Category Archives: mobile money

Obopay/Mastercard

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http://www.americanbanker.com/issues/175_107/mastercard-offers-cash-transfer-app-1020320-1.html

Am I the only one that thinks this is a little sad? Why would you roll out a service that can’t be used (no banks signed up for it)? Obopay has built an iPhone app for the Money Send service.. the only way to make it work is for both the sender and reciever to have a Bancorp pre-paid card.  They should have probably sit on this until they get a bank signed up.. ? Given that Obopay has MSB licenses in 48 states.. recievers could get notified, registered, link bank accounts and get cash 3-5 business days later after they validate bank account? sound convenient to you?

US Carriers Form New US Pre-Paid Venture

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May 31

Previous Post http://tomnoyes.wordpress.com/2010/03/15/att-visa-prepaid/

Mobile Ad start ups… watch out… the big fish are coming …

It seems as if AT&T has pulled together Verizon and T-Mobile to form a new venture to focus on pre-paid. The large US Card Issuers are now aware (and quite suprised) of the move . It is doubtful that this new US entity (NewCo) will reach as far as Canada’s Enstream in mobile platform collaboration, but the focus of this initiative is mobile payment (NFC and P2P) and mobile advertising.

MNOs see a “Google like” future in mobile advertising, as they attempt to monetize their tremendous customer knowledge. For those that have ever purchased online advertising, we know that the biggest challenge in justifying spend is to move beyond “cost per click” to cost per customer acquisition or purchase. This Ad-Purchase disconnect is particularly true when purchase is made in the physical world. Mobile has the potential to bring together these two worlds, but a “key” is needed. MNOs and Banks see this “key” as a a common payment instrument available  to all customers. NewCo is therefore planning to control (issue or manage) a common pre-paid card which will serve as this transaction key and give MNOs the remaining tool necessary to coordinate focused mobile advertising.

Given that NewCo doesn’t yet have the CEO in place there is probably much left open (with respect to business plan and services). At a minimum I believe they will act as issuer, and create common services to address mobile advertising and payment.

Message for VCs and Start-Ups:

  • Assess risk of current path vs. supporting this new “collaborative” MNO ecosystem.
  • Investments “tied” to this new ecosystem will have different risk profile, particularly in navigating more complex environment.
  • Mobile advertising “pure plays” which do not touch financial transaction will be at a significant disadvantage. Ecosystems are forming based upon: Platform, Service (ie search), Network, Payment Instrument and bank.
  • Adapt.. A “dynamic” strategy which will keep your IP “in play” is necessary.
  • Winners will have the right talent that can navigate with the “big fish” and the right BOD that can help you evolve your strategy.
  • Think Global. Ecosystems will likely evolve differently globally, particularly in Asia.
  • Using financial information for advertising will touch privacy and regulatory issues. Regulated entities (Banks, MNOs, Payment Networks) are best positioned to deal with these. However, large MNOs and Banks have poor track records in “innovation” and moving collectively.

In short, it remains to be seen whether MNOs will be able to take on role as “orchestrator” of mobile advertising, or just a provider of location, reputation, authentication and transaction services.  How MNOs monetize these services will be driven as much by their ability to execute as investor expectations and competing models.

Unbanked Success: Pakistan

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18 May 2010

http://corporate.visa.com/media-center/press-releases/press935.jsp

Always on the look out for a success story, I was fortunate to be introduced to Abrar Mir of UBL by the head of cards at a major UK bank. Abrar’s team has built a stellar product that has addressed key needs of the unbanked and more specifically internally displaced persons (IDPs) with applicability in other disaster relief scenarios.

Fortunately for Pakistan, they have developed the National Database and Registration Authority (NADRA). Since 2000, NADRA has registered over 96M Pakistanis. The ability to issue a national ID, with electronic verification, provides Pakistan with a unique infrastructure which supports KYC in advance of most other countries around the world.  From an emerging markets perspective, distribution and KYC are thorny issues for addressing the needs of the unbanked.

2 years ago Pakistani’s fled the Wazir regions due to conflict. Abrar and his team at UBL worked with the government to issue relief funds, via Visa Debit Cards, to persons displaced from this crisis. As refugees entered camp, they were documented (NADRA), issued National IDs, issued Visa Debit Cards and subsequently educated on how to use these cards through a class and video. Within the camp, stores kiosks and ATMs supported the Visa Debit infrastructure.

