Citi is out of Obopay

Just recieved notice today that the Citi/Obopay “pilot” is over… am I suprised? No, at least not with the service termination. From a Citi perspective, this was a 3+ year pilot without a business owner or business case and only 2,000 cusotmers (this is not a typo.. I’m not missing any 0’s). The original plan was to gain customer insight. Once Citi invested…. the pilot dragged.. as Citi’s participation provided “value” to Obopay. Key learnings for banks:

Nov 2, 2009

See previous post http://tomnoyes.wordpress.com/2009/10/13/nokia-moneyobopay/

Also See post on 11/12 Obopay India – Another Failure?

Just recieved notice today that the Citi/Obopay “pilot” is over… am I suprised? No, at least not with the service termination.  From a Citi perspective, this was a 3+ year pilot without a business owner or business case and only 2,000 cusotmers (this is not a typo.. I’m not missing any 0’s). The original plan was to gain customer insight.  Once Citi invested…. the pilot dragged.. as Citi’s participation provided “value” to Obopay. Key learnings for banks:

  • do this “payments stuff” in your own environment, or manage pilots with a very well defined end date (less then 6 months).
  • Once capital investment is made, heavily involve the supporting Line of business  (note to innovation teams)
  • Set clear metrics for success, and don’t be afraid to pull the plug
  • Ensure customers are aware that service is a  “pilot”. Take a look at this notice below.. move your money out of here in next 2 months. 4 years… not much customer communication on this one.
  • Re: Payments. Banks should think long and hard before they enable the next Visa/MC. Do you really want to outsource payments? (Next week’s paypal conference will lead to some very disruptive stuff.)
  • Fat clients on mobile phones have been a global bust over last 6 years. Sorry Apple (See Apple’s Payment Patent Here).  This fat client failure has extended from mobile payment (Obopay) to mobile banking (see Firethorn is dead). iPhone is potential as a game changer, but Apple (the manufacturer) is trying to create a closed system without banks (Perhaps their brand is strong enough to make everyone ditch their exsting relationships… naa). The best hope for rich applications (FAT CLIENTS) may be NFC, but the MNOs and handset manufacturers are strategically delaying (subject of a future post).

So while the Citi-Obopay service termination is not a suprise, the ability for Obopay to attract new capital (without customers or much due dilligence) is amazing. Carol must be capable of selling sand in the desert. Given my interaction with “some very large” MNO/FSI mbanking heads in US, India, Asia, EMEA, … Obopay’s focus and “success” is much of a mystery (and not much concern). On the positive side they have an excellent marketing/alliance team.

Citi Obopay Service Terminiation

Citi Obopay Fee Schedule

Unbanked: Cash is King

While I was consulting w/ regulators and banks in Malaysia, I asked about the penetration of cards. The response from a lead banker was “Cash is King”. This response is a great summary for the key issues facing MNOs, FSIs and Regulators attempting to improve electronic payment penetration in emerging markets.

Tackling regulatory and consumer issues in emerging markets

While I was consulting w/ regulators and banks in Malaysia, I asked about the penetration of cards. The response from a lead banker was “Cash is King”. This response is a great summary for the key issues facing MNOs, FSIs and Regulators attempting to improve electronic payment penetration in emerging markets. Adoption of new payment mechanisms in developed countries has historically taken 20-30yrs. Emerging markets will surely proceed at a faster pace, but the work to be done is greater given the absence of: regulations, consumer protections, and electronic/physical infrastructure (among both banks and MNOs).

“Cash is King” may be too much of a generalization to extend to all markets, but in Malaysia consumer research indicates there are substantial consumer hurdles for FSIs trying to capture the unbanked population (trust, access points and overall committed to cash chief among them).  For domestic FSIs in SE Asia,  the consumer data shows that  MNOs are better positioned (reputation/brand/service/efficiency) to deliver on the mobile money proposition.  MNO’s position stems from the value that they deliver, with mobile money serving as the principle mechanism to retain access to MNOs services AND move from “informal” communication to money centered “business” communication. MNOs in emerging markets therefore have a unique opportunity to attract consumers to mobile centered “value store”.

