Category Archives: mobile money

Obopay Update – 4Q10 (update on 3Q)

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5 Oct 2010 (Updated 12/9)

For those that don’t read this blog often, I’m an Obopay cynic. A company that is the very definition of a hype machine (and I came from Oracle). The company has many awards, and very few customers (<20k see site analytics below) and only $3.8M in revenue as of Sept 2010 (no wonder the CFO left).

Why am I so cynical? They are focusing on emerging markets, and the rural poor.. a group than can ill afford to buy into vapor. Press release above shows them targeting US banks now. Good to see them change strategies. Three years ago they wanted to build a direct to consumer brand,  investing in money transfer licenses in all US states and alliance with MasterCard. Now they want to sell a new a “white label” P2P bank service?

Given their poor performance to date, MA is starting to step away from them as primary MoneySend platform (example is recent RIM announcement). Citi has also moved on from the limited Obopay pilot it launched in 2007, into a great new service delivered by Cashedge (POPMoney). The press release indicates quite a dramatic shift in the Obopay business model back to the US, with very little press relating to emerging markets (UPDATE NOKIA bought Obopay India). The bank shift may have been driven by cash burn as the $130M in invested capital is not enough to compete against the likes of Visa and AT&T in marketing a new consumer payment service. This strategy shift, and resulting financial implications, may have been a driver of Obopay’s CFO departure (never a good sign).  Message to Obopay.. you may want to update your management team page as Tyler’s name is still there.

With respect to a new “white label” strategy, there does seem to be thoughful expansion of their transaction network;  Obopay announced integration to both NYCE and STAR (allowing PINless debit) . This network structure follows in the footsteps of PayPal, and is not a bad strategy at all (if you are stuck to a card based money transfer paradigm).  Cards have many advantages in P2P use, top among them are the facilities for authorization and “instant” transfer. The word instant is in quotes here because authorization and posting of the transaction can be near real time, but settlement is up to the bank (1-2 days) and settlement network. The downside for Obopay’s card model is cost, particularly sensitive in a  sender pays model. Of course these initiatives will bring down transaction cost, but they neglect to address Obopay’s core issues: no consumer value and hence few transactions.

The problems with a bank White Label strategy is that they are late to this game with sales team not geared for banks. They have set themselves up for competition with vendors such as Cashedge, FIS and FISV who host bank infrastructure. Cashedge is the clear leader in mobile P2P here, with the recently launched Citi service and over 100 banks (including Wachovia, BB&T and Bank of America). Chase’s QuickPay is another example of a bank led mobile P2P initiative. As I told one of the major banks last week, the Obopay business case for P2P may look better (because of interchange), but the price is steep (consumer adoption, behavior change and limited use). In other words, there is no proof point for a card based P2P model, as demonstrated by Obopay’s adoption over the last 3 years.

Emerging Markets

Over the last 2 years, Obopay has been active in attempting to penetrate emerging markets (particularly India – See previous Blog on Obopay’s failure). India is a very tough business for any payment players. RBI is well known as one of the toughest regulators on the planet, Obopay (and local MNOs) have been hamstrung in pursuing any model that is NOT bank led. Their YES bank pilot shows the challenges of rolling out a solution that is bank led in a card model… all best described in this Nokia presentation. It would seem that Nokia is taking the lead from Obopay on India (UPDATE 12/9 Confirmed), as it is key to retaining their 60% handset market share. The Nokia team is stellar, and their leadership of India efforts will put them in a much better position to execute against complex alliance and regulatory issues. As a side note, I expect to see Nokia focus on a handset “wallet” (bank/MFI/BC agnostic) with Obopay as the “switch” to IMPS (see related blog) clearing and bill payment (perhaps a future blog on Obopay as the Checkfree/Cardlink of India?). Understand that a government pilot on this approach is under consideration.

Message to investors: make some big changes. You have lost the early lead, and your partners are running away. The risk in competing against the big networks and banks in P2P is not within your investment hypothesis. Banks do not need your core asset (money services licenses) and you do not have the right team to sell and service banks. Emerging markets have limited revenue prospects, and MNOs are capable of building mobile payments from scratch (ref MPESA). MasterCard is making alliances with teams that drive network (either customers or merchants) expect them to develop alternatives.

