Payments and Identity – UPI continues to lead the world

Short 4 page blog

I’ve written heavily on payments, trust networks and identity. Today I’m providing an example of how UPI, powered by UIDAI’s centralized identity,  is creating a new cannon for next-generation payment networks and trust.

I believe that mobile platforms are well placed to learn their lessons in India and create a new phone based network agnostic identity platform that will drive a significant change to payments, the internet and how we manage trust with counterparties.

You need to be logged in to view the rest of the content. Please . Not a Member? Join Us

Obopay Update – 4Q10 (update on 3Q)

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.

India: Instant Interbank Mobile Pmt Service

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.

Obopay in VentureBeat (update)

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

PayPal Shut Down in India

11 February 2010

NYTimes article from last night

India’s Central Bank Stops Some PayPal Services‎ – 

Simply put.. paypal has no license (See RBI list ) for Operating a Payment System in India under India’s Payment and Settlement Systems Act, 2007. The RBI published Annex I circular on November 27, 2009 (RBI/2009-01/ 236).

It Appears that RBI’s central issue is with PayPal’s role as an “unlicensed” Money Transfer Service. This issue is certainly not new to PayPal (see US Regulations – Online Payment/Transfer). As highlighted in the circular above:

All cross-border inward remittances under MTSS must be accompanied by accurate and meaningful remitter information (name, address and unique identification number of each remittance like, MTCN) on funds transfer and related messages that are sent and the information should remain with the transfer or related message through the payment chain. A unique reference number, as prevalent in the country concerned, must be included.”

Further, Paypal’s “agents must”:

Indian Agents should have effective risk-based procedures in place to identify cross-border inward remittances lacking complete remitter information. The lack of complete remitter information may be considered as a factor in assessing whether a cross-border inward remittance or related transactions are suspicious and whether they should be reported to the FIU-IND. The Indian Agent should also take up the matter with the Overseas Principal if a remittance is not accompanied by detailed information of the fund remitter.

Issue for PayPal is that its “agent” in this case is its commercial bank that initiaties the domestic ACH. My guess is that they are also in a bit of hot water for allowing this connectivity in light of the Nov 2009 circular (and subsequent inaction).

In order to resolve RBI’s issues, PayPal must:

  1. Obtain an MTS License (or a Payment System License)
  2. Renegotiate terms and services with its clearing bank(s) so that they will comply with “Indian agent” responsibilities above, namely PayPal must provide detailed information on remittance (above) to clearing bank and hold information in country so that bank can perform both AML sanction screening and other SAR reporting
  3. Put the detailed technology plan in place capture and send information to bank
  4. Review Plan with regulator
  5. Obtain regulatory approval on end state plan and request exception process for operating until final (end state) is in place

India’s regulators are some of the toughest on the planet. They expect that organizations read their guidelines.. “Better to ask forgiveness than permission” is a regulatory approach that probably works best before you are public company.

Note that PayPal’s “merchant” transactions (where an eBay buyer is paid) are not covered within the MTS regs above, unfortunately for PayPal it is difficult to screen these commercial transactions from other payments,  hence the broader impact in clearing both commercial “merchant” ebay payments and P2P/Remittances. 

My related Post

Cash Replacement

NACHA on Aggregation

SEC AML/Patriot Overview Regs

Obopay India – Another Failure?

November 12, 2009

I read this Journal article today and was very disappointed that marketing spin can now make its way into both academia and the WSJ. Serving the worlds poor and unbanked is something to take very seriously. One of the few areas where I personally make an impact is: directing investment to opportunities.. My attempt here is to cut through the obfuscation and provide , to those that are investing,  an accurate view of Obopay’s current state, and the challenges that lay ahead for those investing in this space.

It is a slippery slope for Academics (like WSJ Author) to start acting like marketing agents. This article is beyond obfuscation.. “Thanks to Obopay, millions of unbanked people in places like Africa and India are having access to financial services for the first time in their life.” I question whether there are more the 100k active Obopay customers globally. Obopay has no customers without a bank account today (credit/debit/ACH), therefore Obopay did nothing to provide this “access”. For example Obopay’s service requires you to enroll online.. nothing quite suited for the “unbanked”.

