Category Archives: mobile money

Nokia Money/Obopay

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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..

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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.

P2P on Mobile – CashEdge POP Money

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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.

BlingNation Review – Updated 11/2

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Was on the phone w/ the CEO of Bling Nation recently. The company’s advisory board includes John Reed, a former chairman of Citibank and of the New York Stock Exchange and Jeff Stiefler, a former chairman of Digital Insight and a former president of American Express. I was very impressed with the focused value proposition and team they have put together.
 
Overview
Stick RFID tags on phones, establish NEW RAILS, NEW SWITCH and provide merchants POS terminals. Focus is “on us” payments within community banks.
 
Key items that should give Visa/MC and the big banks pause:
– NEW RAILS. They have direct integration w/ core deposit systems (think JackHenry)
– NEW SWITCH. They are the switch between DDA and POS, completely new Auth system
– REPLACE CASH.
– Consumer Adoption. They have 10 community bank pilots going on now. 25% of all DDA volume is going through them within 4 months. John Reed said “if this consumer behavior is true.. it would be the fastest consumer adoption [of a new Payment method] in banking”
– Value Prop is FOCUSED.
    Merchant:             Small merchants.. 50% reduction in interchange
    Community Bank: Replace Cash, Interchange revenue, customer retention (loyalty program), minimal
                               IT work for bank. Core deposit system “plug in”, hosted services
    Consumer.           Use your phone as a payment device, get rewards and account status. Keep your money with local banks
 
– USABILITY. Instant activation.. get the tag in the mail, call up your bank and give them the number
– Board of Advisors. John Reed is a visionary.. how often have you seen his name on anything? These guys will be successful
 
 
Challenges
– Private networks have typically faced regulatory and compliance scrutiny. How advanced are the operating rules and agreements? Think ACH return… 🙂
– Long term consumer adoption.. is it just a flash in the pan.. or could this be an enabler for repacing cash for “community POS” payments (thing barber and soda shop) and move upstream from community to micro payments.. Something like this help small banks take back customers from the big guys?
– Fraud. Fraud doesn’t attack a system until there is sufficient volume to warrant investment.  If Cash replacement focus, then system should be air tight as it will be tough to commit investigative services to $0.50 transactions.