Monthly Archives: March 2010

Bumping payments? Paypal Bump

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26 March 2010 (updated April 13)

Excellent Video overview below (30 sec commercial)

[youtube=http://www.youtube.com/watch?v=suCe4-SWsHo]

I’m reading the CTIA press and see this come out, wondering how my iPhone communicates with another iPhone. The bump application listens to the iPhone accelerometer and when it reads a bump (when running) it sends time and event to the bump cloud. The bump cloud looks for 2 events and then requests that your bump user information be shared (from bump)

When you bump, if we find a match with a phone that felt the same bump, our servers ask each phone to send up the contact information each user chose to share, but nothing more. If and only if both users then confirm that the match is indeed correct will the contact information be sent down to the other person. None of your personal data is ever stored on our servers.

Very ingenious…. What I’m most impressed with is Paypal’s ability to extend itself in niches like this. Their open APIs, ability to manage risk and extend “payment rails” beyond internet merchants is 5-10 years ahead of what any other payment network can do. Beyond the technology side, it certainly helps that  Paypal’s user penetration within the iPhone’s customer base is “rather high”.

This application also highlights the opportunity for NFC in Apple’s platform. For those that aren’t familiar with my previous posts, industry G2 indicates that Visa and AT&T are going without Apple. Obviously a good strategy for AT&T as Apple already has significant leverage in the “relationship”. Of course, NFC P2P will require an intermediary to own “risk” of card acceptance and work through (payment network related) merchant and third party payment aggregator (TPPA)  issues.

From a regulatory perspective, it is fortunate that PayPal has already gone through the “heavy lifting” in obtaining money service licenses in the 50 states (see related post).

What other vendors/payment networks could compete here? A: CashEdge and Money Bookers. In the UK I could almost envision the video clip for a money bookers “Bump Bet”. In the US CashEdge is a 3rd party service provider with 60-70% of US retail deposit accounts in their footprint (BAC, Wachovia, Citi, …). CE has  a much more efficient (low cost) ACH network and is one of the few US companies with proven operational risk management in “remote” payments. CE should look into riding PayPal’s marketing wave and leverage bump technology to allow me to do everything PayPal does,  only directly from my bank account (at no cost). On the regulatory side, Cashedge runs as a bank service provider… in essence you are dealing with your bank to “push” funds (ACH debit) when you use POPMONEY.

Great job Paypal.

First Data

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http://www.firstdata.com/en_us/about-first-data/media/press-releases/03_11_10_02

http://www.firstdata.com/en_us/about-first-data/media/press-releases/03_11_10

Michael Capellas is gone on the day that earnings are announced. 4Q09 (EBITDA) was down to $530 million compared to $645 million prior year.  As a friend told me yesterday, it is quite telling that they put Joe Forehand (former chairman and CEO of Accenture) as the interim CEO. Accenture has a huge project going on right now to consolidate the 100s of disparate back end systems within First Data.

SWAGG

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19March 2010

Previous Posts

  • http://tomnoyes.wordpress.com/2010/03/15/att-visa-prepaid/
  • http://tomnoyes.wordpress.com/2010/03/02/obopay-and-firethorne/

What is this? In a nutshell it seems to be a software app that provides for consolidation and creation of pre-paid gift cards. Allowing gift card bar code to be displayed on a cell phone screen so it can be scanned by merchants.

From the SWAGG website we see:

GIVE
Plastic is lame. You’re not.
SWAGG lets you create a personal digital gift and send it to your friend’s mobile device.

GET
Get hooked up. Way up.
SWAGG stays on tops of your favorite brands so you’ll always be the first to know what’s fresh.

GO
Your wallet is full. Of crap.
SWAGG files all your membership and loyalty points neatly under one button.

QCOM CEO, Paul Jacobs comments at CES “”It lets us conduct all sort of transactions on the go…So we can purchase and personalize gift cards, share them with our friends, exchange them with stores we like better. We can use them to buy stuff wherever we are. We can receive personalized offers, We can get loyalty points, manage our rewards programs.”