Software providers (ISVs) attempting to address the “unbanked” world will face the following challenges:

  1. MNOs are adept at software development. Look at MPESA, GCASH, ZAP, …
  2. Business case separate from MNO is very, very challenging. Payments is a difficult business for banks.. it may be an impossible business separate from either bank or MNO.
  3. No private investment capital. NGO and micro-finance organizations I have spoken with are highly skeptical of technology use for unbanked (even for loan officers). Further, their involvement suppresses margins as government resources are allocated to achieve goals that are not following a profit motive. ISVs will need to make difficult decisions on whether to focus in the “For Profit: of “Not for Profit” areas.
  4. Many willing to listen to your idea, or let you prove out your value.. without much commitment for revenue.

This is not to say that there are no ISV opportunities in emerging markets. Once value is stored in the network businesses will certainly attempt to connect in order to attract and service customers. This is where developed country ISVs have excelled (HK, SG, AU, Korea, Japan, EMEA, …). However, the developed countries had a well established banking infrastructure PRIOR to channels like internet and mobile (with a commensurate evolution in the respective regulatory regime). Within emerging markets the “starting point”  is different (BOTH telecommunications AND banking services are immature) which may result in a different evolutionary path for mobile, banking, payments and regulations. Message to VCs: question your assumptions and adjust your paradigms.

A number of ISVs are attempting to establish a turn key payments system (the mobile money “switch”). However, Banks and MNOs business models are historically centered switching, and hence these established entities are highly motivated to continue control of both the infrastucture and all IP around it (opportunities for ISVs in this space may be limited). Fertile markets for ISVs may tend to be in areas which support either businesses or consumers in mobile commerce. Examples:

  • Hosted service that allows African governments to send pensions to multiple mobile banking plans
  • Text based “comparison” services for consumers,
  • Mobile banking infrastructure (ex: open new account, credit score using social networking data)
  • Mobile “bill pay” services for utilities

Regarding technology use in unbanked… Perhaps “unbanked” is too large of a segment.. perhaps we should separate out sub-groups like  “unphoned”… and consumers that own a phone but are committed to cash only (?traditional unbanked?). Given that some readers of this article may represent NGOs and governments that are focused on use of technology in microfinance, it is important to deliniate segments served by MNOs and MFIs. Perhaps creation of a segment such as “micro finance unphoned” MFU segment is necessary (I would love to see consumer demographic data here). The MFU segment is being successfully served without technology in lending models firmly established (See Grameen model).  Given this “success without technology” NGOs are particularly skeptical of the use of any additional costs (or intermediaries) to serve these consumers. Established (for profit ISVs) vendors will be challenged to create a sustainable low margin business in the MFU space given the influence of NGOs, and subsequent margin compression.

Focusing on “unbanked”, exclusive of the segments above, the entities most capable of tackling the range of issues here are: MNOs, large banks, large retailers, and state agencies. “Trust” is something earned over many years… In emerging markets, I would expect to see very simple services that can have very broad impact, with very little assistance from external vendors for following reasons:

  • Nature of network effects are that you must deliver value to everyone on the network (whether a bank or an MNO). Successful networks must have established physical distribution points.
  • Objective in payments is to establish use and acceptance. Example, receive your pension… now establish a savings account, or send money to your grandson.
  • Simplicity lends itself to better risk management, a key for reinforcing the “integrity” of a new payment system. Solid risk management is even more pronounced in the face of new regulations.
  • CEO visibility with MNOs, Banks and Retailers. Paying a “US Vendor” for anything relating to a payment function is not likely. Citi mobile teams have built tremendous SMS applications in weeks (sorry Silicon Valley).
  • Government Visibility. In addition to CEOs, governments and regulators are highly involved in addressing the needs of their citizens, whether “unbanked” or “unphoned”. Regulators globally are looking to share learnings from Kenya, Philippines, India, … Banks expect between 600M-800M people will gain first time access to financial services over the next 8 years. A tremendous market, that will be served much differently then banks (and retailers/MNOs) have operated in the past.
  • Consumer education…. Simple ( SMS). Side note: Did you know that there is a 20% failure rate on SMS in India? Perhaps this is old data.

Side note… Food for thought.

In this CGAP article, is it really access to “cashless payments” that is the issue? or is it the farmer’s inability to find a market for the goat and safely transfer/store the value? The deaths of the SKS workers are truly unfortunate, but if mobile enables value store, won’t thieves then adapt to this opportunity and force a transfer at knife point? Think of the poor farmer with all of his savings locked in his cell phone, overnight the money disappears. What consumer protections are in place so that he gets access to his funds immediately? Indian regulators are tackling these issues today, issues that the developed world has continued to refine over the last 40 years (for electronic payment).

