India: Instant Interbank Mobile Pmt Service

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National Payments Corporation of India (NPCI) launched the instant interbank mobile payment service (IMPS).

From MyDigitalFC

To use the IMPS service, customers have to register their mobile number with the banks where they hold an account. When the customer registers, he will be assigned a three digit code that will be their mobile money identity (MMID) and each bank will be assigned a four digit national bank identification number (NBIN).

Both the sender and the receiver needs to get their NBIN and MMID in order to facilitate the transaction. The funds transfer can take place in seven seconds by using the MMID and NBIN numbers of both the banks.

This is a concerted effort by RBI to take a leadership (control) role in mobile payments as the MNOs continue to work for necessary regulatory change.  RBI and the banks are under substantial political pressure to develop services to the rural poor, and create mechanisms/licenses for agents (and MNOs) to serve this demographic. Announcements like this just further a “delay game” by which RBI seeks to create an image of progress.  

RBI constituted the NPC in 1999. This instant mobile “press release” is more hype than substance particularly given the adoption of NEFT and processes surrounding electronic transfers today. For example, in A2A (Transfers between domestic accounts that I own at 2 financial institutions) transactions, many financial institutions still require customer sighting and a paper documents FOR EACH TRANSFER. Within India, the NEFT system is just beginning to get traction (NEFT FAQ) as banks are reluctant to give customers control. India’s RTGS system, is also in its infancy (list of bank branches here) with only 60k transaction/day. Indian bank A2A  “controls” are similar to those in the US as banks like Chase and Wells,  as barriers to move money (to another FI) prevents deposit run off. These controls also allow the banker to call and ask “why are you moving money out.. we can offer that rate as well”.

Just as in the case of the MPFI group RBI is attempting to build a standard (ie platform) by which everyone must play, and therefore exert control. These central bank platforms will continue to fail, as there must be at least one group with a sustainable business case (see MNOs will rule).  IMPS does nothing to address the unbanked needs and IMPS seems to be an outgrowth of RTGS and MPFI..  I certainly hope that the unbanked and the MNOs continue to work toward influencing real regulatory reform, as today I have a system for banked account transfers which is “instant” but may require a customer to come into the branch to sign a document first.

Visa’s new iPhone App: Is this success?

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Visa’s iPhone app is available on Apple’s App Store (but not advertised)

www.visa.com/mobile

The application has been a 2 year effort driven by Monitise, and the UI looks very good. However, I’m afraid that Visa’s latest mobile effort is doomed to failure because of :  “last mile” issues at the POS, and issuer data ownership.

From Visa’s website (http://usa.visa.com/personal/using_visa/visa-mobile/faq.html)

 **Offers: Receive merchant discounts and special offers directly on your iPhone. The offers are stored on your iPhone and can be redeemed at physical merchant retail locations, online, or by telephone …

**In-store redemption:
Visit the merchant’s physical retail location and show the cashier the offer displayed on your iPhone. The merchant discounts the price in accordance with the offer and you pay for your purchase using your enrolled Visa card.

Great customer experience… click on an offer and “SHOW THE CASHIER” your coupon. My guess is that the cashier will gladly give you the discount with a cash purchase as well.  There is certainly the opportunity for a social network aspect to sharing discounts (think groupon) and location aware mobile advertising.. but the banks are not on board. Why?

  1. Visa makes it clear they can register up to 5 Visa cards. Hence they have 1 Participating Issuer – USBank.
  2. Visa is beginning to use customer data for advertising. Current Visa rules do not provide for them to advertise directly to the customer.. it is the issuer that owns the relationship. Perhaps this is the driver of the marketing annoucement

Decoupled Debit

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8 November 2010

Winston Churchill may have been referring to Payment systems in the US when he said:

It is a riddle, wrapped in a mystery, inside an enigma

The macro economic impacts of the recent US card legislation portend substantial business change for Visa and Mastercard. The US debit card market is soon to resemble Australia and Canada with other countries soon to follow (See China and India). Retail Payments over the next 20 years are likely to morph substantially from their current issuer/network dominance. In addition to regulatory changes, new technologies and new value networks are creating a new competitive dynamic which will bring more than $5-10B in capital investment into the payments within the next 2-3 years.