Visa Money Transfer

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22 November 2010 (updated 15 Dec, sorry for previous typos)

SUMMARY: VMT may by “Mandatory” but no one cares and is not acting on it.. As one bank told Visa “do you want my attorneys or yours to draw up the waiver”.

Correction (11 March) Chase and Bank of America are committing to it in next 6 months.

Visa Money Transfer Overview – Issuer presentation

I’ve been on the phone this month with several folks focusing on the unbanked and emerging markets. A clear theme has emerged: card based money transfer will not be successful except in very limited circumstances. This is true for both (pre-paid) cards tied to mobile phone plans and network initiatives (Visa Money Transfer, Mastercard Moneysend/Obopay).  Visa and Mastercard both have grand designs for taking part in the tremendous growth within emerging markets, but it looks like the growth will be at the top end (which is still substantial) rather than with the unbanked in areas like G2P payments.

In my previous blogs, I’ve certainly shared my views on Obopay/Mastercard. This blog focused a little attention on the Visa Money Transfer (VMT) service. In both the Mastercard MoneySend (MMS) and VMT models the networks own the switch of card/bin/mobile#/service provider/issuing bank. MasterCard’s MoneySend service attempted to focus Obopay in “mobile acquiring” of both senders AND beneficiaries (come pick up your money).  VMT’s AFT/OCT transaction set (see Patent)  attempted to bypass this “registration” intermediary and go directly to issuers.  Technically, the solution is excellent and the comments below are not meant to detract on Visa’s substantial lead on MA in developing this service. The problem with VMT is the business model. Unfortunately for Visa, global card issuers (particularly in OECD 20 countries) are taking a pass. The adoption challenges are particularly acute on Debit and within Western Europe (business case, conflicting services, pricing, fraud, customer support, agreements, Visa Europe and bank control… ).

VMT also suffers from 2 widely held misperceptions: it is “instant” and mandatory. With regard to the first item, just as with any debit transaction funds can “post” to the account but actual clearing and settlement is at best next day. It therefore remains up the each bank when to show the “post” and when to make funds available (within the Reg E guidelines it can be up to 2-3 days). With respect to VMT’s “mandatory” status, I’m surprised that this issue has not been picked up in the mainstream press. Visa has lost its ability to force issuers to do anything, particularly when a contract addendum is required. I can tell you with certainty that 4 out of 6 large US banks DO NOT plan to implement VMT on the debit side. These banks like being in control of their liabilities run off and payment channels. Visa has much better adoption prospects on credit side, but the “mandatory” date has slipped from Oct 2010 to something more “flexible”.

Retail Banks are very reluctant to provide Visa/MA an avenue for service and product growth that they neither own or control. Visa’s attempted to “force” issuer’s hand by making the AFT/OCT transaction set mandatory is rather amusing and makes for good theater (see Visa Money Transfer Overview – Issuer presentation). The “incentive” for issuing bank to accept new agreement is a $0.50/tran revenue share (beneficiary). Market data clearly shows lack of participation and hence Visa is attempting to adapt and shift focus of VMT to narrow market opportunities. I’ve listed three example efforts and probability of success (reaching $10B+ TPV).

1 – Large Bank (<10% probability of success)

Work with a large bank (like Bank of America) to lead adoption and create a critical mass with a focused value proposition (example: USBANK mobile phone/NFC).  We all understand the convenience strategy for the NFC/POS/Phone focus, but for P2P? If you are scratching your head, join the crowd. Why would banks outsource P2P payments to Visa? If Visa only gets 1-2 “a major banks” to join them, what will be the P2P proposition? I can just see the Visa commercial “with Visa Money Transfers, you can instantly transfer money to some other cards some times and funds will show up in 2 days”….

Beyond the issuer adoption issues, yhy would you pay $0.50 to send money to a domestic bank account when you could do it for free online? The problem here may be that the bank’s card team doesn’t talk to the retail team… Banks need to think strategically about this and stop Visa’s P2P efforts in their tracks. Card-Card transfers present consumers with a very confusing option and forsake the enormous bank investments in shared infrastructure (ACH, RTGS, Clearing House, Early Warning …).