As “refugees” moved and assimilated into other areas.. there were issues with debit card acceptance. IDPs had no way of exchanging value on their Visa Debit cards. This is where Abrar and the UBL team stepped in to develop a superb application and innovative model based around agent card acceptance. UBL developed a mobile application which allowed local agents to accept cards and earn commission. This new UBL “Agent” network provided IDPs with ability to transfer funds, pay bills, “cash out” and other services. Agents have signed on with UBL in a structure similar to a “Visa merchant agreement” where they take not only the card, but validate it against the national ID. UBL working together w/ NADRA manage authorization (and fraud issues).

As a result of this effort other institutions (World Bank, World Food Program, USAid and Government of Pakistan) are looking at this as a model program for deployment around the world. The World Food program (along w/ NGOs and Governments) have solid data to support their move AWAY from physical distribution of goods to electronic distribution of funds. It should be noted that Pakistan (and other countries like India) are likely to develop their own internal payment network which would circumvent the costs associated with riding the Visa/MA rails (think Star, Interact, NPC).

UBL is likely to see expansion of card from 200k.. to 4M in next 6 months. The potential card growth in this model is tremendous. 50M in Pakistan alone over next 2 years. I found the UBL “Agent” mobile application very unique.. giving retail shops the ability to support/enhance their role in community by turning merchants’ phones into both POS terminals and terminals to sell/open new bank accounts. This UBL project has become a recent “case study” for Visa … although Visa neither supported or knew of UBL’s efforts until recently.

Key findings

  • UBL thought leadership. What a Stellar team can do in the right environment
  • National ID is a key element of serving unbanked and those in need
  • Business model. Bank led models to the unbanked can be successful, particularly in government (G2P) payments, with government partnership
  • Agents are keys to success for both banks and MNOs
  • Success is driven by people in the field with the contacts, knowledge and ability to execute. This entire model was built within Pakistan, by Pakistani’s.
  • Visa and MA should think about creating new rules and rates to serve unbanked.

MNOs – Will RBI Disintermediate Agents?

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12 May 2010

I’m just amazed at how groups that have the best interest of the rural poor in mind make life so difficult for those that are in a position to actually help. The bank regulations in India, with respect to mobile money, are particularly restrictive (Or perhaps I should say prohibitively restrictive). RBI is encouraging business models which are attempting to build agent distribution networks via business correspondents (ex Fino with 5,000 agents) and non bank financial companies (NBFCs). It would seem their goal is to disintermediate the MNO networks by giving certain agents the ability to represent the banking network AND MNOs. Note: For those unfamiliar with India, Agents are not employees of the MNOs and perform many other functions (sell many other services).

Two recent reports provide an excellent highlight of the challenges facing mobile money for the unbanked (MMU). The data here confirms that only MNO led initiatives stand a chance of succeeding, and even then at the margin:

The lack of profitability in “payments” is something that banks understand well. (See my previous post and History of Interchange). Payment instruments typically compete on: speed, convenience, cost, risk, reward, acceptance, settlement time… Recurring transactions between businesses and consumers in mature economies take place on very low cost ACH type networks. P2P transactions are historically cash based with costs borne by central treasury. Payment services, physical distribution, regulatory compliance, consumer support are direct costs to retail banking. By restricting all payments to banks (and their agents) this cost must be distributed throughout the value chain. In an MNO led model, this infrastructure largely exists already. 

Closed systems first

History has shown that closed networks form prior to open networks (in almost every circumstance) as closed networks are uniquely capable of managing end-end quality of service and pricing. This enables the single “network owner” to manage risk and investment. How can any company make investment in a network that does not exist, it cannot control, at a price consumers will not pay, with a group that can not make decisions or execute? Answer: Companies cannot, it is the domain of academics, governments,  NGOs and Philanthropic organizations.

The success of MPESA, GCASH, Octopus, .. clearly indicates that payments can be decoupled from banking, with sound consumer controls and fantastic consumer satisfaction.

From CGAP (on MPESA)

  • Users say it is faster (98%), more convenient (97%), and safer (98%) than alternatives
  • 4 out of 5 say not having it would have a “large negative impact” on their lives

As a pragmatist (and capitalist) I firmly believe that the best approach to serving the unbanked in India is supporting a model where at least one entity has an economic incentive to invest. As I have stated previously (see Mobile Money: MNOs will Rule in Emerging Markets and Mobile Money: Emerging Markets/Emerging Models) MNOs operating in closed systems appear to be best positioned for creating a sustainable value proposition to the unbanked in next 2-3 years.

