Monday, August 31, 2009

Impact of Nokia Money on India's mobile commerce landscape

In light of the announcement of Nokia Money, I would like to analyze this development in the context of mobile commerce in India.

Nokia Money is an attempt by the world's largest mobile phone vendor to deploy mobile commerce commercially. Before we dive deep into this post, let's have a quick background on this topic. Nokia invested $70 million in Obopay (analysis). Leveraging their investment in Obopay and the infrastructure that Obopay offers, Nokia brings Nokia Money to market. Also, you may recall that Obopay powers MasterCard Mobile MoneySend (link).

I suspect that Nokia Money will be available on every Nokia mobile phone. Considering that the mobile operator does not subsidize handsets (and consequently control mobile phone configuration) in India, Nokia will be able to take its mobile payment product to market directly.

Financial regulations are a critical piece of any mobile payments puzzle. It is no different in India. RBI, India's financial regulator, unvieled their policy on mobile payments (link). They allowed a fund transfer limit of INR5000 (approx $100) and a daily transaction limit (for goods and services) of INR 10,000 (approx $200). Considering that the biggest sector in India's ecommerce is Online Travel (over 2/3 of ecommerce market), the mobile commerce industry was up in arms claiming that these limits were too constraining [to buy air tickets?].

mChek is the leader in mobile payments in India. Airtel, India's largest mobile service provider, is mChek's first partner. mChek has been used for bill payments, charging airtime (mobile topup)... mChek crossed a million subscribers in January 2009 (link). Airtel SIM cards have mChek on its menu. Other Indian telcos are following this trend.

Obopay does not seem to have crossed the critical 1 Million subscriber mark (otherwise we would have heard about it, right?). By that measure, Obopay / Nokia Money is the challenger. Other service providers in this space include PayMate, ITZCash and NGPay.

A study (June '09) commissioned by Paymate and AC Nielsen estimates the mobile commerce market in India at 5 million users, and is primarily urban and male-centric.

Now that you are updated on history, let us look at the future. How does Nokia Money change the landscape of mobile payments in India? Is the entry of Nokia Money going to change the dynamics of mobile commerce and create a thriving marketplace for small payments (similar to what Nokia did for mobile phones in India)? Are operators better positioned to offer mobile payments?

Will this competition create confusion? For example, to an Airtel subscriber using a Nokia phone, there will be two mobile payment choices and the user can't differentiate the subtle differences between a phone offering and an operator offering. How will the message be packaged in such cases? Will Nokia Money choose to go rural and Aitel/mChek focuses on urban audience? For all the promise of mobile payments in emerging countries, 5 million users in a userbase of over 350 million is dismal.

Who and where will the mobile commerce battles be fought in India? What are your thoughts?

Thursday, August 20, 2009

Intuit joins the ACH-based flat-fee band wagon

Intuit has created an ACH-based payment network where merchants pay a flat fee of $0.50 per transaction (link). This is fast work on Intuit's part, coming less than 3 months since they acquired PayCycle for $170 million (link) Intuit, based on its Quickbooks franchise, has relationships with 3.7 million small businesses. The 170 million dollar question is, will this offering gain critical mass where we will see the Intuit bug in enough payment pages?

To contrast this offering, let us look at other similar offerings. NACHA's SVP charges a flat $0.745 per transaction for their transactions (link). There seems to be some transaction for this product at universities, with government agencies opting in as well. PayPal charges merchants a discount rate of approximately 3.9%, which is comparable to what Amazon and Google Checkout charge.

I was talking with a long-time industry insider, who sees the trend towards flat-fee based discount rates. Where do you think the industry is heading?

Monday, August 17, 2009

Card acceptance infrastructure in India: A perspective

I have been scouting Bangalore for innovations in the payments industry. Bangalore is as good a place as any in India to deploy new offerings. The economy is vibrant, consumers willing to try new things, retail space is hyper-competitive with enough investments coming in...

