Startup Coin: More Passing Fad than True Disruptor

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Coin debuted to a lot of buzz. The new credit card consolidator hit its 1,000 pre-order target in just 40 minutes of its launch last week and comments on the various news articles regarding the product are overwhelmingly positive.

There's no denying Coin's coolness, but is this card the next big thing in payments?

Perhaps, but the more interesting question to ask is whether Coin is truly a disruptive technology or a fad. In other words, will Coin replace "front of wallet" with "only one in wallet" and, if it does, is that a reason for celebration? The ability to collapse one's wallet and leave the plastic at home is, at first glance, attractive. However, let's consider if Coin, in any way, changes the game.

Reports of the death of cash have been greatly exaggerated and the promise of mobile payments is still largely just that: a promise. Let's face it, we like our cards. They are easy to use, convenient, ubiquitous, and, for some, a style statement. (Think L.L. Bean-, Harley-Davidson- or NFL-branded cards.)

But disruptors essentially enable us to do something we couldn't do before. Television revolutionized our leisure time. The cellphone made us available 24/7, and the iPod mobilized our CD collection. Fiber optics made high-speed domestic Internet a reality and, as a result, Netflix is reinventing TV habits.

Coin simply turns a stack of eight cards (at most three-eighths thick) into one (one/sixteenth thick). It does add a certain level of security in that the full card number is not displayed. However, it increases the payment cycle time as the method of payment has to be selected. Strike one for customer experience.

Disruptive business models, however, don't always make sense at first. We asked a random sampling of our employees about Coin and, somewhat surprisingly, 71 out of 100 indicated it solved a problem they have. But 69 of the 100 respondents also said they were unwilling to pay its $100 price point to solve whatever that problem may be.

So, yes, the product is cool. Yes, it has some utility, but the price is a little steep, especially considering the value that can be gained from a similar outlay for one of the array of fee cards already offered by issuers (e.g. for around $89 a year one can secure priority boarding, a free checked bag and an annual companion ticket with many airline loyalty cards).

Londoners have, for some years now, had access to Barclaycard OnePulse, a Visa credit and contactless payments card that combines tap-and-go technology for the bus and Underground, no battery or liquid-crystal display required. Chicagoans have a similar prepaid, tap-and go product available to them for the city's public transportation system.

There are other issues to be overcome before Coin can make a case for being disruptive. The card currently preserves the magnetic stripe, but will need to accommodate EMV (chip-and-PIN) adoption due in the U.S. in 2015. The battery in the Coin lasts approximately two years at which point the card is redundant and consumers will need to purchase a replacement.

The card is more secure when tied to the battery on your mobile phone. But when you pair the two, the card stops working if it loses contact from your smartphone for a certain amount of time or if the phone's battery has died. This magnifies other immediately obvious, usability issues: What if my Coin gets eaten by an ATM? How do I control what the waiter does with my Coin when he disappears with it? What if I lose my phone and my Coin stops working? What if my smartphone battery dies just as the weekly groceries are being bagged?

Coin's true disruptive power hinges on what the startup does next. Let's say its technology can incorporate loyalty cards, transport season tickets, workplace pass cards and, even, machine-readable driver's licenses. Perhaps the internal battery can be charged with a solar panel. Add in tap-and-go for small payments, real-time offers through some Internet connectivity via your smartphone and, then, your wallet could be truly redundant. At that point assuming the aforementioned potential barriers are surmountable Coin 2.0 could be a disruptive technology candidate.

Still, shortly after Coin's launch, the mobile wallet Isis rolled out nationwide. Based on subsequent media attention, Coin would surely win any immediate customer experience competition. Isis requires prospective users to update their SIM card, has limited merchant acceptance and is incompatible with the popular iPhone. But, in the long term, the digital wallet's potential for disruption is more palpable.

Consider this: if mobile payments had been invented first, would we have created the plastic credit card to improve the customer experience? Coin does not appear, in its initial incarnation, to significantly move the needle or give the consumer anything that they can't do today. For that reason, I'm out.

John Vance is a senior manager in West Monroe Partners' banking and credit unions practice.

Editor's Note: An earlier version of this blog post said that Coin is tied to the battery of your smartphone and will stop working when it does. This is true only if the customer elects to pair the card to the device.

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Comments (2)
If PCI DSS states that track data cannot be stored under any circumstance, how does this product have any chance of surviving for replacing a credit card, since that's exactly what it does?

With the exception of gift and loyalty cards, which become a complete pain once you collect enough of them, I think they're solving a problem that doesn't exist.
Posted by openuris | Wednesday, November 20 2013 at 1:30PM ET
Openuris, on the face of it PCI DSS does stand in the way of Coin's ability to copy and store card info, including the CVV. However, Coin's website states that they are working on getting PCI DSS certification - so I guess we need to see what the outcome of that process is.
Posted by vancejo | Wednesday, November 20 2013 at 3:18PM ET
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