I’ve been nearly obsessed with companies who go and get their money transmitter licenses, especially publicly traded companies, because one can draw various conclusions from the Quarterly 10-Q filing reports. Ever since I broke the story on Microsoft applying for money transmitter licenses, and being awarded one license recently in Idaho, I’m trying to think where is Microsoft going with all this?
Upon reading the 10-Q report filed in Jan 2015, I couldn’t help but read/re-read these four paragraphs again and again:
A competing vertically-integrated model, in which a single firm controls the software and hardware elements of a product and related services, has succeeded with some consumer products such as personal computers, tablets, phones, gaming consoles, and digital music players. Competitors pursuing this model also earn revenue from services integrated with the hardware and software platform. We also offer some vertically-integrated hardware and software products and services; however, our competitors in smartphones and tablets have established significantly larger user bases. Shifting a portion of our business to a vertically integrated model will increase our cost of revenue and reduce our operating margins.
We derive substantial revenue from licenses of Windows operating systems on personal computers. We face significant competition from competing platforms developed for new devices and form factors such as smartphones and tablet computers. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users are increasingly turning to these devices to perform functions that in the past were performed by personal computers. Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract application developers to our PC operating system platforms. Competing with operating systems licensed at low or no cost may decrease our PC operating system margins. In addition, some of our devices compete with products made by our OEM partners, which may affect their commitment to our platform.
The success of the Windows phone platform is an important element of our goal to enhance personal productivity in a mobile-first and cloud-first world. The marketplace among mobile phone platforms is highly competitive. We may face issues in selecting, engaging, or securing support from operators and retailers for Windows phones due to, for instance, inadequate sales training or incentives, or insufficient marketing support for the Windows Phone platform.
Competing platforms have application marketplaces (sometimes referred to as “stores”) with scale and significant installed bases. The variety and utility of applications available on a platform is important to device purchasing decisions. Users incur costs to move data and buy new applications when switching platforms. To compete, we must successfully enlist developers to write applications for our marketplace and ensure that these applications have high quality, customer appeal, and value. Efforts to compete with competitors’ application marketplaces may increase our cost of revenue and lower our operating margins.
Being the CEO of Microsoft, one must be wondering how they missed out on the payments space? Even though Microsoft Payments, Inc. was incorporated much earlier, the license application I believe went through after ApplePay came out. If Microsoft had applied for much earlier, then by now, they would have amassed more money transmitter licenses, which is not the case. So somewhere between November and December is when Microsoft decided to go ahead and obtain Money Transmitter Licenses. This further implies that Microsoft now has a very definitive plan of what to do in payments.
There is a lot of talk how Microsoft has so many mobile phones, it has the Xbox platform, and the Azure cloud, etc. How Microsoft is now gung ho on HCE, etc. Sifting through literally 40-45 articles, not once did I see a mention of an area where the money transmitter make the most sense. Skype (Messenger) to me is the natural choice.
Microsoft was fashionably late in the payments space. One key article from 2012 by Farhad Manjoo The Great Tech War of 2012 fails to even mention Microsoft at the forefront of innovation. In the news, we have been reading how ApplePay, Facebook Messenger Payments, Samsung Pay, Android Pay, etc. will all be driving payments. Microsoft’s share of the mobile phone market is low. Very low. I think it is safe to say, they understand that. No one in their right mind is going to go out and purchase a Windows phone, just because Microsoft offers payments in it.
I think the biggest use case for payments would be on their messaging platform, i.e. Skype.
Tencent’s WeChat does payments on a messaging app. Facebook Messenger (for now and later WhatsApp) will be doing the same. Messaging is key to payments.
Skype has some impressive numbers, though not as large as say Apple or Facebook/WhatsApp, they are strong nonetheless.
Recently, Skype entered into a deal with Western Union for the ability to reload Skype credit, using any Western Union outlet in the US. Adding the ability to pay each other using Skype would not only uber-cool, but the next evolutionary step in upping the game for Microsoft, it might just also open up an avenue for money loading/unloading at WU Outlets for person-to-person Skype payments.
Sure, they will add payments to their phone and OS (that is expected), but I for one am convinced that Skype represents one of the best use cases for person to person payments for Microsoft.
How this will all play out, time will tell, needless to say, the payments space just got more competitive.
About the Author: Faisal Khan is a banking / payments consultant and digital money evangelist. He is the co-host of Around the Coin, a weekly podcast on banking, money and payments. He is also a frequent contributor to popular Q&A site Quora. His official website is at www.faisalkhan.com