Example

As described in the CGAP reference above, both Fino and Bharti have completed pilots with Eko and State Bank of India (SBI). CGAP’s latest research (Fino Agent Profitability) shows a drastically different agent revenue model for bank led mobile payments in India. From the article:

FINO agents in Karnataka offer no-frill bank accounts from the State Bank of India (SBI). Some agents also sell insurance products. The business case for agents is working, but just barely. The average monthly profit is USD 23.42, far below what we’ve seen with M-PESA (USD 130.26) and Brazil (USD 134.42). Last November, account opening was halted while SBI migrates account data to its own servers, and the average monthly profit dropped to USD 8.08

I would hope that Indian legislators take a pragmatic look at the mobile money regulation. It will be up to consumers (ie Voters) to demand that the structures are in place to support a sound and fertile market for payment services. The economic growth and poverty imperatives greatly outweigh the justifications for RBI’s current approach.

Unfortunate news for the rural poor and unbanked: You will face a chaos of offerings from banks, agents, pre-paid cards, NBFIs, MSBs … the brand that you trust (ex. Bharti) and can most effectively deliver service to you is restrained by your regulator. Question to RBI: what is your objective and who is your customer? Most will agree that consumers don’t want (or need) a traditional bank.

Good news for MNOs: Shackled from serving your customer, you can take some peace of mind knowing that there will be no successful mobile money until regulations adapt and to allow your organization to lead delivery of it. Build it in another country and don’t stop talking about it within India.

Message for NGOs/non-profits: Quit pumping money into trials, and start influencing legislators and the RBI. The REAL risk for India is not loss of control of payments/AML and M4 (money supply), it is constraining growth and pro-longing poverty.

Comments appreciated

Related Articles

  • CGAP on building Agent Networks
  • Nokia Presentation: India Recommendations
  • Times of India on RBI regulations
  • CGAP on MNOs incenting w/ Airtime
  • Fino Blog covering business correspondents
  • Inclusion on reaching the unbanked

    • Obopay in VentureBeat (update)

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    What a complete waste of $126M in invested capital. My response to VentureBeat article is a picture from CGAP

    Thats right.. 1000 customers in a Yes bank pilot.. that will make for a global total of .. 2000 !? I’ve also spoken to 3 of the major banks which hosted the Obopay team as they described their new services…. lets just say there will be few returned calls. In the US (retail banking side) The Clearing House and Cashedge already own this space, internationally it is Monitise (1M+ consumers). On the card side there are few attractive P2P models and card teams’ focus is therefore on POS. The problems that Obopay continues to face at banks:

    1. Branding payments Obopay
    2. Weak business case for P2P
    3. Technology is easy.. risk management and fraud ops is hard
    4. Card groups are focused on mobile at POS (NFC).
    5. Banks are not very fond of Visa or MA right now.. they feel that payments is their business (imagine that).

    The American Banker Article is spot on in Obopay’s continuing evolution. The “salmon swimming upstream” from the Citi pilot is complete rubbish (bankers ask them to give you names, references and volumes). It would seem that there is an organizational tendency to tell a story and how that story led to product design. Whether it was Carol’s trip to Africa, or the only US Bank pilot. The real story seems to be that they can’t find any traction with anything they do.  Now they plan to create ” a mobile platform” for banks. Looks like that space is “a little” crowded already (back to the future?).

    I would like to see Obopay take on a little more candor, they know their situation and will have a hard time finding customers while they blow smoke over their status, plans and platform. See Nokia’s India market evaluation here. Perhaps Obopay is launching the US services based upon the realization of the Nokia analysis…. there is no revenue in emerging markets.

    Why am I so hard on Obopay? Because this team is focused on the unbanked, a group that needs protecting. Obopay has received far too much attention (and capital) that could be allocated to successful ideas and teams.  As they shift their focus off of the unbanked world, I will be less inclined to criticize as the large banks have the resources to clear the obfuscatory fog that is generated by this amazing marketing machine called Obopay. My hope is that Nokia and Mastercard restructure Obopay’s few assets and create a new organization without the accumulated baggage, perhaps  into 2 entities : one focused on the unbanked in honest partnership with NGOs, and the other focused on Nokia’s handset/wallet.