Challenges for ISVs are many, as MNOs are very adept in software development and any “mobile money” value prop is Asia must be either strongly tied to a bank or MNO. VC is very tight here because compressed margins in payments are further exacerbated by injection of government and NGO money.

Feedback appreciated.

Firethorn is dead

October 2009

Ok not yet.. but this is the obituary precursor.

Firethorn Quick View

  • Acquired by Qualcomm for $210 in Nov 2007.
  • Estimated Revenue of $4-8M through MNO fees and bank licenses ($500k-$1M). Qualcomm does not seperate revenue from this unit, nor is it mentioned in filings (http://www.qualcomm.com/investor/index.html). (Mar 2010 update. QCOM did separate earnings, see related post here)
  • Current customers: Wachovia, Regions, SunTrust, Citi Card and now US Bank
  • Wachovia is pulling out of $1M arrangement
  • JPMC is pulling out

When I was at Gartner Group, I sat down with an “anonymous” analyst and he said let’s think of some catchy titles for a new analyst brief. I asked “what is the subject”? He said “let’s decide that after we define the title that everyone wants to read”. It was then that I decided to leave Gartner, realizing it kept more to its journalism roots (as a prior division of McGraw Hill) then I cared to be associated with.

But alas I regress, growing ever more frustrated by MNO and bank attempts to “mobilize” financial services. Firethorn was a mess from the start. Having been at Wachovia (but never party to Firethorn selection) I can tell you that Firethorn’s banks “wanted to do something in mobile”, without much of a business plan behind it. The lack of a business plan is something that not only challenges the Twitters of the world, it also challenges big organizations. In either case a business plan must be addressed or the initiative will atrophy.. such are the vagaries of life… with perhaps the exception of centralized state planning (thank God for capitalism). The cards were stacked against Firethorn:

  1. Firethorn Banks had no “mobile” business plan.. when there is no plan, there is no executive support (because there is no revenue)
  2. Active customers are less then 10k per bank, Firethorn’s $1M price tag was hard for Wachovia to justify. Firethorn is actually paying other (card) banks to use the service..
  3. Fat clients on mobile phones are a failure (more below).
  4. Telecos stopped blocking access to http traffic (bank mobile sites)
  5. Consumers don’t perceive value (browser based access is faster).

BAC, JPM and WFC have solid strategies for mobile in support of their business. Distribution is a key facit of any business and it is never acceptable to create a new channel for sales/service without understanding of how it impacts products, customers and costs to serve. From a Bank CEO perspective, business leadership is required in distribution… don’t let the techies or “internet teams” make distribution decisions absent of business involvement. Firethorn’s current bank customers should have been more thoughtful in their decisions. Giving an MNO “control” over your content is not acceptable. Banks must push strategies that support their ownership of data, control over consumer (including authentication), brand and service experience/cost (quality).

My sources tell me that Wachovia has stopped new enrollments and is sunsetting the app immediately. Existing clients will be notified in next few months. The application never took off w/ Citi Card customers. (Poor US Bank.. they just went live with Firethorn last month).

Firethorn was acquired by Qualcomm for $210 in Nov 2007. Current customers: Wachovia, Regions, SunTrust and now US Bank (blind following the blind). I project Firethorn revenue as $8M from both direct sales to banks and MNO service fees. Revenue growth is challenged by issues above. Expect to see Qualcomm refocus Firethorn in NFC payments space, and align with companies like Vivotech. This is consistent w/ 3Q09 guidance in QCOM investor call

http://www.marketwatch.com/story/firethorn-provides-mobile-banking-application-to-metropcs-2009-10-08

http://www.redherring.com/Home/23154

http://www.netbanker.com/2007/03/wachovia_suntrust_regions_mobile_banking_with_firethorn_cingular.html

Citi Card

(side note) Globally mobile banking fat client apps have been a resounding failure. In my previous life at Citi 6 of 6 fat client initiatives have failed. Take a look at the Citi iPhone app.. guess how many people use it? What do I recommend? Low cost…. with no change in consumer “behavior” or support requirements. In the USA.. Create a slimmed down style sheet(s) that fit the mobile browsers. BAC, Wachovia, and Wells to a terrific job here. Most other markets SMS is the way to go. Simplicity is the key to mobile…. My favorite “mobile banking” vendor outside of US is Monitise .. just reuse your ATM transactions and tie to a service (Overview here)

EMV in US? No Way

Update Sept 2014

Did EMV in the US happen? Well to the surprise of issuers, Visa announced a scheme change in the US in August 2011 (see PR). The big issuers were not consulted about this program prior to rollout, as the dynamics described below in my previous article were occurring. Additionally banks were working on a new scheme that would leapfrog EMV: Tokenization.  The large banks were working on this scheme without the involvement of Visa and MA. If successful, this new token scheme would have bypassed V/MA altogether. I believe one of the reasons for this EMV push by Visa was to reassert its control of the network. Today we see quite a bit of friction remaining here between issuers and networks. See my blog on Chip and Signature for a view on some of the remaining chaos.