Message for smaller banks.. Visa is NOT getting commitment from the majors to adopt this “mandatory” transaction set. The “Mandatory” Oct 2010 date has been pushed back to April (and will probably be pushed back again). To be clear, the credit side of the house loves the idea of VMT, the debit/deposit side does not. The “value” of VMT is on the Debit side. Can you imagine the customer experience of any solution using VMT.. it only works for 50% of the cards. Message to vendors: don’t build your solutions around VMT.

2 – Domestic Payments – Emerging Market (<10% )

Solve specific problem in emerging market (India domestic money movement). Few people realize that (within India) Western Union and MGI are licensed to receive only. They cannot transfer money within India. Hence banks like ICICI and HSBC are offering VMT. As noted in a previous blog, each bank may choose to act as either remitter and/or beneficiary. Citi for example allows VMT receive, but not send. The VMT service fills a small gap in India today, but this gap should recede as banks accommodate recent updates to NEFT/RTGS process . In fact only today, India’s RBI launched Instant Interbank Mobile Pmt Service. VMT’s consumer value proposition is built around gaps in bank services and requires bank (issuer) sponsorship.

With respect to VMT as a cross border money transfer service, Visa will have no trouble signing up beneficiary banks in emerging markets. What they lack is origination network (above). They will see some progress with mid tier banks in specific markets (MEA), as they extend thier role as cross border processor (from P2B to P2P). Enabling beneficiary banks to nudge out the MSBs. This is why RBI approved the VMT service in India.. it was good for banks and bad for MSBs.

3 – NON BANK partners (40%, if emphasis is on prepaid)

MoneyGram Example. Following in the theme above, Visa is a network business and the strategy of any network business is to increase volume. Given that issuing banks are not signing up for originating AFTs, Visa is moving aggressively to create partnerships with MSBs, post offices and other non-banks for “cash in” services. These non-banks can also sell pre-paid cards through additional partnerships. This is not a “bank friendly” strategy, but market focus seems to be non-banked.

If card based money transfer is not the future what is?

The answer really depends on what problem we are trying to solve. Remittances? POS? P2P?  In the unbanked world, interchange and sender pays does not work. Regulators will not let US based companies derive revenue from G2P payments to the rural poor. Visa has many assets to create a successful solution, specifically in its Monitise unit, but ACH payments do not provide a great business model for Visa (or its bank partners). Again reinforcing the axiom that retail payments is a very low margin business (in steady state). This is why MFI and MNO models present a better opportunity, payments supports the profitability of their existing business models to a segment of customers that they already serve.

Will Visa find growth in VMT? Absolutely, growth from 0 is always and easy achievement.

Will it be a $50M revenue business for them? Not that I see, neither in emerging markets nor in OECD 20. Visa’s 10+ innovation initiatives are a mystery and a nuisance to issuers, banks no longer want Visa to control and view P2P as an encroachment on their core deposit relationship. In emerging markets, the regulators will not let Visa succeed beyond the top end of the market (not the base of the pyramid). Since writing this, Visa announced that Indian regulators approved the VMT scheme for inbound remittances. There will be some success here, primarily with regional banks looking for a focused partner (UAE Bank looking toward India remittance service).

What should Visa do? Instead of attempting to develop customer facing services and brand (ie payclick, VMT, …) that compete with bank offerings, it should focus on expanding the capability of the network to handle additional data types (fraud info, POS items, coupon, location, …).  Make the rails more robust and new ecosystems will form to take advantage. Of course the downside of this approach is that it takes agreement of 4 parties to make this type of change, hence the change cycle is over 20 years. This is one of the reasons that new networks are forming which support new business flows and switch data to Visa only when necessary (business remittance/invoicing is excellent example, eCommerce another). This cycle further isolates the card networks, and drives innovation outside of the “card process”.

See August 2010 White Paper from US Federal Reserve

http://www.frbatlanta.org/documents/rprf/rprf_resources/wp_0810.pdf

Thoughts appreciated.

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.

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.

