Sunday, September 6, 2009

When selling shovels is more lucrative - Another look at Trusted Services Managers

It has been a year since I last wrote about TSMs (Sep 14 '08). As you might be aware, TSM is a third-party Trusted Service Manager. This organization would secure manage the card data in a mobile wallet on behalf of a card issuer. In some markets, a TSM is also referred to as a TTP (Trusted Third Party). Since the last I posted about TSMs, some water has flowed under the bridge.
  • No visible signs of progress in deployment of NFC in the US
  • Subtle changes in the go-to-market strategies of TSMs
  • Incumbents are showing their preferences for roles in the post-NFC world
I came across Carol Coye Benson's blog Getting the Garden Ready, in which she speaks with Barry McCarthy, President of Mobile Commerce Solutions for First Data. This conversation provides a glimpse of the changing landscape in the TSM space. When Carol talks about Getting the Garden Ready, I hope we are not talking about yet another walled garden. We seem to have enough of such gardens from telcos!

First Data's interest in being a TSM is understandable. They have been providing card issuing services to banks (to 1500 issuers), and would like to continue to have this business. Allowing a third party TSM (e.g., Venyon) to establish relationships with banks/issuers to provision credit cards to mobile wallets would limit the growth of First Data. For First Data, adding TSM capability provides them the ability to deliver cards thru' another channel. Finally, it does not make sense for First Data to contract out card management services on mobile wallets with a TSM (adds another layer of unsustainable overhead).

As you might already know, the industry has a role called Issuing Processor. First Data is an Issuing Processor. They provide issuing services on behalf of a Card Issuer (e.g., a small bank or Credit Union). Card Issuing services include embossing cards, shipping cards and PIN mailers to consumers, activating cards, being part of the [payment] transaction authorization chain... For these services, a Card Issuer (e.g., Credit Union) would pay a fee to the Issuing Processor (e.g, First Data).

The First Data case study provides a feel of where the TSM road is leading to. Each issuer [or issuing processor] (payment card, loyalty card, coupon) will try to provide TSM services themselves so that they protect the client relationships that they have. This implies that the mobile wallet would be managed by the telco/MNO [as a TSM]. There would be containers inside the mobile wallet which would be managed by issuers (payment, loyalty, transit, coupons...). Each of these issuers would be a TSM managing their containers / sub-wallets.

So, what happens to existing TSMs (e.g., Cassis, Venyon, Vivotech...) who have been participating in the many NFC field trials taking place around the world? These TSMs would try to morph themselves into software / platform vendors (the trend has started). Based on the TSM's relationships, they would sell their platform and professional services to the many issuers (telcos, banks, transit companies...) who need these TSM platforms.

This may actually be good news to existing TSMs. There may be more money in selling shovels than in prospecting for gold, i.e., there might be more money in selling TSM platforms than in being a TSM.

What are your thoughts?

Related Post: Does somebody have an edge?

Tuesday, September 1, 2009

P2P use cases will get NFC started in the US

I came across an interesting post by Celent on Mobile NFC. This report claims that cash displacement is the main motivation behind Mobile NFC deployment. The report claims that there will be an annual revenue increase of $1.83 per debit card for banks.

I agree that cash displacement is a major driver. For small-value transactions, e.g., at a fast-food restaurant or at a drug store, both the merchant and the consumer would like to get thru' the checkout lines quickly. Eliminating cash handling, doing away with signatures for payment card authorizations are definitely desirable.

If banks stand to make $1.83 per card per year from Mobile NFC, there is very little incentive for mobile operators to invest in NFC technology on handsets in the US. Payment cards, the purported killer app in mobile NFC, become marginal. Other apps on Mobile NFC, such as, Loyalty cards and coupons are stretch goals and would become difficult to fund.

Looking at Japan as a trendsetter, Lars (Mobikyo, Japan) had these insights to share:
  • Cash replacement is a major use case across a variety of locations, including quick-serve restaurants (QSRs), convenience stores, transit (trains, buses and taxis) and vending machines
  • Exchange of information is a major category: Smart posters providing coupons, receive and redeem coupons, tickets..., access information (to unlock a PC)...
These use cases have been the mantra of NFC practitioners the world over. What is daunting about these use cases is that the 'network' is a critical component, which makes NFC deployment a classic chicken-n-egg situation.

P2P (Peer-to-Peer) use cases may help break the NFC logjam in the US. For e.g., when I buy my fancy mobile phone with Bluetooth (obviously this is a 2005/6 scenario), all I need is my fancy Bluetooth headset to start using Bluetooth. I don't have to wait for the ecosystem to be enabled and up-n-running. This instant gratification is necessary for people to fork out their valuable money for new features/gizmos, and get the market going.

We need such P2P instant gratification use cases for Mobile NFC. Exchange of business cards is an example of P2P mobile NFC (if you recall, this use case was used during the early days of Bluetooth as well). However, these uses cases have to substantial (from a business model perspective, to justify OEMs/operators to invest in NFC).

What do you think will help get mobile NFC started in the US?