US Chip Cards in Europe

I had the chance to visit Belgium for a few days and while I was focused on my work, I did manage to take notice of a few things as far as credit card payments are concerned. The good news is that US chip cards do work over in Europe. Here is what I observed.

Restaurants – I saw the server come out with a wireless card reader. I inserted my card, put in the PIN, and that was it. Soon, this wireless reader will come to American shores.

Starbucks – No, I did not use my mobile app to pay. But I did see a similar combo – a little reader to insert the card, enter the PIN, and it worked. Note, the readers know how to determine the difference between chip and PIN and chip and signature. Most US chip cards are chip and signature. But some US cards have the ability to act as a chip and PIN card but your mileage may vary.

Most of the people I encountered in the retail stores were happy that we have finally come over to use chip cards. Lately, it has been very difficult to find a magnetic stripe card reader terminal in Europe. As we slowly move to chip cards, the need for magnetic stripes will continue to fade except for gas stations. While we still have a few more years before we move the gas pumps and ATMs to chip cards, we will start seeing chip enabled gas pumps in 2016 if the Chevron project yields good results.

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Two Weeks with Samsung Pay

So far, it has been a good experience with Samsung Pay on both NFC and mag stripe readers. Here are some of the places I have used Samsung Pay:

  • Rubios
  • Vitamin Shoppe
  • Firehouse Subs

The Vitamin Shoppe was an interesting one. The young lady assisting me said, “We don’t support Apple Pay.” I said that this was not an Apple phone. Because the terminal did not use NFC, I tried MST. The terminal took the card on the third try.

We still have a long way to go but we’re getting there.

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ESPN layoffs – harbinger of things to come?

Today, ESPN announced layoffs of 300 people or 4% of its workforce. See here and here. Disney CEO Bob Iger also ordered $100 million in cuts at ESPN. While the network has changed over the years, has its left-leaning slant applied to sports news become a liability? ESPN and other properties are experiencing income drops due to people cutting the cord on cable and using their mobile devices. But this Breitbart article from September 2015 lays out an interesting perspective on how cable channels make money. Let’s expand on this further by going through the economics of a video distribution company such as your local cable company or satellite provider.

The video distribution provider usually receives a license and operates as a monopoly within a given area. The big providers in Southern California are Time Warner Cable and Cox Cable. I won’t get into the conditions of the license such as public access and the “must carry” rule. Each company has several major expenses – labor, physical plant, and content.

Labor costs are significant for every company, and video distribution is no different. These are the people who perform customer service functions and maintain the lines to each residence or location. (Please note that actual in-house installations are performed by contractors most of the time.) Management and back-office functions are included in this cost.

The next big expense is the distribution system and the physical plant. This system includes the local receive facilities where the cable system receives the over-the-air signal for distribution, trunk lines, amplifiers, distribution facilities, and the cable to each individual house. Like the incumbent phone company, physical plant infrastructure is very expensive to build and maintain. In the case of a satellite provider, the teleports, local receive infrastructure, and the satellites are counted in this cost. In either case, the physical plant cost is amortized over many years and maintenance is always being done.

Content costs are the other large expense. We have seen many times disputes between media groups and distribution providers over carriage fees paid indirectly by the cable subscribers to the content providers. These disputes get resolved over time but the higher costs are passed on to subscribers. Every distribution provider has to pay these fees to carry groups of channels.

Using the Breitbart article as an example, ESPN receives $6.61 per month from each cable and satellite subscriber. This comes out to $79.32 per year per subscriber. ESPN makes 7.3 billion dollars per year from around 91 million subscribers. Other content providers charge carriage fees. This CNN Money article states that per subscriber per month, Fox News receives $1, CNN receives $0.61, and MSNBC receives $0.30. CNN and MSNBC do not receive a substantial portion of their income from advertising. Instead, CNN and MSNBC receive the lion’s share of their income from carriage fees. Using the ESPN numbers as a comparison, Fox News receives $1.1 billion in carriage fees per year, CNN receives $667 million, and lowly MSNBC receives $329 million. Once the carriage fees are taken into account, we now see how two news networks that anyone barely watches make money. There is no way to escape paying these carriage fees for channels you don’t watch.