The new EMVCo token scheme announced in October 2013, formalized in March 2014 and rolled out first with ApplePay in Sept 2014 is the new “best” scheme on the planet. In this scheme, the networks have taken over the original bank token model. Of course banks can also serve as TSPs, but none of them are currently prepared (as of Sept 2014).


 

Original Oct 2009 A

As I was reading an article concerning “why US Card issuers should move to EMV”, I was struck by the amount of “disconnectedness” on this topic in the industry.

A quick background for those unfamiliar:

  • EMV is a “Chip” that replaces the mag stripe on a credit card http://en.wikipedia.org/wiki/EMV
  • Rolled out in Europe in 2004 w/ hope that fraud would go down (it actually just shifted to Card not present “CNP” transactions)
  • European issuers are also acquirers. In US these functions have been separated w/ exception of AMEX
  • Europeans banks are complaining that US cards in EMEA markets and EMEA cards in US markets are the weaknesses in their beautiful vision of a “Chip world”. EMEA acquirers are also threatening to stop accepting US (mag stripe) cards.
  • US Adoption of EMV would take 10+ yrs for banks to re-issue cards and for all merchants to replace all terminals that use the mag strip.
  • Issuers in the US don’t collaborate very often because of anti-trust concerns. Rules are set by networks… in which banks are Board members. Big banks like competing through “best practice” in fraud management. Small issuers have trouble in the arms race.

US Issuers are exercising sound judgment in not jumping on the EMV bandwagon, yet many industry pundits (without access to the data) continue to push a POV that we in the US are somehow backward. Just take a look at the UK fraud data, the card losses have grown from 122M GBP in 1997 to 531M GBP in 2007, and 610GBP in 2008. What did the EMV investment “buy” the UK issuers? A detailed look at this fraud data (APACs confidential) shows that fraud adapted to the next weakest point in the card chain: CNP.

The US banks are highly motivated to do the right thing here, but the solution requires coordinated movement by 4+ highly fragmented groups (Issuers, Acquirers, Networks, Merchants).  The US banks do get together to discuss these topics, primarily at the Philadelphia Fed.  The top request from the banks (to their regulators) was to free their hands in working together on fraud and standards without fear of anti-trust reprisals.. A request that took on no owner, as the number of agencies involved were challenged to work between themselves (FTC, OCC, Fed, …)

http://www.philadelphiafed.org/payment-cards-center/publications/update-newsletter/2009/spring/spring09_06.cfm

Independent of the political challenges that the issuers face in the US, EMV is not the initiative to bring them together.

  • Old technology (will not last the 10yrs it will take to roll out in US)
  • Expensive (POS, Card). Costs are not borne equally in network
  • No proof point, fraud did not go down in UK, CNP was not addressed. http://www.computeractive.co.uk/computeractive/news/2238913/apacs-releases-fraud-figures
  • Fraud Shifts to the next weakest point, it is not static
  • Big issuers like to compete on risk management
  • No benefit from “incremental” rollout of any technology (below)
  • “Health” of issuers (below)

The “true” benefits of EMV will not occur until there is 100% adoption at POS (complete elimination of the mag stripe), and all other weaknesses are addressed (primarily CNP). That is the conundrum facing any new technology here:  New Plastic must completely replace the old. In other words there is no “Incremental” fraud savings to an incremental rollout.

Where there is chaos there is opportunity…

With respect to card use at the POS in the US, prospects for NFC in mobile handsets is very exciting. NFC enabled handsets provide great customer convenience and the cost(s) are not borne by the banks. I highly recommend the business whitepaper below for those interested in the subject.

http://www.gsmworld.com/documents/gsma_pbm_wp.pdf

Other Data

NCL losses of Top Issuers for 3Q09

Top 5 issuers have seen their businesses deteriorate substantially, as NCLs moved from ~3% in 2007 to 10-12% currently. 3Q09 Examples (Data is for QUARTER)

  • – Citi.  NCL of $4.2B,
  • – JPMC. NCL 9.41% (ex WaMu) Card Net Income ($700M) for quarter
  • – BAC. NCL $5.47B, 12.9%
  • – CapOne. NCL $2.3B, 10%

 

http://www.javelinstrategy.com/2009/08/06/emv-us-magnetic-stripe-credit-cards-on-brink-of-extinction/

iPhone at POS? PaybySquirrel – updated

Twitter founder Jack Dorsey. Card swipe on iPhone.