India is a fantastic emerging market, but Obopay’s success in this market (or any other) is highly questionable. Here are some factors influencing my view of Obopay.

  • Go on Obopay’s website and take a look at the backgrounds of their 8 top execs.. Very “limited” experience in banking, profile seems to be Bay Area software development, or having worked at a card network.  A Payments company should be attracting talent with that has run a payments business.  I doubt you will see this same exec team next year as the BOD makes some tough decisions based upon the progress of the company. (note that since this post they have updated.. thanks for listening.. )
  • Obopay Press releases.. many alliances and awards.. NO CUSTOMERS.
  • Obopay’s US experience. See
  • Obopay’s invested capital
  • India has some of the toughest regulators on the planet. Its most recent regulation (HERE) in August of this year prohibits non banks from participating in mobile P2P.
  • In India, similar to the US, Obopay is swimming upstream, where regulations require it to tie its products to a debit/credit card and each bank must authorize. For example, Citi only authorizes “send” not recieve.
  • Go to Obopay’s Indian website you will see  “future” services like top-up and bill pay because they are having to morph their strategy due to reg constraints (above).
  • Try to find “fees” for Obopay in India. You won’t find them separate from Yes bank (which goes to scale of use in India.. few customers, and Obopay can’t sell the service separate from a bank/MTO).
  • Unbanked. Grameen Solutions is a fantastic team serving the worlds poor, but their choice of partner in Obopay is not working out. Some of this “blame” could be shifted to the regulations (mentioned above), but the ecnomics of Obopay are just not working for this team. Take a look at Perhaps Obopay should morph into an NGO ?

Currently MNOs have the best chance of success serving the unbanked (MNOs will rule in emerging markets). Obopay is currently serving banked customers in India and there are many services that the banks currently offer that compete directly with Obopay. For example, in Citi India Citigold/NRI customers could instantly transfer funds to any Citi customer globally (at no charge).

India’s domestic banks also have similar services. Put yourself in the shoes of an Indian bank customer, why would you want to pay 1.5% + 100RS (estimate) for sending money when you could use cash or wait until you gain access to your computer?

Obopay started out as a “cash replacement play” where the sender pays, a model that has not worked well for them. They are continuing to morph their strategy to find a fit…. Banks and MNOs have several strategic advantages here, and will likely compete aggressively in any area in which Obopay attempts to “Brand” payments (to the detriment of existing products and services).  Cash replacement is a win-win area.. stepping beyond that will be challenging for a company whose top execs have no banking background.

For the unbanked, MNOs will be the industry group most likely to succeed as they are the only business that has developed a business model to sell and support unbanked (MNO/Bank partnerships and new regs).  See MNOs Rule in Emerging Markets

Other great Blogs

Mobile Money: MNOs will Rule in Emerging Markets

Updated Dec 15, 2009

Regulators in Africa and India are working actively to ensure consumers (and the global banking system) are protected in the exciting confluence of mobile and finance. Their involvement is completely appropriate given the opportunity to improve the lives of millions of unbanked people around the world. Defining responsibility and the commensurate controls associated with connecting non-traditional (unregulated) networks to highly regulated banks is a herculean effort which may lead emerging markets to remake a “payment system” that is more efficient than that which exists in today’s developed countries. This opportunity for “leap frog” improvements will be driven by the unique path emerging markets are evolving. Key stakeholders will be able to leverage learnings of developed countries, and trials in emerging markets, as they develop infrastructure necessary to support a network that enables both financial services and telecommunications.

Today’s regulatory approach, within these emerging markets, may be best summarized as an “experimental period” with simplified controls. Very early regulations have focused on simplicity by ensuring that the “value” stays within the MNO network, and limiting: balances, ticket size and beneficiaries. By constraining transfer of “value” to well defined  MNO services (ex top-ups) regulators have certainly addressed many risk, AML and audit issues. These early controls have provided time for regulators to review progress and fashion new regulations in which existing regulated entities can comment. This order, with which emerging economies are proceeding, may come as a shock to some in the developed world.