Unless you cut the cord.

Last year, 3.2 million cable subscribers cut the cord according to the Breitbart article.

Using the same estimated numbers for carriage fees, last year ESPN lost $253 million, Fox News lost $38 million, CNN lost $23.4 million, and MSNBC lost $11.5 million. Comparing these numbers with the numbers above show each channel taking a significant hit in carriage fee losses. Fox News can make up the $38 million lost in cable fees from advertising increases. CNN and MSNBC cannot do the same because of low viewership.

Unlike the cable news channels, ESPN has additional problems. As a sports provider, ESPN pays to carry sports content. ESPN signed a 20-year agreement in 2014 with the SEC to carry sports from the Southeast Conference. ESPN also signed a similar agreement in 2011 with the University of Texas to carry primarily Longhorn sports. ESPN has significant long-term liabilities that become worse for the parent network over time. If the cord-cutting trend continues, ESPN may not have the money to bid on contracts such as NFL Monday Night Football.

As streaming becomes more prevalent and people cut out traditional distribution services, it will be very hard to justify the stock valuations of the channels’ parent companies. If we have a recession in 2016, I expect increasing numbers of cable and satellite subscribers to terminate service and move on to streaming. But if an avalanche of subscribers terminate service, how long can channels like MSNBC, E!, Comedy Central, and Discovery hold out? Could whole groups of channels disappear from the lineup? It all comes down to the actual operational cost for each individual channel. Below a certain point, every cable channel becomes unprofitable.

Now that the proverbial tide is going out on cable and satellite, who’s swimming naked now?

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Samsung Pay for Everyone!*

*As long as your carrier supports Samsung Pay

Today, Samsung Pay finally went live in the Play Store. With Verizon rolling out a security update including the Samsung Pay framework, the Samsung flagship cell phones are now able to run Samsung Pay.

I’ll test Samsung Pay and see what happens. In addition to the places I already tried with Android Pay, I’ll test out a few new places still holding on to the magnetic stripe terminals.

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And the prize limit is lower – Illinois Lottery

Just when you think it can’t get worse, it does.

The Illinois Lottery has lowered the threshold for IOUs because the legislature hasn’t approved a budget since July. Previously, the threshold for IOUs was $25,000. Anything below that amount was paid in cash. Now, the threshold has gone down to $600. Most state lotteries allow retailers to redeem prizes for $599 or less if the cash is available. Illinois is still allowing the sub-$600 prizes to be redeemed by retailers. I fully expect that lottery retailers will wake up one day and find out that the Illinois Lottery will not pay any prizes. Yet, the money still comes in from players every day. In some cases, players are going to neighboring states because the Illinois Lottery will not pay the large prizes. These players may have a point. If an Illinois Lottery player wins the Powerball or Mega Milliions grand prize and doesn’t receive the promised money, the Lottery would lose legitimacy.

The underlying principle in any Lottery system is that if someone wins, they will get paid upon ticket validation for any prize. Unless the Illinois Legislature gets its act together and pass a budget, the confidence in the Lottery, and ultimately state government, will wane further.

I always thought California would be the first failed state in the history of the United States. I may have to rethink that assessment.

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Samsung Pay is almost here for Verizon

Big Red finally allows Samsung Pay

It’s finally here. The promised system update to the Verizon S6, S6 Edge, S6 Edge+, and the Note 5 including Samsung Pay is out. Confirming earlier suspicions, the Samsung Pay app is available on the Play Store. So why do you need the update?

Simple – it has to do with the Samsung Pay framework apk. This framework is required for the app to work correctly. Since the framework is not in the Play Store, the only place it could come is the system update. According to the reviews today, people are having trouble getting the Samsung Pay app to work. But once the system update is downloaded and installed, the app should work. In addition to the framework, the system update has a few more fixes for the Stagefright vulnerability.

Verizon is rolling out the updates in stages, so the Note 5 update will take some time to arrive on all of the phones. Keep trying this week and you should receive the notification.


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McDonald’s All Day Breakfast

A lot of digital link has been spilled when McDonald’s started its all day breakfast menu earlier this month. Most of the articles center around a Nomura survey of 29 owners with 226 restaurants. This survey covered a little over 1% of the 14,000 restaurants in the U.S. See here and here. CNBC has an article about the social engagement related to the McDonald’s brand after the announcement.

