Today, Curve, a startup that lets users combine multiple payments cards on a single physical card, was blocked by American Express. Good. Every industry faces a tsunami of digital middlemen. Some are truly useful. Others, parasites. Guess which kind we’re about to tear apart… And there’s one simple rule for handling them.
Professionally, I love innovation and as a consumer, the fruits of competition. But Curve is the Michael Meyers of startups, dug up over and over to milk a franchise. In this case, to milk customers and data from payments franchises.
In a 2013 Forbes piece, I called Curve’s predecessor, Coin, the Napster of Payments. It failed, as predicted. So will Fuze, Coin’s other (un)successor. Here’s Fuze’s demo video, which will play on its Gravesite…until VCs cut off the electricity:
It could, but it won't. It violates all the rules of Visa, MasterCard and American Express for branding and security….
Doomed, From Day One
While leading innovation at MasterCard and American Express, I was pitched countless “card of cards” technologies like Coin, Fuze and Curve. Here are a few reasons why they were always a terrible idea that only got worse with time, even as their technologies improved:
1. They are obsolete on day one. My first presentation when I started at Amex in 2007 was called, “The Value of the American Express Brand in a Cardless World”. That world is rocketing towards us faster than ever.
Companies like Curve want VCs to believe they’re Netflix, cleverly using DVD’s by mail to disrupt a decrepit incumbent (Blockbuster), then pivoting to all-digital. Ta-da!!! That’s not at all what’s happening. The card form factor is already obsolete and everyone knows it. Now, it’s just a matter of which authentication alternatives will replace it. In developed markets, it won’t be phones, which are clunky, slow and unreliable. It might be biometrics or some combination of factors that remove friction. It sure as hell won’t be a card of cards that ADDS friction – adding yet another relationship AND technology to manage, but offering little in return to consumers, merchants or card companies.
2. A payments “wallet” is worthless without a transaction flow. Consolidators, like Curve and PayPal are not merchants. They don’t sell products or services. They’re intermediaries that wedge themselves in to be the face of payments to consumers. The ONLY reason card companies allowed PayPal to alter its user experience was its leverage: it was the exclusive “wallet” for growing e-commerce merchant eBay. Without eBay, no one would have heard of PayPal, EVER.
Other successful “wallets” are linked to platforms, like Amazon, Apple’s iTunes, or Google Play. They get a seat at the table because they built their own dining room. They control a flow of purchases that card companies want for universal acceptance. Third party wallets have yet to convince platforms to let them stand between them and their customers. Why should they? A few wallet providers have overspent to get a modest user base and clunky mobile integration. But becoming the default payment option ranges from impossible to unprofitable to self-defeating.
(Related classic: “10 Rules for Mobile Payments & Loyalty Startups“)
3. The Trojan Mule Strategy (read this!) Digital intermediaries have a long history of subversion. They are almost always wolves, who identify as sheep. Think of what Facebook did to news and media companies. Or, what Groupon did to small businesses. Or what Netflix is doing to TV and movie studios. All of them used incumbents and their products to build up their own businesses, only to pull the rug and go proprietary. Amazon’s attempt to get its digital wallet into brick and mortar merchants is eerily reminiscent of how Facebook Trojan Muled publishers.
4. Third party cards break all kinds of security, brand, and contractual rules between banks, merchants, ATM providers, regulators and consumers. Sure, all of these could be changed, but you better be offering something pretty damn special to make it worth the trouble. These crappy middlemen aren’t.
How to handle a parasite
Whether you’re a freelancer, small business, or a giant corporation, if some nobody tries to wedge themselves between you and your customers, f$%^ them up, with extreme prejudice. If you can’t, seriously limit your reliance on their platform. I strongly suggest reading my piece, Surviving Platform Risk.
Until I craft a more dazzling piece on handling digital middlemen, you can follow this simple rule:
Never surrender your customer relationship or user experience to an intermediary, unless one or both of these things is true:
- They offer a powerful customer acquisition channel (or capability) you can’t reasonably replicate on your own
- They (or what they provide) is LOVED and demanded by your customers
I’d seriously question the judgment of any executive who lets a wolf into the hen house.
So you don’t think I’m a complete Grinch, there are intermediaries I think are great, which often operate on the back-end. Financial account aggregator Yodlee is a good example.