[youtube=http://www.youtube.com/watch?v=Zgfn-_lXo0U]

SWAG stands for “stuff we all get.” … sounds much more interesting than Firethorn’s initial mobile balance checking application. I’m a little disappointed this isn’t more NFC focused given QCOM’s tremendous IP portfolio. In this “bar code” model, I can’t help but wonder about conflict w/ Apple’s broad payment patent here

http://www.forbes.com/2007/12/26/apple-patents-iphone-tech-wire-bc_1227appatent.html

Citi “learns lessons” on Obopay

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18 March 2010

American Banker 18 March 2010

Good article.. just a little “too kind”. Citi learned that 2,000 customers found Obopay to be a neat way to give kids their allowance. Of course Citi had higher hopes.. but a sender pays model has rather poor incentives in kick starting a “new network” and consumer behavior (See Citi is out of Obopay).  For those in the industry looking for lessons here, Paybox learned them the hard way in the EU. Obopay’s failure is nothing new.. changing consumer payment behavior is hard. Obopay added a few extra challenges as it attempted to execute a payments business plan with an inexperienced team.

Mobile P2P payments is firmly in the Gartner “hype cycle” stage within developed countries..  The short term future for NFC (at the POS) is quite exciting, particularly with AT&T/Visa’s pending pre-paid card. Within emerging markets, Mobile payment is a game changer for MNOs and the unbanked. The ability of any US tech companies to compete within this emerging market opportunity is TBD as NGOs and MNOs throw substantial resources at the problem.

Interesting to see Obopay start positioning as check (i.e. cash) replacement service. So would you pay $0.25+1.5% of your transaction so that you could provide convenience to a merchant? Me? I think I’ll tell the merchant to take my check.

Hey if the first business strategy doesn’t work… move on.. Jack Dorsey’s square model is focused in a good space (not too keen on his solution though). Obopay.. back to the drawing board.

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ATT-Discover Prepaid

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15 March 2010

Previous Post NFC Break Out – VISA/FirstData/AT&T

My updated prediction is now first week of April. This is real.. and it is imminent.

Q: What will it mean when every AT&T subscriber receives a pre-paid Discover card with an NFC sticker? (Note back in March I did incorrectly guess it was Visa instead of Discover)

Answers

  1. Tipping point for mobile commerce, ushering in a new era where the mobile phone can transact with a wallet that spans the virtual and physical world, aggregating every other account type and payment instrument.
  2. A new business for AT&T which could drive 30-60% growth in LT revenue
  3. Software REVOLUION. The “Next wave” for iPhone AND the entire mobile commerce ecosystem (see googlization)
  4. New mainstream marketing channel as couponing integrates with payment, location awareness and detailed knowledge consumer behavior/preferences
  5. Card business killer for Bank/Issuer revenue as MNO Pre-paid encroaches on the consumer relationship AND issuer debit/credit products (Decoupled Debit)
  6. Cash replacement for small value payments as merchants of all types adapt POS to accept NFC, and small merchants take out POS terminals in favor of making their phone a cash register
  7. .. would love to hear from you on the next 100…

Business Model

Retention or revenue play? AT&T Universal card changed the credit card landscape in 1990. ATT demonstrated it could both create a card business AND leverage  distribution muscle as it attracted over 10M card holders in under 2 years. Citi acquired the AT&T Universal card for $3.5B+ in 1997 and it remains the largest affiliate card in Citibanks’s portfolio.

The biggest variable with anything “consumer facing” is the marketing investment needed to push it into critical mass. Example, will AT&T develop some program to incent “pay by phone” use like a $50 credit with $200 of spend? Discounted airtime rates? Rewards program? AT&T has proven it can deliver new technology and ecosystems (iPhone and Universal card)… and subsequently has many options.

AT&Ts pre-paid revenue model will likely see MUCH lower margins than their 90s card business, perhaps something of a split between a pre-paid card and a “decoupled debit” (which the US banks have long feared). How will customers “load the funds”? How will they encourage bank funding? Will Citibank get its act together and partner to extend credit (existing universal card holders)?