The U.S. President of McDonald’s says that its introduction of all day breakfast has been a success. Let’s look a little between the lines and find the truth.

Using Pareto’s Rule, assume 80% of the 14,000 restaurants have been successful with this change. That leaves 20% of the restaurants as unsuccessful to some degree. If we dive further, we can go 20% of 20% which will give us around 1% of the total number of restaurants that are very unsuccessful with all day breakfast. How did Nomura find the 1% of restaurants that have this problem? What do these restaurants have in common? Are the restaurants¬† located in depressed areas? Some may be in this situation because of lower average receipts per transaction. Are these restaurants almost insolvent? Possibly. National Restaurant News has an article on mixed reactions to the all day breakfast menu. The article quotes an unnamed franchise operator theorizing that up to 30% of all U.S. McDonald’s operators are insolvent. If 30% of the McDonald’s operators are insolvent, that could explain this last action to help operators boost sales.

It appears that the U.S. fast food market has saturated but new arrivals have chopped away at the dominance of the Big 3 – McDonald’s, Burger King, and Wendy’s. Over the past 20 years, more new upstarts have appeared in the fast food space and a new market has appeared – fast casual. Did customers get tired of the rotten service or food at some McDonald’s outlets and move on to another place? It’s a possibility. Over the past two years, new burger places have made their presence in the market known. These new entrants are Five Guys, Habit Grill, The Counter, and a few others. The existing regional players such as Whataburger, In-and-Out, White Castle, and Krystal may benefit from McDonald’s misfortunes. Chick-fil-A has also played a part in siphoning off McDonald’s customers.

McDonald’s has a problem on its hands. The problem is that senior management is not addressing the perception that McDonald’s food is unhealthy. Can this perception be changed at this stage? The perception can be changed, but at what cost? Will senior management make the change? When senior management is more focused on boosting the share price instead of improving a tarnished brand image, franchise operators have to worry.

I’m not holding my breath.

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A tipping point for mobile payments?

With the recent developments related to Apple Pay, Android Pay, and Samsung Pay, we have to ask a question – will 2016 be the year that mobile payments take off?

According to this article, Apple Pay is coming to Starbucks, Chili’s, and KFC. If Apple Pay takes off, Samsung Pay and Android Pay will not be that far behind. Starbucks accepting Apple Pay is huge. Starbucks was the first company to offer payment by their own app. Now with Apple Pay, Starbucks has a chance to lead in the mobile payments space again. If Starbucks customers adopt Apple Pay and subsequently Android Pay, we will see more and more merchants adopt mobile payments.

The EMV liability shift that took place 10 days ago caused a lot of merchants to upgrade their payment terminals. I know of one local merchant that taped over the magnetic slide on their payment terminal. I’m presuming this took place on October 1st and this is the only merchant I have seen that has taken this drastic action.

Over time, I think we will see options for pay at the pump and other measures to reduce credit card fraud. Chevron and Visa are teaming up to test mobile payments at a limited number of Chevron stations in California. This is a very good sign that gas companies are taking the EMV liability shift seriously even though the liability for gas pumps and ATMs won’t happen for three more years. But from a public relations perspective, Chevron is taking a serious look at closing a vector for credit card fraud.

This is a good thing.

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Samsung Pay coming to Verizon – finally

After some time with Android Pay, Samsung has decided to join the mobile payments party. While Samsung Pay was introduced on the major US wireless carriers, Verizon was left out.

Now, we find out that Verizon will allow Samsung Pay to be installed on the latest Galaxy phones including the Note 5. This is good news for Big Red customers.

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First Week with Android Pay

My results after the first week with Android Pay were good with a few known exceptions. First, the app works at most places where the old Google Wallet tap-to-pay would work. I used Android Pay at McDonald’s and Macy’s without any problems. I tried it again at a local market with mixed results.

If you think CVS will allow Android Pay right now, I tried it already. Their readers only allow the swipe card right now because contactless payments are currently not accepted. This may have to do with the CurrentC exclusivity agreement.

So far, the app looks very good and I think the app is a worthy method for mobile payments.

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