Many believe that this more cautious orderly approach in mobile payment was driven by the unstructured success of MPESA (links below). An estimated 10% of Kenya’s GDP currently passes through this channel.  Governments, banks and MNOs leveraged the learnings of the Kenyan market, first among them is: once a new payment system takes hold, it is hard to change. The alacrity with which MPESA was adopted by Kenyans has caused “a new awareness” among governments and business for both the opportunity to provide access, and the challenges faced in managing it. For regulators, there is a renewed sense urgency for defining the “rules” by which to protect consumers and hold participants accountable. Ex in India below

Vodaphone MPesa in India

Regulatory changes have significantly impacted many investments made to date, with the key example of Reserve Bank of India’s Aug 2009 regulation preventing non-banks from domestic money transfer (destroying Obopay’s P2P plans). Banks have created much friction for the expansion of “pilots” and their capabilities. The banks’ position is that once value is exchanged between network participants, or to another network, that these services compete directly with a regulated “payment system”. So we have a “dance” of 4 parties: Regulators, MNOs, Banks and Consumers. In my discussions, the regulatory approach may be generalized by the following:

A)    Experiment.  Set interim guidelines with expectations that they could be revoked/changed. Communications regulators are driving this approach as they try to assist their stakeholders. MPESA began because of Communication regulatory authorization… not KCB

B)    Review. Require submittal of plans to both communication and banking regulators.

C)    Establish. Legal/Regulatory accountability. Define responsibility and audit guidelines for responsible regulators. For example in Kenya their was very little consumer protections for electronic transactions, the Kenya’s electronic transactions act was just established this year and serves as a model for Africa.

D)    Define Audit responsibility for MNO. May force partnership with regulated bank for clearing and settlement. Set auditing guidelines for MNOs under communications regulations (Monitor/audit payments and transfers).

E)     Constrain. Set limits on MNO services and “value” allowed to accumulate in MNO “wallet”, …etc. Example RS 5000 in India, Prohibit/restrict any bank functions in MNO. ex, No interest bearing accounts.

F)     Isolate. Restrict payments connections external networks. Ex in Africa.. Commercial “beneficiaries/payees” must be approved over a certain volume threshold. (regulatory Instrumentalism). Note: MNOs have addressed this by shifting value to a “regulated” payment (ex. Pre-paid card) and partnerships.

G)    Enforce KYC responsibility for MNOs engaging in payments at Cash in/out points. Example retail partner is responsible for validating identity.

Business Model

It is difficult for established businesses to create effective business models “down market” from their current customer base (see Clayton Christensen – Innovators Dilemma). MNOs may be best positioned to execute, on the mobile money value proposition, given that the “unbanked market” is market that they serve much more effectively today (reputation/brand/service/efficiency), and the fact that “mobile money” is a key to sustaining their growth.  I cannot underestimate this point. For banks serving the unbanked represents a low margin (if not money loosing) value proposition for all of their current products. Similarly, payments are a profit neutral business for banks separate from the lending or commercial services which surround them. Bank product lines are typically not focused on accounts with balances of less the RS 5,000 ($100). In addition, existing Bank systems typically do manage millions of small ticket real time money transfers (think SEPA or Wire) with associated risk, authorization, and AML controls. This “gap” in serving emerging markets is prompting indigenous efforts (ex RBIs: RTGS, National Infrastructure for Mobile Payments, and India Card).

For MNOs in emerging markets, mobile money is aligned to their current business and in fact essential for growth. Allowing “cash in” and “transfer” enables customer usage  through pre-paid plans. For MNO consumers, access to money services provides ADDITIONAL value to their EXISTING MNO relationship (more on this later). MNO success in “mobile money” is assured because the service further enhances the EXISTING MNO business model, a model which the team and infrastructure to: market, sell and service the unbanked is established (and profitable).

The consumer value in mobile money stems from the macro economic transformation that exchange of value provides in moving from “informal” communication to money centered “business” communication. Payments and value may well evolve differently in emerging markets over the next 5 years as payments, telecommunication, regulation and new services establish a unique ecosystem that serves 1 Billion consumers never “connected” to the world’s economy. It is the combination of “network access” and “value access” that provides transformational opportunities to the world’s consumers. This market dynamic leads to transformational “leap frog” opportunities within emerging markets.

