these days as a crypto thing, even though that isn’t quite accurate. Facebook was so desperate to show that it’s all in on the metaverse that it changed its name to Meta — the stock is down 5% since the rebrand — and has renamed Oculus to Meta Quest, prompting widespread jeers, including from VCs like Chris Dixon, whose firm was built on money made from Marc Andreessen’s early Facebook investment.

And according to a report from the FT, Meta is now experimenting with an NFT marketplace on Instagram.

So Meta’s stablecoin is dead but don’t expect Meta to give up yet on crypto.

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Digital wallets: social media platforms vs fintechs

Thanks, 11:FS and Nik for this piece of interesting content.

I am a fan and a person who is working on services that will remove the borders between the digital and financial lifestyles of people. As we all know social media is a huge part of our digital lifestyle and we spend a huge amount of time on such apps.

For 2022 and beyond, the line between social media and fintech will begin to blend, paving the way for true self-sovereign digital wallets and identity.

This isn’t as far-fetched as it seems. Though the biggest digital wallets today are operated by financial services providers — WeChat, Apple Pay, Venmo — all of those companies operate a personal identity platform. WeChat’s wallet was built on top of a messaging identity, Apple Pay’s on top of a mobile OAuth identity and Venmo’s ingests Facebook to create a social identity.

The last two years has seen an explosion in platforms releasing digital wallets. Shopify with a wallet to unify the consumer e-commerce identity; Facebook with wallets in Messenger and WhatsApp to build on its social profile; TikTok with a wallet to accelerate commerce on its video platform. Anywhere consumers store a persistent identity, there’s an opportunity to grow that profile into one that includes KYC, contextual personal information and ultimately, payment authorisation.

“The challenge in building the most popular digital wallet isn’t building the wallet itself — it’s unifying consumer data in one comprehensive profile that can be permissioned and accessed anywhere.” Nik Milanović.

I agree with this idea very much. In this context we should ask why customers need to be bound to use their wallets in one app? Why can’t they use their wallets on the interfaces they want e.g. their messengers? Current technologies enable us to integrate payments in messengers or social apps and social into payment apps.

People don’t compartmentalise when they think of identity: consumers want the ease of having the right information on-hand at the right time when they want to pay for something. When you find a product you like on Instagram, you want your Instagram profile to pass over your mailing address and payment details with no additional effort.

“People who only look at fintech companies to build the next dominant payment tool or digital wallet are missing the forest for the trees. Financial services are no longer just a standalone start-up category: it’s becoming a fundamental piece of the product development of any consumer platform. The platform that wins the consumers will also win the digital wallet war. And right now social media looks set to take the gold.” says Nik Milanović.

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Solving the Blockchain Trilemma: Layer 1

So how can we solve the blockchain trilemma and achieve decentralization, security, and scalability simultaneously?

In the decentralized ecosystem, Layer 1 refers to blockchain protocols like Bitcoin, Litecoin, and Ethereum. There are a number of methods currently in development or practice that seek to improve the scalability of blockchain networks directly.

Consensus Protocol Improvements: Proof of Work is the consensus protocol currently in use on popular blockchain networks like Bitcoin. Although PoW is secure, it’s also slow. For instance, Bitcoin only achieves seven TPS. That’s why many blockchain networks — perhaps most notably Ethereum’s upgrade to Ethereum 2.0 — favor the Proof-of-Stake (PoS) consensus mechanism. Instead of requiring miners to solve cryptographic algorithms using substantial computing power, the PoS consensus protocol determines validator status based on a stake in the network.

This is expected to dramatically and fundamentally increase the capacity of the Ethereum network, while increasing decentralization and ensuring security.

Sharding: Sharding is adapted from distributed databases and has become one of the most popular Layer-1 scaling solutions, despite its somewhat experimental nature within the blockchain sector. Sharding breaks transactions into smaller data-sets called “shards.” These shards are simultaneously processed in parallel by the network, allowing for sequential work on numerous transactions simultaneously.

Further, instead of having each network node hold a copy of every block from genesis to present, this information could be split and held by different nodes, with each remaining consistent with itself. Shards provide proofs to the mainchain and interact with one another to share addresses, balances, and general state using cross-shard communication protocols. Ethereum 2.0 is one high-profile blockchain protocol exploring the use of shards, along with Zilliqa, Tezos, and Qtum.

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