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

Previous Posts

Paypal at the POS?

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18 August 2010

Great WSJ Article Today – Paypal looks to real world commerce

First Draft…. final tomorrow.

As stated in my previous blogs about Apple, Bling, and the Mercury NewCo we are in the midst of a revolution in consumer payments, driven by large non banks, with new value propositions. For example, we see established organizations like AT&T, Verizon, and Discover collaborating (Mercury NewCo) with a payment value proposition driven by mobile advertising, Card networks attempting to develop PayPal killers (see Visa PayClick) and mobile handset manufactures attempting to create models for payments separate from banks (see Nokia and Apple NFC).

The worst kept secret in mobile payments today is: there aren’t any (except for MNO unbanked solutions). Efforts like Mastercard/Obopay have failed globally because they have focused on P2P (no existing volume). Alternatively, PayPal’s efforts are focused on the POS. Enabling any “merchant” to accept any card either at POS or virtually (see previous blog on PayPal’s virtual terminal). This approach is a win for banks (card acceptance), a win for consumers (convenience/loyalty), and a win for merchants (reduced merchant fees and interchange).

PayPal is best positioned of any major player to link the virtual and physical payment worlds (see here for detail): they have a consumer base, merchant base and a phenomenal fraud/risk team of 300+ with commensurate tech and ops. However their ability to execute is not without challenges. For example, what % of their current merchant base does POS transactions? Will there be a need for merchant terminals? If so who will pay? As discussed in the article above, Bling has been mentioned as a potential approach. Issuing Bling tags to PayPal’s employees is certainly a useful way of testing the consumer issues associated with issuing (and using) a payment tag.

My guess on PayPal’s “focus”?

Given PayPal’s strengths I would see a “phone as POS” approach as the most logical.  As consumers we focus on our individual accounts, but PayPal is one of the few “2 Party” payment networks (others are Discover, Amex) that also include merchant acquisition. 2 Party systems are uniquely positioned to control the costs and value proposition between the merchant and the consumer. One of the major NFC challenges is POS infrastructure: who will pay for it? The phone as POS would certainly address this Gordian Knot for small merchants. Small merchants are a group that also feels the most pain in interchange and card acceptance fees due to their lack of negotiating leverage. Oddly enough large banks seem to be supportive of PayPal’s efforts here with the view that their actions will help drive cash replacement. In other words, if PayPal’s innovation is indeed focused on NFC acquisition then they will be able to process all cards..

On the merchant side, PayPal has already completed much of the heavy lifting with its existing virtual terminal service. This service equips PayPal merchants with ability to accept any card at the POS (see Virtual Terminal blog). NFC or RFID form factors are just another abstraction for this card.  On the consumer side, I would expect to see PayPal working to link PayPal accounts to multiple form factors. Expect PayPal to make an acquisition in this space.

As of today, here is my view of the teams competing in mobile payments at POS

  • Mastercard/Citi/Obopay/Nokia
  • Visa/Monitise
  • Apple
  • AT&T/Verizon/Discover/?Google/First Data
  • PayPal/?

More to come tomorrow.

AT&T, Verizon in Mobile Money Newco w/ Discover and FirstData

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AT&T, Verizon, T-Mobile, .. create NewCo to deliver mobile payments w/ Discover

2 August 2010

In press today – Bloomberg Today – AT&T and Sprint to create prepaid venture

Previous Posts

Mainstream press has added a few additional details to what we outlined back in November. The biggest surprise to me is that Discover is the network partner (quite frankly I assumed it was Visa). Discover is an interesting partner, given its capabilities (issuer and acquirer) and reveals much about the mobile network operator (MNO) plans to bring a merchant friendly (lower interchange) strategy to market. It appears that First Data is in this alliance as well acting as the trusted service manager (TSM).  NewCo represents a major investment (rumors are that the major operators are investing north of $200M) and may start a new venture wave  in the valley as NewCo positions itself to be the “Google” of mobile advertising.

Don’t think about NewCo as a card business, think about this as the next Google and payments are the KEY that ties together the mobile, virtual and physical world. As I discussed in March:

Q: What will it mean when every AT&T subscriber receives a pre-paid Discover card with an NFC sticker?