MNO Fragmentation

The principle challenge for MNOs to address is in emerging markets is: fragmentation. A large reason Vodafone was successful in Kenya was that they had 80% of share. Fragmentation of consumers in highly competitive mobile markets, combined with conflicting standards, technology and retail partnerships may cause consumer confusion. This chaos is anathema to the “trust” necessary to establish consumer confidence in payments and value storage. For example, in Nigeria can you pay your utility bill on any cell plan? Dominant MNOs will likely race to establish payment networks and partnerships, even in the constrained regulatory environment. Less dominant MNOs will likely look to regulators, standards, interoperability and other mechanisms to level the playing field. It is essential that MNOs get this right the first time, as “trust” is something earned over many years and quickly destroyed.

In emerging markets, MNOs may be best served by attacking “breadth” opportunities first. Very simple services that can have very broad impact, with very little assistance from external vendors may provide better support for immediate growth:

  • Nature of network effects are that you must deliver value to everyone on the network (whether a bank or an MNO). Successful networks must have established physical distribution points.
  • Objective in payments is to establish use and acceptance. Example, receive your pension… now establish a savings account, or send money to your grandson.
  • Trust.. Serviceability, manageability, and risk management in “simple services”.

For Bankers

As a banker myself, I never admit defeat in attacking a profitable market segment. Given that payments are not particularly attractive for banks (separate from the products and balances that support them), there are several strategic options (Beyond the scope of this post.. but which I would love to discuss). In general banks should maintain engagement with regulators and MNOs, and focus on providing services that protect their network and enable access to consumers. Examples:

  • Switching. Extending payment capabilities in existing accounts and networks. Switching between multiple MNO value stores
  • “Participating” on the mobile network. Micro lending through “supporting role”.
  • Risk Management.
  • Partner w/ large existing customers in their participation. Example, Pension/Payroll to mobile plans, or connecting to MNOs to business (retail lockbox on mobile)
  • Managing compliance. Example: Cash out

For Software Vendors (ISVs)

In emerging markets, I would expect to see rapid evolution constrained only by regulation. Expect to see very simple services that can have very broad impact, and support MNOs existing value. A key distribution point for these services are local agents. For those of you in the US, think of these agents as the local “country store” of 80 years ago, trusted members of the community that frequently extend informal credit. Banks in Kenya are just gained access to agents in distribution of their services in order to compete with Vodafone and ZAP.

Many of the “consumer facing” services will require very little assistance from external vendors until the networks mature and value is transfered beyond the MNO network. Example issues for vendors today:

  • MNOs have very solid SMS development skills. Look at MPESA, ZAP, GCASH.. who developed the software behind them? The MNO.
  • Simplicity lends itself to better risk management, a key for reinforcing the “integrity” of a new payment system. Solid risk management is even more pronounced in the face of new regulations.
  • CEO visibility with MNOs, Banks and Retailers. Paying a “US Vendor” for anything relating to a payment function is not likely. Citi mobile teams have built tremendous SMS applications in weeks (sorry Silicon Valley).
  • Government Visibility. In addition to CEOs, governments and regulators are highly involved in addressing the needs of their citizens, whether “unbanked” or “unphoned”. Regulators globally are looking to share learnings from Kenya, Philippines, India, … Banks expect between 600M-800M people will gain first time access to financial services over the next 8 years. A tremendous market, that will be served much differently then banks (and retailers/MNOs) have operated in the past.

This is not to say that ISVs have no role, but rather their role will be supportive of facilitating exchange of value… NOT leading with a brand (ex Obopay). Examples:

  • Government  pension distribution across multiple MNOs
  • Business connection to multiple MNOs payments
  • Businesses clearing settlement, AR integration and reporting
  • CRM solutions for customers, automated response
  • Assist MNOs, Banks and Businesses in compliance and reporting.
  • Bank connection to MNO networks. Ex: micro lending… receive your pension… now establish a savings account, or send money to your grandson.
  • ISVs should look at supporting services in connecting business to this new network.

Related articles