Roberto Garavaglia was nice enough to share this finextra story on linkedin. Is this a consumer play.. or a “merchant play”? Will I see my local ticket scalpers taking credit cards on their iPhone? This start up was certainly “in the black”.  Data we know:

  • Squirrel has a “signature” line in the app
  • Have hardware on the phone
  • Alpha test in NYC
  • Receipt in engadget pic above shows consumer payment (you paid)
  • Mind behind it is Dorsey
  • Top VCs know about it, and seem to think it is a merchant play.
  • Very US centric.. no EMV (Chip and Pin)

There are certainly some conflicting data points. If a consumer play.. this signature will not be valid… and transaction will be treated as a CNP (so why the signature?). If this is a merchant play who would possibly want to act as acquirer (fraud loss)? The merchant use would make most fraud heads loose a little sleep, for they would have a whole new threat vector. Can you imagine the buyers of the merchant use?.. The bank and I will have to worry about every kid in a fast food window and every waitress holding my card swiping on their iPhone (in addition to paying for my dinner). My guess is that squirrel has the technology working.. but haven’t figured out the “banking side”.

Fraud attacks the “weakest link” in payments quickly. Would love to hear from others on the community, but my view is:

  • Interesting as a merchant play…. but acquirers will shy away from originating transaction in either network without solid fraud controls. The merchant owns the loss here by rules of network in a “CNP transaction”. Signature capability will be debated…
  • Squirrel biz model.. questionable as anything but a hardware business. The fraud numbers of leading merchant selling digital goods is astounding. All top merchants have had to develop their own internal specialist teams to handle.  If Apple and PayPal have trouble with teams of 300+ (after 10 years) this will be a challenge for any new “merchant”. As a payment method, squirrel will have to take this on. Having access to the physical card may allow them to try something disruptive like MagTek which reads the randomness (noise) in the card stripe to establish a “unique” card… which has the downside of card registration. Something like this would push squirrel further into a “US centric” model as it appears that they do not support EMV (aka Chip and PIN).  
  • “No go” as a consumer play. Why not just keep my card at the Apple app store? or at PayPal? What is the incremental value that this provides me? Why not just key in my card data.. why add a reader to my sexy iPhone .. .in its sexy case.

Innovation in payments is tough…  if I were going to add something the Steve Job’s product plan for the iPhone what would it be?

  • Global
  • Ubiquitous
  • Unique to every person
  • Globally Accepted for use in Payment and Authentication, by merchants, banks, networks, regulators
  • Low error rate
  • Impossible to clone
  • Difficult to crack

The answer is… (   ). OK so nothing fits my criteria, but any appendage on my iPhone must certainly seek to optimize the goals above. Only item I’ve seen that comes close it IRIS scanning.. now being miniaturized to fit on a chip the size of your thumbnail (below). Just for fun.. I bought “paybyiris.com” domain as I finished this article (today). 

http://www.nydailynews.com/archives/news/2002/01/07/2002-01-07_credit_card_cloners___1b_sca.html

http://4g-wirelessevolution.tmcnet.com/news/2009/08/19/4331395.htm

Nokia Money/Obopay

Nokia’s selection of Obopay is very curious, given that Obopay is a hosted platform that currently requires online registration.. quite a difficult thing for an “unbanked” customer to do in rural India. We can safely assume that Obopay will invest resources to provide for service and beneficiary registration in a 100% SMS mode (or build a NokiaWallet embedded on the phone), but there are still many holes in the service that are left to be plugged and a big business challenge in incenting remote agents.

Oct 13, 2009

Also See post on 11/12 Obopay India – Another Failure?

Obopay, Nokia Money, MasterCard Money Send…  all are based on the Obopay platform. In the Valley, nothing invokes a quicker smile and shake of the head then discussion of Nokia’s $35M+ investment ($70M in round).  This shake comes from both VCs and payments executives. The banks are running from the service, just as the Nokia and MC are running in.