Given that there are many unknowns, here is my high level estimate on year one financials. Assumptions:

  • 85M subscribers (7M iPhone)
  • Year one penetration of 5% (4.25M or 60% of iPhone base),
  • Average purchase amount $40
  • Annual TPV = 50%(85M*0.05*$40*5*12) = $5B  (note: 50% for linear ramp up)
  • Take rate 120bps (Note there are current issues w/ NFC interchange, see BestBuy)
  • Revenue $60M
  • Processing expense (30% of Rev, 100% ACH funding) – $18M
  • Marketing spend – $50M
  • G&A – $3M
  • 12 mo EBITDA – $(11M)

$11M loss obviously doesn’t take into account many unique one time expenses, but it does provide some insight into the dynamics. It seems as though AT&T is spreading out the other “investment costs” through a consortium of First Data, Visa and a number of smaller companies. I would also expect to see a number of new revenue streams (marketing) as merchants experiment with other new Visa sponsored services like mobile coupons. The tech industry needs an initiative like this to expand the “mobile app” world consumer base beyond its current iPhone demographic.

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Firethorn gets new CEO

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9 March 2010

Press Release

Previous Post “Obopay and Firethorn”

Great news for QCOM this week. Firethorn gets a new executive with payments experience… AND has tremendous start up experience. QCOM is one of the best run, most innovative companies on the planet.. they are everywhere in mobile.

Rocco has a clean slate given that Firethorn’s current customer list is rather sparse (?US Bank?). My recommendations for Rocco:

  • Dual track org: Short term quick hit and a strategic initiative
  • Short term: find some low hanging fruit and attack and forget about the banks in short term (they take too long)
  • Long term: better to “enable” 1M+ of businesses than to “own” a single product…. that is the model of QCOM. Example: Authentication. http://finventures.wordpress.com/2010/03/11/5b-mno-opportunity-kyc/
  • Leverage existing assets and relationships, listen for key opportunities
  • HR: Look at the team you have in place and shake it up… substantially. Start cross pollenating with the rocket scientists at the parent company.
  • Financial: I’m sure Rocco worked this out w/ Dr. Paul already.. but there are few path’s to revenue in 2010 unless there are some reallocation of assets.  Example, QCOM is investing in integrating NFC into chipsets. Should this be owned by firethorn? or should just the software that runs on the chipset?
  • Go global. The only alarm bell on Rocco is that he is lacks much international experience. Most of the innovation in mobile (payment) is taking place outside of the US. He needs a solid global team that can ensure that Atlanta prioritizes the global need.

– All the best Rocco

Obopay and Firethorn

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2 March 2010

Related posts

Spoke to most of the top 5 US banks this week. Interesting to note that Firethorn is out of all of them.. even in the model where Firethorn paid one of the majors $1M to take the application and integrate it. As of the latest QCOM 10-Q we can now see that total Firethorn revenue was $3M for the 2009 YEAR!  Wow.. no wonder Len lost his head for buying this thing and making it a separate division.

QCOM and Firethorn have a new product planned:  SWAGG (www.swagg.com). Good luck trying to figure out what this thing is.. could this be associated with Visa/ATT? (Youtube here). There seems to be a pre-paid debit card associated with it (from Dr. Jacobs CES presentation). Hey QCOM is one of my favorite companies… the people there are absolutely brilliant. But the Firethorn team is adopted.. and therefore the  genes do not extend here. They need a top exec to drive this thing.

On another note, Obopay showed up to at least one of the top 3 banks last month (BankX) touting its mobile payment solution. Undoubtedly with “millions” of subscribers (actual estimated at less then 20k). Always interesting to see spin here, they also reportedly told BankX that Citi’s departure was only temporary. Other banks should ask them to get specific.. very specific.. (probably not the US and there is no commitment on use).

From compete.com (Hard to spin facts..8,000 unique visits last month .. estimate only 20% use the service)

The “big secret” in mobile payments is that there aren’t any… (with very few exceptions). Those exceptions usually deliver “payments” as part of an existing value proposition (see  MNOs will rule in Emerging Markets). Banks know that changing consumer behavior is a 20 year effort. Card based payment schemes have particularly high hurdles in emerging markets due to interchange rates and rules that are ill suited for low value payments by unbanked. Toward this end countries such as India are contemplating the development of new domestic payment networks.

Thought for the day

RBIs Payments Vision 2012