Let me first take a step back and frame the merchant payments space (to help provide context). Retail payments are characterized by:
  • It is customary to see a retailer have card acceptance devices from multiple acquirers. Depending on the card provided by the consumer for payment, the retailer decides to run the card thru' the acceptance device that provides him the most favorable terms (which typically results in an 'On-Us' transaction)
  • Though there are third-party acquirers (e.g., Venture Infotek), leading card issuers are also acquirers (e.g., ICICI, Citi, HDFC...)
  • Smaller retailers will charge a fee of about 2% (surcharge) for purchases paid using payment cards. Some of these retailers may also share their POS terminal. They will run the card transaction thru' the neighboring retailer's terminal!
  • Benefits of India's cash economy (by some estimates, about 50% of India's economy) handily overcomes cash-handling costs borne by the merchant
  • As multiple acceptance devices are the norm at retailers, deploying new payment products is not as much of a challenge as you do not have to displace incumbents.
  • Over 70% of sales are cash-based (based on my informal spot surveys; will update this blog when I am better figures and support links)
Quite a few of the high-end retailers accept chip-n-PIN (EMV) cards, though very few card issuers in India have deployed chip-n-PIN cards. This is primarily to cater to tourists and visiting Indian diaspora (high-end high-margin clientele). Indian card issuers seem to have bought time till 2011, by which time they are expected to have rolled out EMV cards. I am keeping my fingers crossed regarding this target date.

It was a pleasant surprise to see PayPass readers at retailers. However, the excitement was tempered after finding out that the deployments were part of a trial. I hope that commercial deployments follow (both by card issuers and acquirers).

[Updated Aug 20 '09] First Data is continuing to push into India, first with their relationship with Kotak Mahindra (link), and next with their association with Yes Bank (link). First Data also offers a payment gateway (Merchant Solutons), in association with Standard Chartered Bank.

While I started off the post talking about Bangalore, I would like it to end talking about Delhi. As you might be aware, Delhi is having a coming-out party of sorts next year. It is hosting the Commonwealth Games 2010. Watch out for unveiling of new payment products next year around this event.

If you are interested in following trends in the Indian Payments industry, this is the conference for you (Digital Payment Conference, Mumbai, Aug 21 2009)

Thursday, August 13, 2009

Apple of the smart card industry

In the early part of the decade, different categories of mobile devices emerged. These include, internet device, gaming device, music player, phone, camera, digital reader... There was a lot of debate then about the right direction to proceed. Can a single multi-purpose device adequately meet the diverse and specialized requirements of a category or a specialized device that does one thing well the way to go? Would a consumer prefer to carry a single device or multiple devices that does each thing well?

Companies in the CE space, such as Sony, went on to address this need by delivering a device for each of these categories. Sony has a gaming device (PSP), phone, music player (Walkman), camera (Cyber Shot), eBook Reader...

As each category matured, the requirements for each category stabilized enabling aggregating these categories into one device. iPhone is the current leader of a device that has managed to be many things to many people. Apple's success, though difficult to emulate, has been built on genius(!), vertical integration, active value-add ecosystem and a large group of vocal evangelists.

Samsung, Nintendo and Sony are quickly following suite to come up with their own variants.

Can Apple's success in converging CE devices be repeated in the smart card industry?

Over the years, multi-app multi-party smart cards have been discussed and promoted by the industry. For a variety of reasons, this model has not taken off. Each of us carry multiple smart cards in our wallets/purses. Not very different from a world where we carried multiple CE devices, that is, until Apple came along.

If so:
  • Who is the Apple in the smart cards industry to pull this off? Is it fair to say, similar to the Apple experience, a telco will not be able to pull this off? Would this be somebody outside the industry?
  • What is that critical out-of-the-box offering/configuration that will enable success this time around? Many have argued that payments should not be the first service as this requires to heavy a lift. Loyalty, though alluring, has been disappointing to-date. Transit has proven itself to be a killer-app in enabling behavioral change, but has seen limited success in anchoring a multi-tenancy service.
  • Is Barclays One Pulse card the seed of the new world? Would a One Pulse in the mobile be the beginnings of the new world?
  • Will we a successful model emerge from a new geo, such as, Turkey?
I am consciously not looking at the Far East market to provide the template which can be successfully replicated elsewhere (at the risk of being proved wrong). My interest is in understanding success factors affecting multi-tenancy smart cards in open / large markets. Successes till-date have been in areas where a large player, with a dominant position, has been able to pull the entire market along. In the US and Western Europe, a more collaborative approach might be necessary.

Look forward to hearing from you.