My wife’s visit to Target this week prompted a revisit to the decoupled debit space. Target’s value proposition: hand me your check and sign a release form, you will then receive a RedCard linked to your checking account and good for 5% off all future purchases. Will we see more of this type of value proposition (which Durbin enables through its steering provision)?

From TSYS

Decoupled debit is interesting for several reasons:

  1. The issuer is not required to be a bank in order to offer an account and issue a card
  2. The products can exist as private label products or co-branded products
  3. The products can potentially build significant loyalty
  4. The products reduce costs when delivered and managed correctly
  5. The products leverage the existing payments infrastructure and standards

Retail Business Case

Retailers have a different mindset when it comes to alternative or decoupled products because they are stakeholders in the product, not just the transaction. They look at the product as a way to help them:

  • Reduce cost of payments
  • Build loyalty
  • Offer merchant-designed promotions
  • Drive more store sales
  • Segment and target customer groups
  • Leverage ‘spend information’

For those outside the US I recommend reading:

Digital Goods Payment

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8 Nov 2010

There is a wealth of new payment types (and currencies) brought on by digital goods. Companies like Zynga, Boku, PlaySpan, Bango, Zuora, SocialGold (see list here) are being assessed at multiples exceeding 100x revenue. Social gaming is the focus of many of these companies, with estimated transaction volume of around $2.2B and expected market growth of 50-80% CAGR.

Quite exciting. Is it a “fad” and will these notional currencies be able with withstand the light of regulatory review?

Apple and Google after Boku?

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2 Nov 2010

TechCrunch: Apple’s next strategic move

Yesterday: AT&T inks deal w/ Boku

http://news.cnet.com/8301-13577_3-10265243-36.html

What is Boku’s core asset? Technology? MNO billing relationships?

Hope that Apple and Google look long and hard at the MNO contracts as the “secret sauce” that has driven Boku’s growth. Boku’s MNO friendly approach and neutrality allows any customer to buy digital goods and charge it to their carrier bill.  Neither Google, nor Apple would seem to have a strategic fit here. Why would carriers allow Google/Apple to bill to goods to their customers? Or perhaps I should ask at what cost will carriers allow this to happen?

All of this is even more relevent as ATT/Verizon/TMobile/Discover,.. etc. build their own payments business.

Boku is a great business, but it operates on a precipice much the way PayPal did in its early days.  Carrier billing can certainly be  a much more cost effective infrastructure for mobile digital goods purchases. But what drives this efficiency? Isn’t it the carriers and their relationship to mobile customers?

On the “buy side” digital goods stores use Boku because of its independence. So if Apple buys Boku will Android still support Boku payments (http://www.boku.com/android/)? I do think Boku is in play.. but the real acquirer may look more like the Mercury NewCo than google.. as the MNO synergies are the core of the Boku business model. Unfortunate that the Mercury NewCo still has no CEO.

Citi goes live with POP MONEY

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28 October 2010

Citi just went live with Cashedge’s POP Money service. Citi is now the leader in mobile payments for both retail (this service) and card. Congrats to the Citi team for getting this done.

You may ask why does POP Money position Citi above Chase’s QuickPay? The answer is network and integration. With Quickpay, it only works if you are a Chase customer or you go through the registration process. With POP Money, Cashedge can deliver direct to account distribution to every one of its 100+ enrolled banks, as well as manage risk in transfers to accounts at its largest retail bank customers (Citi, BofA and Wachovia all use Cashedge for external transfers). The customer experience is also integrated into online banking and the funds transfer process.

From a network perspective, PayPal is the only other company which could surpass Cashedge in number of “links” to deposit accounts (~30M, ~20M respectively). The key difference is Cashedge is a bank service provider and has much better risk controls for P2P transfers (as opposed to online purchases of goods). As a bank service provider, it is also integrated into key bank risk infrastructure (ex. Early Warning’s DepositChek).

It would seem that Bank of America and Wells are intent on following Chase down the road of building a home grown system. Quite a shame, as Cashedge is a bank friendly vendor helping to keep banks at the center of emerging payments. The bank battle is not a technology one, it is against non banks and customer mindshare. Citi clearly recognizes this, keeping control of payments and delivering value while minimizing execution risk. I hope BAC and WFC will move in same direction, doing your own thing may satisfy the NIH folks.. but creating a bank owned service which can be used by any bank customer means that you will eventually need to integrate to POP money… at some point.

Debit Card in Peril?