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…

There are at least 3 major elements to this announcement which warrant further discussion, as impact on the venture and payment community will be significant:

–          NewCo business model: It’s all about marketing and control

–          Payments shift from banks, Visa, and MA

–          Mobile payment value proposition. Can NewCo make this work for consumers and merchants?

Business Model

The AT&T Universal card changed the credit card landscape in 1990. AT&T 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 Citibank’s portfolio.

As I wrote back in November, The US market is ripe for a break from the 6 party political “fur ball” that is hampering delivery of mobile payment (Card Issuers, Acquirers, Network, Merchant, MNOs, Handset Mfg). For those outside the US, MNOs have substantial control over handset features and applications, and have been leveraging this “node control” to “influence” direction of payments. The central US MNO argument being: “it is our customer, our handset, our network we should get a cut of the transaction rev”. Unfortunately existing inter-bank mobile transfers/ payments are settled through existing payment networks that provide limited flexibility in accommodating a “new” MNO role and the network rules leave much room for improvement in: authorization, authentication and consumer “control”. The Discover partnership would appear to offer NewCo the opportunity to define new rules, rates and incentives for consumers and merchants to participate.

The key to unlocking this new business model is not interchange, but creating a new market for mobile advertising, NewCo will be to mobile advertising what Google was to online. For example, rumors are NewCo is attempting to consolidate $1-5B+ in Madison Avenue marketing spend in first year (See consumer scenario here). The MNOs are brilliant! Their collaborative efforts here are a severe threat to both banks and established payment networks. Widespread adoption of NFC will revolutionize consumer payments and may result in the next boom cycle for silicone valley. Make no mistake, NewCo will be the leader of the next great ecosystem.

More tomorrow.

Emerging Markets: MMU Revenue Challenge

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4 June 2010

Subject: In this post I attempt to estimate “critical mass” financial numbers for a mobile money to the unbanked (MMU) service to be sustainable.

I’m a few weeks late in publishing this, it just slipped off my radar. Attended the GSMA Mobile Money Summit last month in Rio. Great people in attendance, although the event itself leaved much to be desired.  The MNOs had a focused set of meetings on the opening Monday covering “how to work with regulators” which is certainly a key to success. I was struck by the volume numbers in country pilots.. they are so small.

Safaricom released earnings at the beginning of the month. This data coupled with the data from the Mar 2010 Gates foundation report provides insight into the challenges faced by new payment mechanisms in other emerging markets. Market approaches will surely be tested as other countries attempt to replicate the MPESA success. It has taken 3 years, and some very unique market conditions, for Safaricom drive this service into profitability. 

Summary

  • MNOs must reach around 8M users (or around $300-500M per month GDV) to break even
  • Bill Payment is key to driving payment volume in emerging markets
  • Without a regulatory partnership everyone looses. Phillipines wins prize for best bank, MNO, regulatory partnership in the world.. if you want an example of success talk to Rizza at GCASH.

Safaricom Revenue Data

Safaricom Annual Report shows MPESA “Total Annual Revenue” of 7.56B KES ($93M USD, 9.48M users) for the year. Gross Volume is not published.. but there is other “anecedotal data” to give more color:

  • transferred a cumulative Sh405 billion since launch
  • US $320 million per month in person-to-person (P2P) transfers
  • US $650 million per month in cash deposits and withdrawal transactions at M-PESA stores (Gates foundation)
  • Average Sh1.8 billion a day ($670M per mo total). In Earnings release. (does not align w/ number above)
  • Grew from 5M to 9M users in 2009
  • Interest from $1B+ settlement funds is not included in either Vodafone nor Safaricom’s earnings. Understand there is agreement between CBK and other parties to use for infrastructure, education and microfinance.
  • Note: The Gates foundation numbers on P2P and Tran volume seem high.. I’ve never had them before

Calculation

  • Given growth of 100%, assume average 2010 (May-May) volume GDV of 320+650/2 = $485M USD
  • Monthly revenue of $93M/12 = $7.75
  • Take Rate = 7.75/485 = 160bps (seems about right)

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