From a Venture perspective… Nokia overpaid and may have significantly alienated banks. Obopay now has $126M in invested capital, with no “value proposition” (hence less then 20k active customers),  no US success, an average team and very little product.  Estimating a Series E pre-money valuation of $200M, you are left w/ post money of around $270M.. My sources tell me Revenue is less than $5M which results in a post money valuation of 54x revenue for a service from which its major customer Citi is walking away from (MasterCard is TBD).

  1. Series B, 9/06 Qualcomm $7M
  2. Series C, 7/07 AllianceBernstein, Citigroup, Qualcomm, Redpoint Ventures, Societe Generale, Richmond Management $29M
  3. Series D, 4/08 Essar Communications Holdings, AllianceBernstein, Onset Ventures, Redpoint Ventures, Olayan, Citigroup, Societe Generale, Qualcomm Ventures, Promethean, Richmond Management $20M
  4. Series E, 3/09, Nokia, TBD $70M

I must admit to feeling awkward in writing this.. given the names on the list you would assume that there is a sound basis for the investment.. but it seems to be “hedge your bets”  investing at best,  “swarm investing” at worst. The closest way to get to know what is real (and what is not) is to work with the customers. Hence my note.

I’m not saying that they can’t be successful, with the investors and capital listed here they certainly don’t lack a solid BOD. My point is that they have not had success to date in the US, have an average management team, and very little product. Nokia bought a bridge… lets hope it is to somewhere.  The amount of money going in tells me that Obopay believes they can build a mobile “switch” to create a visa like network. Globally,  financial services companies have learned a very important lesson with Visa/MC: never let someone else own the switch. Telcos I’ve worked with also clearly understand the control issue, not just in the US but in EMEA, and AP. Obopay’s most important network partner is MA, the entity which will drive network fees and transaction revenue. This brings up the question: IF Obopay is successful then what is their revenue POTENTIAL? Answer: a CUT of user fees from a SENDER Pays model.
It’s rather hard to compare Obopay to its competitors. Obopay is rich on marketing, alliances and user interface… and light on everything else (risk, operations and payment processing). Alternatively companies like Paypal and Cashedge have deep payment expertise, dedicated risk management teams (30-100) and 24×7 redundant operations.

UNBANKED or UNPHONED?

Nokia interest in “Nokia money” is less to do with the altruistic goal of bringing financial services to the “unbanked”, and more to do with growing “unphoned” subscribers. Take the MPESA success in Kenya. Safaricom/Vodafone have 99% of subscribers on pre-paid plans (aka top ups).

http://www.safaricom.co.ke/index.php?id=655

The challenge in growing subscribers in the third world is giving them a way to pay (top up) their mobile phone.  Nokia’s selection of Obopay is very curious, given that Obopay is a hosted platform that currently requires online registration.. quite a difficult thing for an “unbanked” customer to do in rural India. We can safely assume that Obopay will invest resources to provide for service and beneficiary registration in a 100% SMS mode (or build a NokiaWallet embedded on the phone), but there are still many holes in the service that are left to be plugged and a big business challenge in incenting remote agents.

The general consensus among executives seems to be that the challenge in mobile payments is 10% software,  50% risk and regulatory, and 40% qualitative issues surrounding “consumer adoption”.  Within India, regulators have been very involved in all pilots, setting an absolute Rs 5000 (~$100) limit on all providers in order to ensure that another run away “MPESA type” does not occur without a sound regulatory framework. It should also be noted that Vodafone/Safaricom was in a very unique place to address the “customer adoption” issue as it had 80%+ market share in Kenya. Most other markets have highly competitive and fragmented telecoms, each attempting to drive competing heterogeneous payment services.

M-Banking: Vodafone’s M-Pesa Hits Regulatory Roadblock | MediaNama

http://www.pluggd.in/mobile/obopay-india-to-launch-mobile-payment-service-1020/

Assuming Nokia’s objective is to provide this service to carriers, they will likely bundle discounted packages of low cost hand sets w/ service. The MNOs I have spoken with are NOT buying into Nokia’s vision and in fact are quite irritated that they are attempting to end run them through a direct sale to MNO agents.  Hence, most major MNOs are busy formulating their own strategy, and have a host of options.  If I had to bet… my chips are with the MNOs as people only buy a phone every 2 yrs (in emerging markets), they top up frequently. Nokia Money/Obopay will face competition from:

  • Vodafone. Unit led by Nick Hughes is active in Asia and ME. Repeating the Kenya success
  • Monitise. Provides same SMS services and integrates quickly to bank systems through ATM switch (Bank focused sale)
  • hyperWALLET. Software behind Enstream
  • Fundamo.
  • Sybase. Rock solid software play for Telecos
  • Akos Technology. Software/Service for telecos
  • …etc

Nokia Money and Obopay have a very, very steep hill to climb.