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27 October 2010

The biggest story of the week has largely gone unreported. Bank of America (BAC) has taken a $10.3B goodwill impairment charge in 3Q.

The Merchant Payments Coalition responded to the impairment charge (reference above)

“With a Federal Reserve decision on debit interchange rates not expected until mid-2011, today’s claims by Bank of America dramatically overstate reality and represent a feeble attempt to divert attention from its mortgage foreclosure problems,” said Doug Kantor, counsel to the Merchants Payments Coalition.

In the 8-K, Bank of America said it plans to take (ref The Street)

 “a number of actions that would mitigate some of the impact when the laws and regulations become effective,” but it didn’t provide details about what those actions might be.

Will write more later, but I can assure you BAC is looking for debit alternatives. Given their size, most anticipate a new product driven from both their retail and global card team (including merchant services). So in addition to AT&T/Discover, we will now have another major bank led team developing a new payment product with a multi billion dollar incentive.

What does this mean for MA and Visa? Not good news for US growth.

Related Article

Mercury NewCo – Winners and Losers

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26 September

Previous Posts

Last week I found myself in NYC and was fortunate to meet with several payment leaders. Change is not something we see often in payments as it is historically known for its galacial pace. The most interesting topics centered around new investment and consolidation, with the rumored $500M capital commitment for ATT/Discover Mercury NewCo at the top of the list. I greatly appreciated the dialog, and this blog is a follow up to a few of the discussions. My view is that Mercury will be present a completely new payments value proposition that existing networks will have trouble competing against, with the revenue driver of mobile advertising. As stated in previous blog, mobile advertising may well exceed Google’s precedent set with online…. perhaps a completely different dynamic with established fortune 50 organizations leading the way in collaboration with old line Madison Ave Ad Agencies. The MNO payment strategy seems to be driven by a recognition that mobile advertising is key to future revenue growth, and payments is an outgrowth of this larger strategic plan (see previous blogs above). Why do I like Mercury’s prospects given the dim history of “change” in payments?

  • Enhances an existing value chain (mobile operators) that is well established with sufficient investment capital and patience (deep pockets)
  • Addresses a new market opportunity in a way that can deliver disruptive value to multiple stakeholders
  • Existing payment providers can not adapt. The great thing about networks are their resiliance. The negative is that they are also resiliant to change.. even when necessary
  • There is significant short term merchant pain in the card payments. Merchants have been in effective in influencing Interchange rates.
  • Consumer behavior is changing, and the pace at which adoption of new tools and technologies are “mainstream” are also accelerating.
  • Payments is an “infrastructure service” to every business and every country. Traditional banking is becoming decoupled from the business of payments in both mature and emerging markets.
  • …etc

Its hard to genericize the antagonist view of Mercury.. but the following are key points I frequently hear:

  • Consumers have tremendous card loyalty and will not use a different payment instrument just because it is available.
  • Discover is a failed network with over $2B invested in infrastructure
  • Existing cards can compete on rates. There is nothing that Discover (or Mercury NewCo) can offer which existing issuers can not compete with
  • Changing consumer behavior is unpredictable and takes tremendous marketing investment
  • Investment in POS infrastructure is expensive and time consuming
  • Merchants are happy with the existing payment networks, and will not spend additional money on marketing or interchange 

All are excellent points (with exception of merchant attitudes toward V/MA). Below I have laid out a scenario for NewCo success (some of which is based upon industry intelligence…). Following the scenario, there is an outline of the value propositions for the parties involved.

New Scenario 1 – Pre-Paid Card/Mobile Marketing (AT&T Example)