    See CGAP Article http://www.cgap.org/gm/document-1.9.43424/CGAP_-_Building_viable_agent_networks_in_India.pdf

    http://tomnoyes.wordpress.com/2009/11/12/obopay-india-another-failure/

    Visa Ooops – PR screw up on new Device Fidelity iPhone App

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    Looks like their PR came out a little ahead of time.
    Device Fidelity is one of the premier MicroSD NFC players (other is Tyfone). Trying to beat Apple to market with their embedded NFC or enabling existing phones? My bet is that this one will have AT&Ts involvement.  MicroSD is a great form factor for NFC, issue is who will pay the $15-20 for it and who will certify? AT&T has the best chance to make this successful and subsidize.. in order to bear this cost, AT&T must drive either transaction revenue (create a pre-paid card) or a new advertising service.
    More to come

    Mobile Money – Navigating in the Fog

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    5 April 2010

    Great recap of CTIA session: http://bit.ly/bmOFQS

    Being an ex-Gartner guy I love to analyze the spin machine. What has been the return on the “mobile investment” made by established payment players (approx $500M in US/EU over last 2 years), or the $200M /yr that VCs (MobileMonday services estimate) have pumped in?

    As an investor or P&L owner… a look at the hard numbers of teams focused in this space over last 2-3 years would not drive you to bet aggressively on mobile payments. For example, QCOM’s 2009 10-k shows a 4 year old Firethorn unit running at $34M expense generating $3M in revenue (page F-29). This is a “successful” team that had contracts w/ Wachovia, Citi, Chase, USBank, …

    Obopay and Firethorn

    Citi is out of Obopay

    Mobile investment exceptions revolve around delivering short term value or supporting an existing value chain. Within the US, payment data would show that PayPal and the banks are the clear leaders here. Customer listening data shows that the average US consumer today does not view mobile as a separate channel, or a  separate product, but rather as a convenience which supports existing products and relationships. As my mobile head in HK said to me “what is so urgent that I must use my mobile and can’t wait to gain access to my computer”? There are times when all of us do have that urgency, but it is difficult to build a business case on irregular, sporadic use of mobile payment services. There are certainly “niche” needs, but few result in a profitable ‘stand alone’ business case (the banks are very adept at serving the market). It is far easier for banks (or existing players like paypal) to “extend” into the niche then for a new product to enter (the nature of network effects).

    Bank of America, Wells, and Chase have solid plans for supporting “mobile payment”. Rather then creating a separate organization, they have treated it as an extension of the existing customer experience (online or on the phone). As the payment head of one of the majors told me 2 months ago “what payment problem can I not address today with one of my current products”? This same “extension” approach is taken by AT&T and PayPal as well, extending existing products and services into a mobile experience.

    Within the US, as Obopay/MA, Firethorn, MPAYY and other mobile specialists struggle to keep 2,000 active users (I’m not missing any zeros) existing players are meeting their customers needs and making plans to expand services for a seamless “inter bank” experience.

    Similarly, outside the US,  MNOs are extending their existing value chain by adding payment services. All of this seems to prove the axiom that “payments” is a challenging “stand alone” business (perhaps a separate blog on this?).

    Beyond value chain extension, there are significant investment opportunities in infrastructure. Mastercard and Visa are very pragmatic here, investing in upgrading “rails”, rules, and “riders” which will drive increasing volume. An example of which we will see from Visa next month in a mobile marketing engine integrated with card use. “Payment innovation” history shows that adoption follows infrastructure 20 years after investment. Early adopters will be the consumers with the compelling need (or the trend setters).  For most US/EU businesses, being a “late follower” has limited downside as infrastructure is built and consumer behavior adapts, there is little risk in waiting.

    Within emerging markets, common payment infrastructure is required in linking all nodes of the network: Bank, MNO, Agent, Consumer, Merchant… This is a much more exciting space as consumers evolve from a model where they must travel 2 hours to reach an agent to pay a bill in cash. It would seem that investment will be driven by MNOs as they have developed an economic model which has adapted to serve these markets. MNO efforts will be driven internally and by vendors that already serve them today (example Roamware/Macalla).

    Comments appreciated.

    Related Post http://finventures.wordpress.com/2009/11/10/investors-guide-to-mobilemoney/

    Bumping payments? Paypal Bump

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    26 March 2010 (updated April 13)

    Excellent Video overview below (30 sec commercial)

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

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

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

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

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

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

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

    Great job Paypal.

    Citi “learns lessons” on Obopay

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    18 March 2010

    American Banker 18 March 2010

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

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

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

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

    Related posts

    ATT-Discover Prepaid

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    15 March 2010

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

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

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

    Answers

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

    Business Model

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

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

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

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

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

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

    Related Posts