  • Software (No risk engine, Online registration required, hosted model, …etc)
  • People – Few international payments executives in team
  • References – No US success

As a side note… Citi’s trial of the service had terrible adoption. Less then 20k active users (much less). Obopay could argue this is due to poor Citi marketing (for those that argue marketing.. go use the service today).  I also understand that Obopay is telling prospects that Citi is still involved (which is true from a BOD level). I’ve also been told by 2 banks this week that Obopay is not taking any new US banks as its focus has shifted to India (Yes Bank).

Related articles

The Power of Mobile Money..

Economist Article

Telecoms: The power of mobile money | The Economist

 Extending the “network” of financial services into the unbanked is a tremendous challenge. Modern G20 countries have developed significant legal, regulatory, and technology infrastructure over 100 years. Such basic elements as customer identification for KYC, or consumer protections are not in place within many 3rd world countries. Mobile money attempts to leverage the “mobile network” as a financial services network. The telecos (appropriately) are driven to enable mobile money services to provide a way for the “unbanked” to pay their bill. As long as the value stays in the teleco network there are few issues. However, when “cash out” points are established then the same regulatory issues will need to be addressed and decisions made as to whether to “connect” the mobile network to bank networks. 

Anyone familiar with the subject knows that African regulators are particularly sensitive since the success of MPESA. Any success in mobile money that results in value exchange external to the mobile network will be facing the same regulatory requirements that banks do. In short, the “mobile networks” will not be morphing into banking networks without compliance to the same bank regulations which all financial networks face.

In speaking with both the FSI and the Network involved in MPESA, I asked them both separately what assistance they were looking for in Kenya, or if they rolled it out in another African market. Both separately said “someone to own the risk” [e.g. payment risk management]. Providers are thus recognizing that Payment authorization will require a new risk models then what are currently in place within other payment networks such as cards (e.g. HNC’s Falcon). Note that banks have significant dedicated risk teams (20-50 people) focused here.

Who can you Trust? Online Reputations…

So you’re a politician and you want to have “friends”… or a rich and famous actress and want to have followers on your Tweet. Well there seems to be answer for you… that money can buy.

https://www.mturk.com/mturk/welcome

I’m sure MechanicalTurk is not the only service.. but I had an “innocence lost” moment for social networking. Here are some of the buyers listed on mturk:

  • www.overtimesportswear.com is pay $0.01 if you become a fan.  If you post a positive review, they will pay a bonus (not stated).
  • http://whoozy.com will pay $0.20 if you tweet about them
  • Elki Media will pay $0.15 if you follow them on twitter

How many decisions are made based upon following a crowd. Swarm intelligence is particularly relevant here. How do people decide to follow a crowd and what events trigger it? Do consumers “trust” because the swarm is around it? This is not necessarily something new, as mainstream media has “defined” many issues that are probably not issues at all. It’s a media swarm that sometimes takes hold.

For financial institutions, PR, brand and marketing managers should be on top of swarms effecting their institutions. When swarms develop, customer facing employees must have responses to customer questions/concerns, and legal should be prepared to react to any disparagement. A very good tool to keep track of brand use online is MarkMonitor.

As a consumer, I found issues surrounding the portability of trust very interesting. We have credit bureaus and bank services like ITAC to manage financial identity theft.. perhaps there will be more services like http://trureputationscore.com/ to assess your online reputation. Many employers today take a look at services like LinkedIn and Facebook to see what kind of network you have… Perhaps they don’t know that now they can be bought.. .

Other Reading

Trust Agents: Using the Web to Build Influence, Improve Reputation, and Earn Trust

P2P on Mobile – CashEdge POP Money

Just announced at Finovate today

http://sev.prnewswire.com/banking-financial-services/20090929/PH8333229092009-1.html

I know the folks at CE very well. Fantastic organization.. they excel at both the Sexy front end as well as the messy back end (risk/fraud) of payments. Their new POP Money service is rock solid and could give FSIs a strong contender in competing w/ PayPal in Sending money to any phone number or e-mail address.