  • All AT&T customers are issued a pre-paid Discover card with $10 pre loaded
  • AT&T establishes incentives for use and incentives for user acceptance of mobile marketing agreement whereby personal data can be used to market you 10 times per month.
  • Customers accepting agreement also receive NFC MicroSD cards
  • Mercury commits to $200M in advertising spend to kick off program
  • Mercury establishes mobile advertising group in collaboration with major Madison Ave firms, goal of directing $2B in marketing spend by Year 2. Get back at Google (Own Mobile).. is motivation for Madison Ave firms.
  • Mercury establishes Merchant division in collaboration w/ Discover. Mercury will over all transactions at 50bps with minimum marketing spend and/or POS updates. Mercury will also provide marketing incentives/discounts for early adopters. Customer and campaign analytics will be key selling point. Mercury will also seek item detail in transactions.
  • Google makes investment in Mercury to serve as ad serving engine and direct existing spend. Agreement ensures that google does not have exclusive rights so that Madison Ave firms can work directly with large corporates.
  • Mercury/Discover develop common shared wallets and common marketing processes/standards that are used across MNOs (analogous to Apple iAD). Mercury retains directory of customers that have accepted disclosure and campaign engines bid for ad placement based upon demographics, analytics, and location.
  • Customer receives advertising via mobile. 4-8 Categories
  1. Brand level marketing
  2. Store discounts
  3. Product discounts
  4. Coupons
  5. Free Trials
  6. Cross sell/Upsell…
  • Incentives for card use drive merchant and consumer behavior. Durbin allows merchants to “direct” consumers to preferred payment methods. Discover is used for small purchases, and also acts as “decoupled debit” once history is established. Customers begin to think of Mercury card as new debit with benefits.

Process Flows – From GAO

 

 

NewCo Revenue Model – Year 1 (in Previous Post)

  • 85M subscribers (7M iPhone)
  • Year one penetration of 10% (8.5M or 60% of iPhone base),
  • Average purchase amount $40
  • Interchange 50bps

Revenue

  • Annual TPV = 50%(85M*10%*$40*5*12) = $10B  (note: 50% ramp up)
  • Transaction Revenue $50M
  • Digital Goods/Usage $50M
  • Retention                                    $50M
  • Ad Revenue $300M
  • Total Revenue $350M

Expense

  • Processing expense (30% of Rev, 100% ACH funding) – $15M
  • IT Build (one time) – $200M
  • Marketing spend – $200M
  • G&A – $80M
  • Total Expense – $495M

Value Proposition

Thoughts appreciated

– Tom

Mastercard/RIM: MoneySend for Blackberry

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Sept 9, 2010

Press release  – MasterCard launches MoneySend for BlackBerry

Just a quick note.. hope to write more later.

Most interesting is what (or rather who) is not mentioned here: Obopay.  It appears this solution has nothing to do with the folks in California. Having worked first hand with EComm Financial group (now defunct after the unfortunate loss of its founder Juegen Weber) it seems as if MA is investing in organic platforms for mobile. The original proposal that MA brought to RIM had no Obopay involvment at all, today’s announcement is likely a derivative of the original eComm proposal written by EComm and Art Kranzley..  Very good move by both RIM and MA.  This new mobile money platform by MasterCard has bank-bank, card-card,  and and bank to card.  My guess is that Citi is the bank behind some forms of payment.

One challenge for handset manufactures in payment is the “directory” and who owns it. The directory of e-mail, phone to account number.. RIM delivers a “unique” capability for this director in its PIN messaging service (for guaranteed delivery). I like this solution.. ! Not only is it guaranteed delivery, it is secure and global. RIM has a tremendous user demographic, lets see if they can capitalize. Perhaps a near term pilot will be tied to the Tyfone’s MicroSD NFC/MiFare device for payment at the POS.

Great Job MasterCard! Good to see you step away from the Obopay mess.

Visa/BAC in Mobile Pilot

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20 Aug 2010 (update Aug 23)

(update – Was just told that the BAC pilot is NOT using the Monitise application. Wow.. what on earth is going on with the Visa team? They have at least 5 different pilot models.. in a positive light this is market experimentation. I’ll take the blame for being premature, but given that I saw the new application and was told it was July I connected the dots… albeit incorrectly.  Bloomberg’s story above is on target and trial is a field test of the newly certified DeviceFidelity MicroSD.  Purpose is to ensure all works as planned from enrollment, activation, OTA provisioning, application usage and NFC payment ).

Visa has a number of initiatives surrounding mobile and NFC. Certainly a challenge to get multiple parties aligned to make this happen:

  • Monitise, provider of a new iPhone application
  • Device Fidelity, NFC tech provider which
  • Bank of America (pilot agreement, marketing plans, focus demographic)
  • Advertisers.. currently part of existing visa discount program
  • Apple.. certification of the Moni iPhone application (submitted in June)
  • First Data. Trusted Service Manager (TSM) in the NFC role…
  • … I could go on

This activity represents a major investment by the entire industry team.. ( given equity stakes perhaps Keiretsu is more appropriate).

More to come … this is just a quick update

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