CashEdge is a “Bank Friendly” service provider in that all of their services are white labled for banks. Few people know that if you use Wachovia, Citi, or Bank of America today, to transfer money outside of the bank, you are using a CashEdge Service. In 2004 I selected CE (Wachovia) because they provided a higher quality service at a lower price point then what I could build  internally (fully loaded). Many eCommerce teams only focus on the User Interface and top level design when assessing the cost of delivering P2P payments.  However it is risk and fraud management where you will find the true costs of “payments” to the organization. 

This new POP service will allow banks to create a revenue generating service, and take back consumer mindshare from PayPal.  Existing CE customer have a tremendous advantage in enabling this service, particularly given the current resource constraints within bank IT.

Many large banks are just beginning to offer A2A transfers (accounts that I own across FSIs). Wells just made this service available on a pilot in June.. Chase has it, but it is buried deep within the online functionality. There will be a big first mover advantage here, and my informed opinion is that Bank of America will be the the leader… or should I say stay the leader in payments.

Move over PayPal.

Bloomberg: Citi and MSFT to compete w/ Mint.com

Citigroup, Microsoft Said to Plan Challenge to Intuit, Mint.com http://www.bloomberg.com/apps/news?pid=20601103&sid=ajESsHMx7eYU

Hmmm… I believe Brian found me from my Mint/Intuit note below. Hope I don’t come off as a radical. Citi must be successful.. US taxpayers are shareholders. Jeff is a great guy, and one of the most talented people I have ever worked with. I have no idea how Citi keeps hold of him. Perhaps it’s like joining the Army.

Citi/MSFT will obviously look to provide services to non customers and industry sources tell me that the account aggregation will be provided by Yodlee.  There is some amount of irony here, as Citi’s customer’s had access to Yodlee’s services until September 2005. During my time at Wachovia customers loved the Yodlee service, but we had to end it due to cost and risk issues. 

For Citi/MSFT a central challenge will be moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. (Remember Transpoint from MSFT…. it was close to the date when Gates said Banks were dinosaurs in 1994…) In the US, MSFT, Mint.com and INTU had trouble getting customers engaged seperate from their Banks. In the US, Mint had the fastest growth rate with a total of just over 400,000 customers. A figure not likely to strike fear in the heart of many banks, this combined with the Mint demographic seems to indicate that the customer base of “spenders” vs “savers” (hence the need for budgeting). This would seem to indicate a card focus for Citi.

Assuming a card focus, a short term need to generate revenue, offering customers a way to transact with Yodlee as a service provider.. I would see card based bill payment as a key service to be offered in this new Citi/MSFT venture. During my time at Wachovia we piloted the Yodlee biller direct service. The UI was fantastic… and that was 4 years ago. This service leveraged cards as the vehicle for bill payment through aggregation of the billers online payment interface. BAC also evaluated this service as a way to generate interchange revenue off of bill payment. 

Hence, I would assume that Citi’s business case for NewCo is based upon the following:

  1. Transacting. Both leveraging credit cards for a bill payment, and purchases. (interchange)
  2. Market customers based upon transactional data (marketing)
  3. Cross sell Citi products 

There are several organizational, brand issues and customer support isssues with Citi’s approach. Citi’s customer may get confused, is this a Citi service? How can Citi’s current card customers leverage it? How do they leverage it? For example, it is hard for me to remember the 3 separate log ins that I have today with Citi today: Card, banking, Obopay… now I need a forth? Who do I call when I have a problem?

Globally, the only success model for aggregation and comparison that I am aware of is Egg.com, which Citi acquired May 2007 for just over $1B.  If you sit down with Paul Gratton, Egg’s first CEO he will tell you that their success was driven by a complete focus on delivering value to the customer, both in product and online services. It is the coupling of product and service value that creates challenges for large companies to replicate, particularly with respect to cannibalization of existing products.

In the UK, customers select their bank savings account through leading comparison sites like www.moneysupermarket.com. In the US, customers select their bank based upon the proximity to their house. The business premise with Mint.com, Intuit and its competitors is that customers will start with budgeting, and then move to select financial products (no retention play as these are not necessarily Citi Customers) or transact. Egg was successful because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it.  

Fortunately for banks, customers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention. Banks hold enormous control over the success of any aggregator’s site. Yodlee possesses no contractual right to the data, and the collection of customer information by any third party can be managed. If Mint, lowermybills.com or Microsoft/Citi start to gain traction with mainstream profitable customers.. expect banks to start charging Yodlee for access to their customer data, or eliminate it outright.  

http://tomnoyes.wordpress.com/2009/09/15/intuit-mint/